FORT MYERS, Fla. - ColoradoDesk -- The American healthcare system is the most expensive in the world — and a secret scheme between providers and insurers may amount to massive tax evasion. At its core is the "negotiated fee," a term that disguises kickbacks. In truth, providers set the price, patients agree when billed, and insurers quietly pay less. The result: taxpayers are cheated, patients are exploited, providers add the cost of kickbacks to charges, and expenses continue to rise.
Cash vs. Accrual Accounting

There are two principal accounting methods:
- **Cash Method**: Income is reported only when money is actually received, and expenses are reported when paid.

- **Accrual Method**: Income is reported when it is earned (for example, when a bill is issued), and expenses are reported when incurred, even if no cash has changed hands. For income tax purposes, the Supreme Court has ruled that the amount listed on the patients' (customers') bills is the amount recognized for income tax purposes.

By law, including for tax and Social Security purposes, providers and insurance companies are required to use the accrual method of accounting. That means the full billed amount should be reported as income when the bill is issued, not just the reduced amount received later.

The Problem

Doctors and hospitals do not give discounts. Every patient is billed the full standard charge, and these bills are considered legal income. By law, providers and insurance companies must follow the accrual method of accounting, which requires reporting the full billed amount as income. Instead, many providers and insurance companies report as if they were on the cash method, only counting the reduced payments collected or paid.

Insurance companies exacerbate the problem by paying less than the billed amount, labeling the difference as an "adjustment." This is cancelled debt — also known as forgiven debt. Under the accrual method, forgiven debt is treated as income and must be reported, just like cash. Tax law is clear: for debt to be forgiven, there must first be a valid debt. In this case, the patient's bill creates the debt, which is then transferred to the insurance company and is supposed to be paid in full. When part of that debt is "adjusted" away, it is forgiven debt that must be reported as income.

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Both sides benefit. Providers reduce their tax bills by hiding income, while insurers use the higher billed charges — not the reduced payments — to justify raising customer premiums. This arrangement also crosses legal lines: U.S. law prohibits providers from paying any person or entity to steer patients to them, and such payments are taxable even if the provider is a not-for-profit corporation.

Because patient bills are sealed under HIPAA and provider–insurer contracts are considered "trade secrets," neither the IRS nor the public can see the gap between what was billed and what was actually collected. This lack of transparency keeps society and law enforcement unaware, allowing kickbacks to thrive and the scheme to continue undetected, even though each patient is just one among thousands.

How the Kickback Scheme Works

1. Insurance companies select providers who agree to the most significant 'write-offs' of patients' bills.
2. The provider issues a bill at the full legal charge, creating a debt owed by the patient.
3. The insurer pays less than the full amount, disguising the shortfall as a 'contractual adjustment.'
4. Both provider and insurer report only the reduced payment to the IRS, not the full legal income.

At the same time, insurers pass through the medical costs they do pay, but use the inflated billed amounts when negotiating premiums. That means patients and employers pay higher premiums, while insurers and providers quietly share the benefit of hidden write-offs.
What Every American Can Do

If your medical bill or Explanation of Benefits (EOB) shows an 'adjustment' or reduced payment, you are holding evidence of a potential tax violation. Remember, you may be just one patient among thousands, and every report helps build the case. Submitting a report is confidential. The IRS will review the documents and decide whether an audit is needed. The more reports they receive, the more likely the industry is to face complete audits.

Here's how you can act:

• **Contact Your Local IRS Office** — Ask for a Criminal Investigation Agent and provide copies of your bill or EOB.
• **Report Tax Evasion via IRS Form 3949-A** — Available at www.IRS.gov. Mail the completed form and documents to:
  Internal Revenue Service
  
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  Fresno, CA 93888-0025
• **File IRS Form 211 (Whistleblower Award Claim)** — Available at www.IRS.gov -- List both the provider and the insurance company, attach documents, and send to:
  Internal Revenue Service
  Whistleblower Office – ICE
  1973 N. Rulon White Blvd.
  M/S 4110
  Ogden, UT 84404

Note: Form 211 is signed under penalty of perjury. Submit only what you truthfully believe to be evidence. All documents sent to the IRS are confidential, and your identity is protected; your name will not be disclosed.

Why This Matters

The IRS is the only federal agency with the expertise to investigate this nationwide scheme. If left unchecked, billions of dollars in taxable revenue will remain uncollected, shifting a heavier tax burden onto ordinary Americans. The illegal kickback system, where providers pay insurance companies to steer patients, is a restriction of trade that eliminates competition and drives up healthcare costs. Exposing and ending this practice is essential to restoring fairness, accountability, and integrity in both our healthcare and tax systems.

Call to the Press and the Public

The press has a duty to bring this issue to light, but lasting change depends on the actions of citizens. Every American has a role to play in breaking the grip that providers and insurance companies hold over our healthcare system. Start by checking your medical bills and Explanation of Benefits (EOB) forms. If you see "adjustments" or reduced payments, make copies — they may be evidence of abuse. Share this information, report it to the IRS, and speak out so others understand what is happening. Only through public awareness, reporting, and collective action can this scheme be exposed and brought to a halt. This system cannot be fixed without your help.

About the Author:
Roy J. Meidinger is a crusader for healthcare reform, a dedicated author, and a whistleblower with decades of experience studying the U.S. healthcare industry. In his latest book, Economic Liberation, he details his findings on how the United States can save three trillion dollars in healthcare costs, expand coverage to all citizens, and eliminate employer healthcare expenses. Meidinger continues to write and speak on healthcare reform, economic justice, and tax fairness, making his work a must-read for anyone seeking real solutions to America's healthcare crisis.