UPDATE: August 7, 2020:  The House Subcommittee on Economic and Consumer Policy on Thursday sent a letter to the Department of Health and Human Services' Office of Inspector General requesting that the IG immediately open an investigation into the $646 million ventilator procurement contract negotiated between Philips and HHS, following the panel's own probe which last week found the Trump administration mismanaged contract negotiations.

"The waste of taxpayer funds under this contract could be as much as $503,960,000, if HHS had purchased the same number and held Philips to the same price as the contract negotiated by the previous Administration," Rep. Raja Krishnamoorthi, D-Ill., chair of the subcommittee, wrote to acting IG Christi Grimm.   

Dive Brief:

• A House oversight subcommittee's investigation into an inadequate supply of ventilators in the U.S. at the start of the COVID-19 pandemic found the Trump administration mismanaged contract negotiations with Philips and overpaid for ventilators, wasting more than $500 million in taxpayer funds. 
• The July 31 staff report from the Democrat-led Subcommittee on Economic and Consumer Policy accuses senior administration officials of failing to hold Philips to delivery deadlines under an Obama-era contract and negotiating a new deal that paid the company nearly five times the price set under the previous agreement for nearly identical ventilators. 
• Philips, which cooperated with the panel's requests for information, denied raising prices to benefit from the COVID-19 crisis and said it is on track with scheduled production and delivery of ventilators. "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," Philips CEO Frans van Houten said in a press release.

Dive Insight:

The report, accusing the Trump administration of "inept contract management and incompetent negotiating" that kept the country in short supply of needed ventilators, follows a review of thousands of emails, invoices and other documents obtained from Philips following an April 15 request for information from the subcommittee.

Notably, Philips' original September 2014 contract with HHS called for the development and purchase of 10,000 ventilators for $3,280 per unit. Had Philips been held to a delivery deadline of November 2019 given by the Obama administration, those ventilators would have been available when the pandemic began, the report said.

Instead, the Trump administration granted Philips a series of extensions that ultimately delayed delivery until September 2022, and in a second contract struck in April agreed to pay Philips $15,000 each for 43,000 other ventilators similar to those in the initial order, the investigation found. The report maintains that no U.S. purchaser paid more than the federal government, with some small purchasers negotiating prices as low as $9,327 per ventilator.

The report contends funds the government overpaid to Philips could have been used to pay for needed personal protective equipment and medical supplies.

"The American people got ripped off, and Donald Trump and his team got taken to the cleaners," Rep. Raja Krishnamoorthi, D-Ill., chair of the Subcommittee on Economic and Consumer Policy, said in a statement.

Philips, in its response, said it has been transparent about its production ramp-up, pricing and allocation policies, investing more than $100 million this year in acute-care products for COVID-19 patients. The Dutch healthcare equipment maker also touted the fact that it has increased ventilator production fourfold since March.

Philips said the 43,000 EV300 hospital ventilators requested by HHS in its April contract in a bundle, including a roll-stand and accessories, have a list price of $21,000 and are being provided at a discounted price of $15,000. The 2014 contract to develop a stockpile ventilator was mainly a research and development agreement, and the 10,000 units were included for a price "considerably lower" than commercial rates, the company said.

Philips in late July reported sales in its connected care business that includes hospital ventilators rose 14% in the second quarter as the pandemic drove increased demand for respiratory and monitoring products. But total sales fell 6%, hurt by weakness in its diagnosis and treatment segment due to the postponement of elective procedures.

The company, which will receive a total of $647 million to supply its 43,000 ventilators to HHS by the end of the year, was one of the first to be awarded a major contract in April from the U.S. government for ventilator production. The other, General Motors, will get $489.4 million for 30,000 ventilators to be delivered by the end of August. HHS has also announced contracts with GE, Hillrom, Medtronic, ResMed, Vyaire, Hamilton and Zoll.