Dive Brief:

• The Department of Health and Human Services said it terminated ventilator contracts with Hamilton Medical and Vyaire Medical earlier than planned because there's an adequate supply of the breathing machines in the Strategic National Stockpile to "meet maximum national capacity in a crisis."
• The decision by HHS to terminate the two contracts will result in a reduction of more than 38,000 ventilators scheduled for delivery to the stockpile by the end of the year, according to an agency spokesperson. Hamilton will complete and deliver no more than 4,518 of its Military T-1 v2 ventilator kits by Sept. 30. Vyaire will complete and deliver no more than 4,000 LTV-2200 ventilator kits and 800 resupply kits by Sept. 13. 
• HHS said by terminating these contracts it is "balancing federal stockpile requirements with commercial market demand for ventilators" and is saving U.S. taxpayers millions of dollars in unneeded medical devices. It follows an announcement from Philips Monday that the remaining 30,700 deliveries under its $646.7 million ventilator contract were terminated by the agency. "We cannot comment on that contract at this time," said the agency's spokesperson, noting "it is subject to an internal HHS investigation and legal review."       

Dive Insight:

Hamilton, Philips and Vyaire were among nine companies, including GM, General Electric, Hill-Rom, Medtronic, ResMed, and Zoll, awarded government contracts in April that were meant to provide a total of more than 187,000 ventilators to the Strategic National Stockpile by the end of 2020.

At the time, HHS Secretary Alex Azar said the much-needed ventilators would be delivered to the federal stockpile through the rest of the year to ensure the nation had the capacity to respond to the coronavirus pandemic. When the ventilator deals with the companies were established in April — five of which were rated under the Defense Production Act, including Vyaire's contract — hospitals in hard-hit states such as New York were facing a shortage of machines.

However, HHS now says the federal stockpile has almost 120,000 ventilators available for COVID-19 patients, if needed, and the U.S. is "prepared for areas experiencing pandemic surge as well as any future public health emergency response that might require these devices."

HHS noted in its statement that to date the country's stockpile has not experienced a shortfall of ventilators. "If states, tribal nations, territories or local public health jurisdictions need ventilators and are unable to secure commercial supplies, they may continue to request federal assistance through the established process," said the agency's spokesperson.

Hamilton's original $552 million HHS contract, awarded in April, was for 25,574 ventilators produced by July 3. Vyaire's $407.9 million with the agency was for 22,000 ventilators by June 29. The agency's announcement on Wednesday of the early termination of the two ventilator contracts included one "non-rated order" to Hamilton and a Defense Production Act-rated order to Vyaire.

To meet its HHS contract requirements, Hamilton announced in April that the company was launching a new production line for ventilators near the medtech’s U.S. offices in Reno, Nevada, as well as hiring several hundred workers. In addition, Hamilton partnered with GM to establish new suppliers for hundreds of parts and to help design a new manufacturing operation. 

To fulfill its HHS contract, Vyaire in April said it was ramping up ventilator production and hiring additional workers to add manufacturing shifts at its facility in Palm Springs, California.

Hamilton and Vyaire have not publicly announced or commented on the HHS decision to terminate their contracts or what the financial impact will be on their respective businesses.

Philips, however, on Monday said that it received a "partial termination" notice from HHS and will not deliver 30,700 remaining ventilators to the Strategic National Stockpile and as a result it has reduced its 2020 earnings outlook.

The decision by HHS to terminate the remaining contractual deliveries comes a month after a Democrat-led House subcommittee report found the Trump administration overpaid for the Philips ventilators by as much as $500 million in taxpayer funds. The termination drew praise from the Subcommittee on Economic and Consumer Policy in a statement Tuesday. HHS is now conducting an internal investigation and legal review of the Philips contract. 

GM and partner, meanwhile, announced Monday they completed delivery of 30,000 ventilators to HHS over the weekend.