The "Stealth" Issue in e-Business

December 8, 2001 1:49 PM

The "Stealth" Issue in e-Business KMPG is advising pharmaceutical companies to move the e-commerce offshore.. " With high margins on limited blockbuster products, pharmaceutical companies have long focused on the need to retain those profits through tax planning. Corporate income tax rates in the principal markets of the US, Western Europe and Japan range from 35 percent to 45 percent and higher, thereby posing a risk of draining a substantial portion of the margins from a pharmaceutical company. By structuring operations to focus key activities or assets in low tax jurisdictions such as Ireland, Puerto Rico and Singapore, a company's overall effective tax rate can be reduced. " This may be related to their billing department practices KPMG PEAT MARWICK TO PAY THE UNITED STATES OVER $9 MILLION FOR PREPARING FRAUDULENT MEDICARE & MEDICAID COST REPORTS
posted by headlemur (4 comments total)

that second link
posted by rebeccablood at 1:51 PM on December 8, 2001

I assume the bit in caps is for my own good?

Ahh... so it is. As you were.
posted by holloway at 3:00 PM on December 8, 2001

Did you ask KPMG if you could link to them *and* file a linking agreement with their legal department before you posted this? ^_-
posted by SenshiNeko at 3:19 PM on December 8, 2001

Why do you think this is related to their billing practices? They're advising off-shore locations for tax advantages. Many companies in other non-health care businesses locate in places like Ireland and Singapore for the same reason. In the case of Puerto Rico in particular, the tax advantage exists by the will of the US Government, expressly for the purpose of luring businesses and employment opportunities there.

I'm in health care. Let me rant for a moment about those 'fraudulent' billing practices. This is not the virtuous US Justice Department vs. the Evil Medicare Defrauders. This might be the Grandstanding and Vindictive Justice Department vs. the Blindsided Health Care Industry.

In the mid-90's, the US Justice Department began enforcing Medicare billing guidelines that had existed since the late 1960's, but had never been enforced, and that everyone in the health care industry thought were a dead letter. Or perhaps 'interpreting the billing guidelines differently' might be a better description of what they were doing. For the University of California's take on this, read here. The Justice Department's OIG went around the country, shaking down teaching hospitals for tens of millions of dollars each, and boasting in their press releases that they were rooting out 'Medicare fraud'. Bullfeathers. 'Changing the rules in the middle of the game' is what they were doing.

I don't know their motivation for this. Attorneys General like publicity, politicians always love to attack 'waste, fraud and abuse'. The cynical might think it was payback by the Clinton administration for the health care industry having successfully beaten back the attempted government takeover of the industry by HillaryCare.

I can't tell from the Justice Department press release link whether it was this sweep that KPMG got burned by, but given the time frame, my guess is that it was, or some similar effort.

In any event, non-health care folks out there should realize that much health care billing today is not a black or white issue. The billing regulations and guidelines are horribly complex, and 'correct' billing is a matter of opinion and spin. Every provider and institution tries to maximize billing revenues within the letter of the law, every payor tries to minimize them. If the OIG disagrees, it characterizes the position of the doctor or hospital as 'fraud'. Usually, it isn't, it's an honest difference of opinion in the interpretation of complex and ambiguous regulations.

Yeah, I'm bitter. I hold no brief for KPMG (and certainly not for their linking policies), and I don't know the details of their particular run-in with the Justice Department. But from what I know of the Justice Department's other activities in this area, and its carelessness in using the word 'fraudulent', I'm not going to be quick to condemn KPMG.
posted by Slithy_Tove at 9:46 PM on December 8, 2001