Last December, Gov. Kathy Hochul’s administration received an offer to buy 26 million at-home coronavirus tests from a New Jersey-based distributor that happened to be a major campaign donor to the governor.
The price offered by Digital Gadgets founder and CEO Charlie Tebele was $13 per test, far steeper than what other companies were proposing for similar rapid antigen tests. Hochul’s administration had just approved a deal with another firm to buy 5 million tests for just $5 each.
Still, the Hochul administration quickly agreed to pay $338 million to Digital Gadgets at the higher per-test price. The state Division of Budget and Hochul’s office signed off on the deal on Dec. 20, the same day Tebele made the proposition.
Despite that tight timeline, Digital Gadgets contends the deal was "thoroughly negotiated."
The Times Union reported in July that Tebele and his family members have donated nearly $300,000 to Hochul’s campaign, including $70,000 before last winter. That's when Hochul's administration signed two purchase orders to buy $637 million in tests. Tebele subsequently hosted a campaign fundraiser for Hochul in April, records show.
While three other companies sold tests to the state Department of Health last winter for $7.80 each or less, Digital Gadgets charged an average of $12.25, according to records provided by the state comptroller's office.
Despite buying 52 million tests in bulk, the administration paid Digital Gadgets as much or more than consumers would pay in a retail store, according to Bill Hammond, senior fellow for health policy at the Empire Center for Public Policy.
Hammond reviewed the records obtained by the Times Union and was struck by the significantly higher price the administration paid Digital Gadgets, resulting in hundreds of millions in additional spending.
“The Hochul administration is saying it was not because they were a donor, but should answer the question of why they so eagerly got into business with this very high-priced vendor — and bought more than half their total amount from this one supplier — when they knew it was charging a much higher rate than they had been paying,” Hammond said.
Hochul has argued that Digital Gadgets was uniquely able to deliver a significant quantity of rapid tests before schools reopened in early January, a time when the highly contagious omicron variant was threatening to keep them closed. She's noted the state was getting "slammed" by the variant by mid-December.
"I was not aware that this was a company that had been supportive of me," Hochul said during a July 20 press briefing, referring to the campaign donations. "I don't keep track of that. My team, they have no idea."
"But the fact that there was someone who could meet that need at that time allowed us to deliver critically important test kits when nobody else — including the federal government — could get their hands on it," she said. "As a result, we got kids back in school in January, as opposed to sitting home another semester."
But as Hammond has written, the administration continued paying for significant quantities of Digital Gadgets tests after the omicron wave subsided.
The $637 million in spending began on Dec. 30, and the Department of Health made 239 separate payments through March 25 to Tebele's company, paying for the tests as they were delivered. Sixty-two percent of the payments, or roughly $395 million, were made after COVID-19 hospitalization levels had returned to pre-spike levels in late February, according to Hammond. By that time, tests from other vendors were more available.
According to Digital Gadgets, the bulk of the tests had been delivered by late February and the company was owed significantly more than $395 million at that point.
Though the state's purchase orders were signed in December and January, New York likely would have been able to stop making the purchases before spending the whole $637 million.
In March 2020, state Budget Director Robert Mujica issued a directive to all state agencies instructing them to include "into all COVID-19-related purchases" language reserving the right to terminate those orders with 30 days’ notice "for any reason." And for "medical equipment, personal protective equipment, or similar products and services," the state could terminate an order with only two days’ notice.
Agencies could seek an exemption, but there's no indication the health department sought one for the Digital Gadgets' orders.
The Department of Health declined to say whether it could have rescinded its deal with Digital Gadgets once the omicron variant waned, saying it does not comment on "legal hypotheticals."
