Medtronic cooperating with federal investigation into ventilator competition

Federal investigators have subpoenaed information from medical device maker Medtronic in a probe into why private companies failed to provide low-cost mechanical ventilators for patients suffering from severe respiratory conditions, including COVID-19.

The Justice Department has sent a civil subpoena to Medtronic asking whether a 2012 acquisition of California-based Newport Medical Instruments by Covidien hindered competition in the market for the lifesaving devices. The Wall Street Journal first reported the story Thursday.

Medtronic, which is run from offices in Minnesota, received the subpoena because it acquired Covidien in a $50 billion deal in 2015. Medtronic spokesman Ben Petok said only the Covidien-Newport deal is under scrutiny.

"Medtronic is cooperating fully with DOJ's review of the 2012 Covidien-Newport transaction," Petok said in an e-mailed statement.

Severe COVID-19 can cause a person's oxygen levels to fall as lung tissues become inflamed and fluid starts to block off air sacs deep inside them.

A ventilator is one of the most invasive forms of treatment used in the intensive-care unit to increase oxygen saturation in a patient's blood. Unlike a nasal cannula, a ventilator typically requires a breathing tube or tracheostomy through the neck.

The New York Times reported in March that viral respiratory disease outbreaks in the early 2000s persuaded federal officials that they needed a reliable supply of low-cost ventilators. The devices inject oxygen and remove carbon dioxide from patients whose lungs are weakened by illnesses like SARS, MERS and H1N1.

Newport Medical received a federal contract in 2010 to design and build ventilators priced at $3,000 for the federal stockpile. Two years later, the company was acquired by Covidien, which had its own line of ventilators.

Covidien paid $108 million to acquire Newport after a fast-track antitrust review from the Federal Trade Commission.

According to a March 2020 statement from Medtronic, management at Covidien decided the low-cost Newport ventilators could not be built: "They were not able to deliver a product close to the target cost of manufacture required by the contract specifications," Medtronic said.

The New York Times reported that Covidien executives found the ventilator design "not sufficiently profitable" and asked to cancel the deal, which federal officials did.

In April, Democrats on the antitrust subcommittee of the House Judiciary Committee sent Medtronic a letter demanding information on whether Covidien intentionally killed Newport's federally funded, low-cost ventilator design because of the competitive threat it posed.

"We owe it to all of the affected patients and medical professionals to understand whether this merger was indeed a 'killer' acquisition that is partly to blame for the current scarcity of ventilators during a viral pandemic," the Democratic antitrust subcommittee members wrote April 10.

Medtronic's Petok disputed the allegation, saying the market for mechanical ventilators includes at least 10 major players today.

"Covidien purchased Newport to expand its ventilator portfolio in a highly competitive and fractured market, and rather than discontinue the Newport family of ventilators, Medtronic continues to market Newport ventilators today," Petok said.

Medtronic's ventilators range in price from $5,000 to $50,000 apiece, depending on features and whether they are intended for use in the hospital, ambulance or home.

Early in the pandemic, larger proportions of hospitalized COVID patients were being put on ventilators than today. That caused demand for ventilators to quickly outstrip supply, triggering drastic actions including a federal contract to have General Motors manufacture the devices.

Medtronic, for its part, partnered with Taiwan-based Foxconn to ramp up production of Medtronic Puritan Bennett 980 ventilators at a Foxconn manufacturing plant in Mount Pleasant, Wis.

Medtronic also took the unusual step of publicly distributing design specs for a lower-end ventilator, the Puritan Bennett 560, so other companies could "evaluate options for rapid ventilator manufacturing."

After the federal contract to acquire low-cost devices from Newport fell through in 2013, officials in the U.S. Health and Human Services Department contracted with Dutch device maker Philips for 10,000 ventilators at $3,280 per device.

Those devices were never delivered at that price. Philips reached a new agreement with HHS in early 2020 to deliver thousands of "nearly identical" ventilators — for $15,000 apiece, a House subcommittee investigation found.

On Aug. 31, Philips announced it was completing delivery of 12,300 "bundled ventilator configurations" to the Strategic National Stockpile under its new contract, and that HHS had asked to cancel orders for the remaining 30,700 ventilators under the deal.

Joe Carlson • 612-673-4779