House Panel Says Gov't Overpaid $500M For Ventilators

By Daniel Wilson
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Law360 (July 31, 2020, 9:48 PM EDT) -- A House oversight panel on Friday slammed the Trump administration's alleged mismanagement of a COVID-19-related contract with Philips, saying the government paid more than any other U.S. buyer for the same ventilators, overspending by as much as $500 million.

Administration negotiators effectively ignored the option of using emergency authority to expand a contract with Philips North America Corp. for low-cost ventilators, and they poorly negotiated a different deal for a much higher-priced but functionally identical model, according to a staff report from the House Oversight Economic and Consumer Policy Subcommittee.

"The American people got ripped off, and [President] Donald Trump and his team got taken to the cleaners," subcommittee Chairman Raja Krishnamoorthi, D-Ill., said 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."

The subcommittee launched an investigation in April after the administration signed a new contract to buy 43,000 ventilators from Philips instead of invoking the Defense Production Act to direct the company to speed up and increase deliveries under an existing contract with the U.S. Department of Health and Human Services.

The earlier deal, reached in 2014 and meant to help stock the Strategic National Stockpile with 10,000 ventilators by November 2019, covered a relatively low-cost model developed in conjunction with HHS's Biomedical Advanced Research and Development Authority.

The low-cost Trilogy Evo Universal ventilators cost $3,820 each, while ventilators covered under the newer contract, the Trilogy EV300, cost $15,000 each, something Trump had said was because the administration chose "high-quality" ventilators over "inexpensive, less productive ventilators," even though the two models are functionally identical, according to the report.

Also, the administration's negotiators for the newer deal — including the director of the White House's Office of Trade and Manufacturing Policy Peter Navarro and Trump's senior advisor and son-in-law Jared Kushner — "appeared gullible and conceded to Philips on all significant matters, including price," the staff report said. They accepted Philips' first offer without negotiation, with professional contracting officers only called in at the end to formalize the deal, the subcommittee staff said.

"The waste of taxpayer funds caused by the Trump administration's incompetent procurement efforts for ventilators could be as much as $500 million or more," the subcommittee staff said, comparing the prices of the Evo Universal and EV300.

Even looking just at the EV300, no other American customer paid more than the government, according to Philips sales data obtained by the subcommittee. There were 92 other U.S. purchasers who collectively purchased 5,339 of those ventilators between December 2019 and May 2020, and a customer who purchased just a single unit, for example, was able to negotiate a price of $9,327, the report said.

There is also a third identical model, the Trilogy Evo — the EV300 is nominally intended for hospitals, the Evo for home care — which comes at a list price of $11,167, according to the report. 

"The only reason that Philips appears to charge different prices for identical ventilators appears to be the intended buyer," the report said.

The subcommittee staff noted that the new deal also came only after the administration had let Philips continually push back the deadline on the earlier Evo Universal deal, and 10,000 ventilators could have been on hand before the pandemic under the original November 2019 deadline. Delivery is now due by September 2022.

The report said Philips had taken advantage of the administration's "incompetence," enabling it to "secure a financial windfall to which it clearly is not entitled." It called for the administration to ask career contracting officers to work out if it can claw back any of that money. Krishnamoorthi also called on Philips to voluntarily return the "excess money."

But Frans van Houten, CEO of Philips North America's Dutch parent Royal Philips, disputed the report's findings, arguing that the company had been transparent with lawmakers and "believe that not all the information that we provided has been reflected in the report."

For example, the Evo Universal deal was intended "chiefly [as] a research and development contract" with a one-off purchase option requested by HHS. And the list price of the EV300 is more than $21,000, and the $15,000 charged to the government "reflects a discount, while taking into account part of the higher costs for the expedited delivery schedule," according to van Houten.

"I would like to make clear that at no occasion has Philips raised prices to benefit from the crisis situation," van Houten said. "Philips is proud to make its contribution to combating the pandemic through its acute patient care and diagnostic products."

Judd Deere, a White House spokesman, said in a statement Friday that the subcommittee report was "misleading and inaccurate" and "nothing more than a stunt that is only meant to politicize the coronavirus."

"Because of the president's leadership, the United States leads the world in the production and acquisition of ventilators," he said. "No American who needed a ventilator was denied one, and no American who needs a ventilator in the future will be denied one."

--Editing by Haylee Pearl.

For a reprint of this article, please contact reprints@law360.com.

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