Super Negotiator Trump Pays Four Times Contracted Price For Ventilators, Not One Penny Less
Back in 2014, the US Department of Health and Human Services signed a contract with Dutch electronics giant Philips to develop an inexpensive, easy to use ventilator that could be manufactured quickly and provided to hospitals for use during a possible pandemic. HHS paid Philips Respironics $13.8 million to develop the ventilator, which the health agency wanted for the Strategic National Stockpile. In July of 2019, the ventilator, called the "Trilogy Evo Universal," was approved by the FDA, and in September, HHS signed a contract for Philips to make 10,000 of the things for the low, low cost (seriously, that's very low!) of just $3,280 per unit.
(This is a totally different low-cost-ventilator deal than the one that was in the news a few weeks ago. That one was signed under Obama and was moving along nicely until a medical giant bought the company and asked to get out of the contract; it is suspected they bought the smaller company to keep it from undermining their own more expensive ventilators.)
But instead of filling up the stockpile with inexpensive ventilators, Philips dedicated its American factory, in Pennsylvania, to churning out pricier commercial versions of the Trilogy Evo, which it sold to American and overseas customers. Exactly zero Trilogy Evo Universals went into the stockpile, and the government didn't even demand delivery of the inexpensive models once the actual COVID-19 outbreak started to hit the USA.
But there's some excellent news this week, at least if you're Philips Respironics! HHS announced Wednesday that it's signed a new contract with Philips to buy 43,000 ventilators from the company. Not the inexpensive model developed at taxpayer expense, which has never gone into mass production, but instead the commercial variant, the Trilogy EV300, for which HHS will pay more than $15,000 each, at a total cost of $646.7 million.
Isn't America just the best?
The project to develop an inexpensive, easy to use ventilator that could be rolled out in a pandemic is detailed in this March 30 ProPublica story; the idea was to make sure the healthcare system wouldn't be caught off guard in the event of a huge outbreak of respiratory infections. Instead, it's turned out to be more of an exposé of the problems with the "public-private partnership" model of getting things done: The private outfit took the public money, developed the ventilator, and then took advantage of the terms of the agreement to roll out the commercial version instead, because it was far more profitable. And the public has so far gotten bupkis. Not quite bupkis — with this week's new contract, the public is now paying an assload more money for the commercial version it already paid to help develop.
Philips explains that since the contract for the basic, inexpensive ventilators allowed it to develop a commercial version, then that's perfectly fine. And besides, last fall's contract gives Philips until 2022 to deliver those simple ventilators for the stockpile, so the company will definitely hit that deadline, probably. (Not stated: Gosh, now that the new contract is supplying four times as many vents at four times the price, will the stockpile even need the cheap ones anymore?)
And besides, now that we're in the middle of a pandemic, it's more efficient to ramp up production of the pricey ventilators that Philips already has on the market, don't you see? Company spokesperson Steve Klink patiently explained in the earlier ProPublica story that the 2014 contract didn't cover all the company's development costs, so producing the spendy upgrade first just made more business sense:
Klink said the reason the company is not producing the stockpile ventilator is because it has not yet been mass-produced and would require time-consuming trial runs. In the current crisis, it's faster and more efficient to continue producing the versions it is already making, he said.
Asked if Philips could hand over its Trilogy Evo Universal design to another manufacturer, he argued that the fundamental constraint on production is not the company's assembly lines but its dependence on more than 100 smaller companies around the world that make the 650 parts needed for a hospital ventilator.
"We cannot sell a ventilator with only 649 parts," he said. "It needs to be the whole 650."
Mind you, he said all that before this week's contract for the upgraded, $15K model. Thank goodness, though, Philips doesn't seem to be worried at all about the parts supply chain for those.
HHS put some real effort into polishing this very expensive turd, stating it had ordered up
"what was immediately available" under "negotiated pricing" with Philips. President Donald Trump directed HHS Secretary Alex Azar to invoke the Defense Production Act in brokering the deal, the statement said.
The government still expects Philips to produce the 10,000 stockpile versions of the ventilator, but no completion date was given in the statement.
Isn't it swell that the Defense Production Act is being used to buy equipment at pretty much the full market price? Mind you, Team Trump could have used the DPA to mandate ramped-up production of the FDA-approved Trilogy Evo Universal months ago, but that would have been socialism. There's no indication anyone ever gave it a thought, even though the contract for 10,000 of the stockpile ventilators was already in place before the pandemic emerged.
Former HHS official Dr. Nicole Lurie, who headed the agency's "preparedness and response" efforts during the Obama administration, said the contract reeked of "profiteering." She noted that since the first 2,500 units won't be delivered until late May (and the rest by December) they'll be arriving too late to deal with the worst of the current pandemic.
"We'll then 'replenish' the stockpile at a ridiculously high price."
"What else," she asked, "won't we be able to buy as a result?"
Ah, but look on the bright side! If enough Republican governors rush into rescinding public health orders, and/or the coronavirus breaks out again during next fall's flu season, we might get a massive new wave of patients in respiratory distress, and won't they be lucky duckies?
Dr. Lurie's HHS office had pursued the 2014 deal with Philips not only to build up the stockpile following the SARS and H1N1 pandemics, but also to demonstrate to the industry that a good, low-cost ventilator was an option, and wouldn't that be great for the world? Unfortunately, it didn't turn out that way. For one thing, the Tea Party takeover of the House in 2010 led to huge budget cuts, which made building up the strategic stockpile harder. Keep that in mind next time you hear Donald Trump complaining that Barack Obama left him an empty stockpile. (You can also yell at Sen. Susan Collins's insistence on cutting funds for pandemic preparation, too.)
Now, with those inexpensive ventilators still nothing more than an FDA-approved prototype that may or may not ever get built, Lurie is disgusted. Obama's HHS had "a strategy to reduce health care costs," she said. But pfft, "fiscal responsibility" and the profit motive seem to have won out, and "This feels like a conspiracy to keep [costs] high."
Well of course. What are you, some kind of socialist?
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Doktor Zoom's real name is Marty Kelley, and he lives in the wilds of Boise, Idaho. He is not a medical doctor, but does have a real PhD in Rhetoric. You should definitely donate some money to this little mommyblog where he has finally found acceptance and cat pictures. He is on maternity leave until 2033. Here is his Twitter, also. His quest to avoid prolixity is not going so great.