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Philips to pay $479 million to settle part of respiratory device recall litigation

by John R. Fischer, Senior Reporter | September 12, 2023
Business Affairs
Philips recalled 5.5 million respiratory devices in June 2021 due to issues that led to foam degradation.
In a settlement related to its 2021 respiratory device recall, Philips has agreed to pay an initial sum of $479 million to resolve one category of legal claims for “economic damages” against it.

In June 2021, the company recalled 5.5 million bilevel positive airway pressure (BiPAP) and continuous positive airway pressure (CPAP) machines after discovering that the polyester-based polyurethane (PE-PUR) sound abatement foam within them could break down and release particles that could enter a device’s air pathway and become toxic, possibly causing cancer.

The money will go toward a fund for covering payments of claimants in the settlement. How much each individual will receive depends on the type of device they had, reported Reuters. It also includes extended warranties on all replacement devices; and an additional cash award for returned recalled devices to Philips Respironics. The company says the settlement will further compensate certain individuals who acquired replacement devices post-recall.

In Q1 2023, the company took out a €575 million ($615.48 million) provision to finance the estimated costs for economic claims.

"The final cost of the settlement may vary based on, among other things, how many patients participate in the settlement and what the Court awards for the professional fees relating to the resolutions," said Philips in a statement.

But the company still has to address other legal actions related to the recall, including personal injury and medical monitoring claims, which Philips has moved to dismiss. The U.S. Department of Justice is also investigating it, following a series of emails from 2018 that were found and indicate that the company was aware of the problems with its foam long before the recall.

In 2022, its subsidiary Philips RS North America, a manufacturer of durable medical equipment, paid over $24 million to resolve False Claims allegations that it paid kickbacks to DME suppliers to assist their marketing efforts in exchange for submitting false claims to federal healthcare programs for ventilators, oxygen concentrators, CPAP and BiPAP machines, and other respiratory-related medical equipment.

Philips is currently negotiating a consent decree or settlement with the FDA. At the beginning of this year, it said that it planned to complete the Respironics recall and test program in 2023 and manage the impact of this proposed consent decree, the DOJ investigation, and litigation related to the Respironics recall.

Additionally, because of this and other equipment recalls, including others related to its respiratory equipment, and inflation woes, the company said it would cut 6,000 jobs worldwide between 2023 and 2025. It also said it would adopt a strategy of organic growth that takes patient safety, quality, and customer needs into greater account.

During a July conference call, CEO Roy Jakobs cautioned shareholders not to be worried that a consent decree had not yet been reached and said that the company had produced about 99% of the new replacement devices and repair kits, and provided the “vast majority” to patients and providers.

Claimants are not expected to see their compensation until the first quarter of 2024 at the earliest.

The settlement was submitted to the U.S. District Court for the Western District of Pennsylvania and is subject to court approval. It does not include or constitute any admission of liability, wrongdoing, or fault by any of the Philips parties.

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