IBM's Newest Acquisition Warned on Device by U.S. Health Agency

  • FDA concerned about Merge Healthcare's patient data software
  • IBM purchased medical technology company for $1 billion

Merge Healthcare Inc., purchased by IBM for $1 billion in a deal completed Tuesday, received a warning letter from U.S. regulators about the potential dangers of software that monitors patients during heart procedures and a system that archives medical images.

Merge failed to show that it had adequately reviewed or evaluated complaints of malfunctions in its devices and allowed its Merge Hemo cardiac monitoring system to be widely used on patients when its effectiveness hadn’t been supported, according to the Food and Drug Administration’s letter dated Sept. 30. Merge also neglected to inform the FDA when the company recalled the product because it may cause computer systems to freeze and result in a loss of patients’ vital signs while the system reboots, the agency said. The warning letter came after a June inspection of Merge’s factory in Hartland, Wisconsin.

International Business Machines Corp. agreed in August to buy Chicago-based Merge and incorporate its imaging platform into IBM’s Watson Health business unit. The acquisition, part of IBM’s effort to bolster its health-care data and analytics offerings, is the third-biggest for Chief Executive Officer Ginni Rometty since she took the top role in 2012, according to data compiled by Bloomberg.

“Merge Healthcare is committed to implementing corrective actions to ensure compliance,” Justin Dearborn, Merge’s CEO, said in a statement. “We will fully cooperate with the FDA to resolve this matter expeditiously.”

Steve Tomasco, a spokesman for IBM, declined to comment on the letter.

If the FDA warning letter was a concern, “you would have seen something. You would have heard something out of IBM,” Justin Lumiere, a strategist at Maxim Group LLC, said in a phone interview. An updated proxy filed by Merge on Oct. 5, after receiving the FDA warning, didn’t mention any issues related to the letter, he added.

The FDA told Merge it has 15 business days to respond and outline how it will correct the violations. Merge received a similar warning letter in 2012 for its blood-pressure monitoring kiosks. The FDA then also criticized Merge for failing to review and evaluate complaints. The company addressed the complaints and later sold the unit that makes the kiosks, according to a letter from Merge to the FDA in January of this year.

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