Reprinted with permission from ProPublica
The federal government is backing out of a controversial $646.7 million deal to buy ventilators from Royal Philips N.V., acting before the company had delivered a third of the order.
The deal has been the focus of several ProPublica stories since March. That reporting prompted a congressional investigation that last month found “evidence of fraud, waste and abuse" in the acquisition of the Philips ventilators.
This week, the House Committee on Oversight and Reform's Subcommittee on Economic and Consumer Policy announced it is expanding its probe to look at other coronavirus-related deals negotiated by Peter Navarro, the president's trade adviser, who served as the point man on the Philips deal.
In addition, the U.S. Department of Health and Human Services, which oversaw the Philips contract, confirmed that the deal is the subject of an internal investigation and legal review.
“It was ProPublica's reporting that got my subcommittee interested in this contract," Rep. Raja Krishnamoorthi, the Illinois Democrat who chairs the subcommittee, said in a statement. “It prompted our investigation where we uncovered unfathomably inept dealmaking by top Administration officials like Peter Navarro."
Navarro did not respond to a request for comment. But Sarah Matthews, a White House spokeswoman, defended Navarro on Tuesday, saying he has “played a vital role in our response" to the pandemic, helping to oversee the use of a federal act that compelled production of critical supplies and created “thousands of jobs in the process."
“While the Trump Administration has been focused on saving lives, House Democrats continue to focus on pointless investigations," she wrote.
Philips, a Dutch company, announced Monday that its U.S. factories had stopped making the ventilators covered by the contract after receiving an early termination notice from HHS. Philips has delivered 12,300 ventilators, less than a third of the 43,000 the federal government had originally sought.
The congressional investigation determined that the deal would have resulted in the U.S. overpaying for the ventilators by as much as $500 million, thanks to “inept contract management and incompetent negotiating by the Trump Administration."
ProPublica first wrote about the U.S. government's relationship with Philips in March, detailing how a decade ago government planners had paid Philips millions of dollars to develop a low-cost ventilator that could be stockpiled and deployed if ever there were a pandemic. The U.S. ordered 10,000 once the company received clearance from the Food and Drug Administration.
But when COVID-19 cases overwhelmed hospitals in New York in the spring, Philips hadn't delivered any. Instead, ProPublica found, Philips was selling a commercial version of that ventilator — manufactured at its Pennsylvania factory — overseas at far higher prices.
Rather than force production of low-cost ventilators, a White House team led by Navarro cut a new deal for more ventilators, agreeing to pay more than four times the price.
ProPublica in April revealed that this new deal boosted the price of what appeared to be similar ventilators from $3,280 each under the Obama administration deal to $15,000 under the Trump administration. Neither Philips nor HHS would explain how the two models were different.
In its investigation of the deal, the House subcommittee asked Philips to turn over a trove of records and discovered that the more expensive ventilators were “functionally identical" to the cheaper ones.
Navarro and his team “appeared gullible" and there was no evidence that they even tried to negotiate a lower price, the House investigators found.
The U.S. government paid the highest price for the ventilators among American buyers, the investigators found. The company's records show that Philips had sold more than 5,000 of that model at far lower prices before May 27.
Philips CEO Frans van Houten said earlier this summer that his company did not raise prices to cash in on the coronavirus crisis and did not agree with the conclusions of the congressional investigators.
This week a Philips spokesman said that the list price of the ventilator was $21,000 and that the negotiated price of $15,000 reflected the “higher costs for the expedited delivery schedule."
“While we are disappointed in light of these vast efforts, we will adjust our plans and work with HHS to effectuate the partial termination of this contract," van Houten said in a written statement Monday.
It's not clear how much the deal will ultimately cost taxpayers. Philips, HHS and the White House all declined to say whether the company would be paid an early termination fee.
Stephanie Bialek, a spokeswoman for the HHS office in charge of the Strategic National Stockpile, said in a statement that the government has 120,000 ventilators available and didn't face any shortages. She said her agency had also terminated two other smaller ventilator deals early as it balanced “federal stockpile requirements with commercial market demand for ventilators."
“As a result, HHS is saving the U.S. taxpayer millions of dollars by halting delivery of additional ventilators that are no longer required," Bialek wrote.
Separately, the HHS Office of Inspector General announced in July that it was auditing the five largest ventilator contracts to determine whether the awarding and monitoring of the contracts complied with federal requirements and HHS policies.
As for the 10,000 low-cost ventilators the U.S. ordered for the stockpile years ago, they will arrive eventually. Philips spokesman Steve Klink said the company still planned to deliver them by September 2022, when they are due.