The Justice Department Seeks Justice

In the early days of the pandemic, a shortage of ventilators was one of the most pressing challenges for the healthcare system.

Now, U.S. officials are investigating whether industry consolidation in the ventilator market played a role in causing the shortage. 

According to the WSJ, the Justice Department has issued a civil subpoena to Medtronic, the $140 billion med-tech giant, as part of an ongoing investigation.

Ventilator Consolidation

The focus of the probe is a series of acquisitions stemming back to 2012. The story begins when device maker Covidien PLC purchased Newport Medical Instruments, a small ventilator manufacturer for $108 million.

Newport had secured a contract to supply low-cost ventilators to the federal government, but the project stalled after Covidien bought Newport.  The two sides eventually agreed to terminate the contract before any ventilators were delivered.

A few years later, Medtronic swallowed Covidien (and with it, Newport) in a $50 billion deal. The purchase helped secure Medtronic’s place as a pillar in the ventilator market.

Both deals were cleared by antitrust regulators.

The Accusation

In April, members of the House antitrust subcommittee sent a letter to the FTC Chairman questioning whether the Newport deal was to blame for the shortage of ventilators:

• An excerpt from the letter read: “Covidien’s purchase of a potentially market-disrupting competitor…has all the hallmarks of a killer acquisition, where an incumbent firm acquires and then shuts down a key rival.”

Medtronic, which inherited the problem in a nesting doll scenario, has denied the accusations. A company spokesman said the industry remains competitive, “with at least 10 major players in which the top five account for approximately 50% market share.”

The Takeaway:

The ventilator shortage, knock on wood, is behind us. Medtronic’s problems might just be beginning.