Philips confirms that its subsidiaries Philips Holding USA and Philips Respironics have now reached final agreement on the consent decree with the DOJ and FDA.

Summary: Following the FDA’s inspection of Philips Respironics’ facilities in 2021, discussions with the DOJ led to an agreed-upon consent decree announced by Philips on Jan 29. The decree primarily focuses on Philips Respironics’ US operations, outlining actions to meet regulatory requirements. Philips will prioritize completing the remediation of sleep and respiratory care devices under a voluntary recall. It will also ensure ongoing compliance with FDA regulations and continue servicing existing devices. Despite anticipated costs, Philips maintains its financial outlook while emphasizing patient safety and commitment to meeting decree terms.

Key Takeaways: 

  • Philips Respironics has finalized a consent decree with the DOJ and FDA. This decree primarily focuses on Philips Respironics’ business operations in the US, affecting its manufacturing, service centers, and headquarters in Pennsylvania.
  • The consent decree provides a structured plan for Philips Respironics, which includes continuing the remediation of sleep and respiratory care devices that were recalled in June 2021. 
  • The consent decree includes provisions to allow for exports. Outside the US, Philips Respironics will continue to provide new sleep and respiratory care devices, subject to certain requirements that Philips Respironics will meet.

Following the US Food and Drug Administration’s (FDA) inspection of Philips Respironics’ facility in Murrysville in 2021 and the subsequent inspectional observations, the US Department of Justice (DOJ), representing the FDA, began discussions with Royal Philips in July 2022 regarding the terms of a proposed consent decree. 

On Jan 29, Philips announced that it agreed with the DOJ and FDA on the terms of the proposed consent decree.

Philips’ subsidiaries Philips Holding USA and Philips Respironics have now reached final agreement on the consent decree with the DOJ and FDA that primarily focuses on Philips Respironics’ business operations in the US, including its manufacturing facilities in Murrysville and New Kensington, its service center in Mount Pleasant, and its Respironics headquarters in Pittsburgh in Pennsylvania.

The consent decree provides Philips Respironics with a roadmap of defined actions, milestones, and deliverables to meet relevant regulatory requirements, as previously communicated by Philips on Jan 29, including:

  • Philips Respironics will continue to prioritize completing the remediation of the sleep and respiratory care devices under Respironics’ voluntary June 2021 recall. More than 99% of the actionable registered CPAP and BiPAP sleep therapy devices have been remediated globally, while the remediation of the ventilators is ongoing in coordination with the relevant competent authorities, according to Philips. Philips Respironics will retain independent experts to review various aspects of the recall remediation.
  • Philips Respironics’ business operations must demonstrate continued compliance with the FDA’s Quality System Regulation (current good manufacturing practice requirements for medical devices). Philips Respironics will retain independent experts to supervise the compliance improvement program.
  • In the US, millions of patients are currently using Philips Respironics sleep and respiratory care devices. Philips Respironics will be permitted to continue servicing these sleep and respiratory care devices that are already with healthcare providers and patients, and to sell accessories (including masks), consumables (including patient circuits), and replacement parts (including repair kits).
  • In 2021, Philips Respironics voluntarily stopped selling CPAP and BiPAP sleep therapy devices and other respiratory care devices in the US, as it prioritized the production for the remediation of the affected devices under the June 2021 recall. Until the relevant requirements of the consent decree are met, Philips Respironics will not resume selling new CPAP or BiPAP devices or other respiratory care devices in the US.
  • The consent decree includes provisions to allow for exports. Outside the US, Philips Respironics will continue to provide new sleep and respiratory care devices, accessories (including masks), consumables (including patient circuits), replacement parts (including repair kits) and services, subject to certain requirements that Philips Respironics will meet.

Philips Respironics’ devices with the new silicone sound abatement foam have been subject to extensive testing in accordance with the applicable industry testing standards, and Philips Respironics has not identified any safety issues. These devices may continue to be used in accordance with the instructions for use.

“Strengthening patient safety and quality remains Philips’ highest priority and the increased scrutiny will help us to improve even more. With the agreement on a consent decree for Philips Respironics in place, we now have a clear path forward to gradually restore the business, serving patients around the world,” says Roy Jakobs, CEO at Philips, in a release

Philips’ chief patient safety and quality officer Steve C de Baca adds in a release, “Patient safety and quality is our number-one priority. We know what we must do to meet the consent decree requirements. Philips Respironics has been working with the FDA, and is already making significant changes in its organization, quality management systems and operations. This includes strengthening the quality management processes and deepening the competencies of the relevant teams. We are fully committed to meeting the terms of the consent decree and continuing to serve the millions of patients who rely on our devices every day.” 

Financial Impact

As previously stated on Jan 29, as a consequence of addressing this consent decree, which is a multi-year plan, Philips expects costs of around 100 basis points in 2024 that relate to remediation activities and profit disgorgement payments for Philips Respironics sales in the US.

The previously stated 2023-2025 group financial outlook of mid-single-digit comparable sales growth, low-teens Adjusted EBITA margin, and EUR 1.4-1.6 billion free cash flow now takes the consent decree into account and remains unchanged. It excludes the investigation by the US DOJ related to the Respironics field action and the impact of the ongoing litigation.