Despite landmark financial penalties in the recent $3 billion GlaxoSmithKline settlement, some maintain that fines are not enough to discourage unethical behavior and malfeasance in corporate conduct. Rather, responsibility must be placed upon individuals in order to effect long-term change.

A recent New York Times article discusses individual criminal prosecution and barring pharmaceutical executives from taking part in Medicaid and Medicare programs as more effective means of reforming the industry. The article states that

"...to institute real change, executives must be prosecuted criminally or barred from participating in the Medicare and Medicaid programs, an action known as 'exclusion.'

This has occurred in only a handful of cases, and rarely in a case involving a major pharmaceutical company. In 2011, four executives of the medical device company Synthes were sentenced to less than a year in prison for conducting clinical trials that were not authorized by the Food and Drug Administration."

The GlaxoSmithKline settlement involves a “corporate integrity agreement,” which places emphasis on the role of individual company leaders in illegal activity and punishes their involvement. Part of this agreement is an “executive financial recoupment” program that calls for the withdrawal of bonuses and other financial incentives when executive and/or their employees are found guilty of participating in unethical or illegal behavior.

Phillips & Cohen attorney Erika Kelton, who represented two key whistleblowers in the Glaxo case, approves of this agreement as a step in the right direction. Kelton says that this “creates pressure and it creates an element of responsibility."

For more information on the role of whistleblowers in the GlaxoSmithKline settlement, please visit http://www.glaxowhistleblowers.com/.

European Commission to beef up regulation on tax evasion

The European Taxation and Customs Union is expanding efforts to crack down on tax evasion and fraud. The plan includes measures to assess the efficacy of regulatory bodies already in place, increase communication within the monitory network, Eurofisc, and implement standardized minimum penalties for tax related infractions, according to a recent memo released by the Commission.

The EU Taxation and Customs Union memo also noted that efforts should encourage tax compliance, though offered no specific strategy to do so.
  
EU member countries would benefit from adopting whistleblower programs that reward and protect whistleblowers, similar to those in the U.S.  The U.S. has four major whistleblower programs: one handled primarily by the Justice Department, and more recent ones with the Internal Revenue Service, the Securities and Exchange Commission and the Commodity Futures Trading Commission. These programs have been critical tools to fight tax fraud in the United States.    

IRS unable to collect payments from Medicaid providers who owe taxes

Despite owing approximately $791 million in unpaid federal taxes, about 7,000 health care providers in New York, Florida and Texas have collected millions of dollars in Medicaid reimbursements in the past two years, according to a report released this morning by the U.S. Government Accountability Office. Because Medicaid reimbursements are channeled through state programs, they are not considered federal money, and therefore cannot be levied (seized or stopped) by the IRS in order to off-set taxes owed to the federal government.

Under the American Recovery and Reinvestment Act, health care providers may apply for Medicaid funding whether or not they owe federal taxes. Critics recommend implementing stricter requirements for obtaining Medicaid funding from the government, while others claim that such restrictions might discourage upstanding providers from seeking participation in the program, according to the Washington Post.

The GAO report recommended the IRS review its policies for collecting taxes and find more efficient ways to obtain owed funds from Medicaid providers.

One of the most successful ways the government recovers money lost to fraud is through whistleblowers, who have helped the U.S. reclaim about $30 billion. However, the IRS has yet to take full advantage of its whistleblower program, according to attorney Erika Kelton, and would do well to explore the potential of that program.