A report by the Government Accountability Office (GAO), a federal watchdog agency, found that more than 27,000 Medicare health care providers including hospitals, nursing homes and doctors owe the federal government more than $2 billion in payroll and other taxes.

Medicare is a federal insurance program (one of the nation’s largest-insurance program) dealing with the elderly and the disabled.

The report was made at the request of Sens. Carl M. Levin (D-Mich.) and Norm Coleman (R-Minn.), the chairman and ranking Republican, respectively, of the Government Affairs subcommittee on investigations.

The report examined 436,000 Medicare providers who received government payments in 2006. Shockingly, six percent of them (27,000) owed money, which, in some cases were used to buy luxury cars and million-dollar homes, instead of paying federal taxes. Overall, they owed $896 million in payroll taxes and $581 million in individual income taxes.

Coleman and Levin both released statements underlining the fact these health care providers “have a special obligation to pay they taxes,” (Levin) and not “subverting the tax system to line pockets,” (Coleman).

Following the report’s disturbing findings, the GAO urges the Centers for Medicare and Medicaid Services to adopt the Federal Payment Levy Program, which allows the Internal Revenue Service to withhold all payments to providers who owe taxes until their debt is paid. If Medicare had used the levy system, it would have collected more than $140 million in unpaid taxes, the GAO estimates.

As a response to the GAO’s request, acting CMS Administrator Kerry Weems said in a letter CMS will begin to subject 60 percent of Medicare fee-for-service payments to IRS for tax delinquencies in October. Also, the CMS will exchange Medicare payment information with the Treasury Department every day to clarify this situation.