Philips signs $1.1B settlement in CPAP recall injury litigation, takes $578M insurance payout

Philips has reached a $1.1 billion agreement to settle claims from about 58,000 people stemming from its yearslong recall of home CPAP ventilators and sleep apnea machines.

It’s a major milestone in the course of the company’s personal injury litigation, but it’s not the end of the journey—the company still needs to finalize its recall efforts and demonstrate compliance with quality testing under the terms of a consent decree from the FDA and the U.S. Department of Justice before it can begin to rebuild its sleep therapy business.

“Philips and Philips Respironics do not admit any fault or liability or that any injuries were caused by Respironics devices,” Philips CEO Roy Jakobs said on the company’s quarterly earnings call Monday. “The related payments are expected in 2025 and to be fully funded from Philips cash flow generation.”

That earnings report also noted that the company expects to log about 540 million euros, or $578 million, in second-quarter income from insurance coverage related to Respironics product liability claims. Philips also previously set aside cash—including provisions of 363 million euros in the fourth quarter of 2023, plus 575 million euros earlier that year—to prepare for the class-action expenses.

The $1.1 billion settlement, which includes $25 million for medical monitoring, also follows more than $600 million in payments earmarked for economic claims last September—namely, for people who needed partial refunds after paying out-of-pocket to replace their nightly therapy with a different machine.

“The agreements with Philips will provide compensation to those users of the now-recalled CPAP and other respiratory devices who suffer from significant physical injuries and important research for the treatment of those injuries,” attorneys for the class-action plaintiffs said in a statement. 

“Ultimately, these combined agreements accomplish what we sought to achieve when this litigation began—holding Philips accountable by obtaining care for those with physical injuries and compensation for those needing new respiratory devices,” said the lawyers Sandra Duggan, Kelly Iverson, Christopher Seeger and Steven Schwartz. 

Philips’ recall began in June 2021 after it was discovered that the sound-insulating polyurethane foam used to line the inside of the company’s CPAP and BiPAP hardware could break down over time, flake off and potentially enter the user’s airway, causing a range of health problems. 

Since that year, Philips’ repair and replace efforts have ballooned to include 5.5 million devices, which replace the lining with silicone—while the FDA has logged more than 116,000 medical device complaint reports as of last fall, including at least 561 deaths.

The combination of the recent road map laid down by the consent decree, the settlement agreements and the insurance payout have served as “very important steps in resolving the vast majority of the consequences of the Respironics recall,” Jakobs said on the earnings call. “We do regret the concern that patients may have experienced.”

For the first quarter of 2024, Philips reported 4.1 billion euros in sales, or about $4.4 billion, for growth of 2.4%. The $1.1 billion settlement provision, or about 982 million euros, wiped out operational income, sending it to the red by 834 million euros.

By division, diagnosis and treatment revenues amounted to 2 billion euros, up 3%, while personal health continued along about that same trajectory to post 790 million euros. Connected care, which includes respiratory and sleep therapy operations, logged about 1.2 billion in revenue, down by 1% compared to the same quarter last year.