More than $500m wasted on Philips ventilator contract, House report says

A Congressional report today accused the Trump administration of bungling plans to obtain ventilators early in the coronavirus pandemic and claimed that federal officials squandered more than $500 million in a contract with Philips (NYSE:PHG).

The House Subcommittee on Economic and Consumer Policy began an investigation in April into a federal contract with Philips to determine why the country lacked enough ventilators during the initial months of the coronavirus pandemic. According to the report:

• The Obama administration contracted with Philips in 2014 to supply the nation’s stockpile with 10,000 ventilators by June 2019. That administration later gave Philips an extension through October 2019.
• Philips delayed delivery through 2017 and 2018, and the Trump administration mismanaged Philips’ repeated failures to meet contractual requirements. It gave Philips three additional extensions, the last of which allowed for final delivery of the ventilators to be delayed until June 2021.
• On January 21, 2020, when the first coronavirus case was reported in the United States, Philips approached the Trump administration about accelerating the delivery of ventilators under its existing contract. The administration did not respond to Philips’ offer for 6 weeks.
• On March 11, 2020, the Trump administration agreed without question to another extension, removing all delivery deadlines until September 2022. Philips secured the extension by suggesting it would help move up delivery. The administration never asked Philips to produce more ventilators under the existing contract.
• Senior administration officials, including Trump assistant Peter Navarro, negotiated a new contract, agreeing to pay Philips almost five times the price for Trilogy EV300 ventilators than for the “functionally identical” Trilogy Evo Universal ventilators ordered under the previous contract. The administration accepted Philips’ first offer without trying to negotiate a lower price, paying $15,000 per ventilator while other purchasers paid as little as $9,327 per unit.

“The American people got ripped off, and Donald Trump and his team got taken to the cleaners,” said subcommittee chair Rep. Raja Krishnamoorthi (D-Ill.) in a statement. “The Trump administration’s mishandling of ventilator procurement for the nation’s stockpile cost the American people dearly during the worst public health crisis of our generation. Not only did the administration jeopardize the health and safety of the American people, but it squandered more than half-a-billion dollars that could have been used to better support our nation’s crisis response efforts. The results of this investigation lead me to question: how many other ways have the American people been unknowingly hurt by this Administration’s incompetence and ineptitude over the course of the pandemic and over the past three and a half years?”

The White House did not immediately respond to a request for comment. The subcommittee has demanded a refund from Philips. Philips said in a statement that it has contracts to deliver 10,000 Trilogy Universal ventilators and 43,000 EV300 ventilators to the U.S. Department of Health and Human Services (HHS).

The company said that it is on track with the production and delivery of the 43,000 EV300 hospital ventilators under the April 2020 contract with HHS. The list price of the specific bundle of the EV300 ventilator plus roll-stand and accessories, as selected by HHS, is over $21,000 and is being provided to the U.S. government for $15,000, the company said. The agreed-upon price reflects a discount, while taking into account part of the higher costs for the expedited delivery schedule, Philips added.

The 2014 stockpile contract that the company signed with HHS and the Biomedical Advanced Research and Development Authority (BARDA), “was chiefly a research and development contract,” the company said. Tied to this contract, BARDA requested a one-time purchase option for 10,000 of these units be included in the contract for a price considerably lower than commercial prices. Philips said it is producing and delivering this ventilator to HHS in line with the agreed delivery schedule.

“Philips is supporting healthcare providers in the U.S. and globally to combat the COVID-19 pandemic,” Royal Philips CEO Frans van Houten said in the company statement. “We have been transparent about our production ramp-up plans, pricing and allocation policies. We have cooperated and delivered the requested information to the subcommittee. We do not recognize the conclusions in the subcommittee’s report, and we believe that not all the information that we provided has been reflected in the report. I would like to make clear that at no occasion has Philips raised prices to benefit from the crisis situation. Philips is proud to make its contribution to combatting the pandemic through its acute patient care and diagnostic products.”

The company added that it is investing over $100 million in 2020 to boost production of acute-care products to diagnose, treat, manage and monitor COVID-19 patients. Since March, Philips has quadrupled its ventilator production, adding three production lines in the U.S. as well as hundreds of jobs, the company noted.