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As rampant consolidation collides with inflation-squeezed margins in the American healthcare system, tensions between service providers and insurers are reaching a boiling point, increasingly spilling over into litigation. This provides significant opportunities for litigation funders, according to a new article by Burford Capital LLC.

Key Drivers of Healthcare Litigation

The Burford Quarterly article, released Wednesday, is titled "The Business Trends Driving High-Value Commercial Disputes In The U.S. Healthcare Sector." The authors, Burford underwriter Charles Griffin and Managing Director Greg McPolin, outline several factors driving large-scale litigation in the healthcare industry.

"The basic conflict is that providers are trying to get the amount of compensation they feel they're owed, while payors are trying not to pay too much," Griffin said in an interview Tuesday.

Burford Capital Healthcare Litigation: Consolidation and Economic Pressures

Several factors have contributed to an environment ripe for large-scale litigation. These include rampant consolidation among both healthcare providers and insurers, increased activity by private equity firms, and higher costs and tighter margins for providers caused by post-pandemic inflation.

The American Hospital Association (AHA) recently declared that U.S. hospitals and healthcare providers are facing an "unprecedented economic crisis," citing tight margins fueled by rising costs for worker salaries, prescription drugs, and medical equipment.

Increasing Litigation and Large-Scale Settlements

In its amicus curiae brief filed in a lawsuit accusing health insurers of using algorithmic pricing tools to systematically underpay out-of-network providers, the AHA highlighted the stark economic divergence between providers and insurers. The AHA noted that insurers generate substantial revenue, maintain healthy margins, and provide significant returns to shareholders.

This economic pressure has led to increasingly aggressive tactics by healthcare providers, often resulting in litigation. "For example, in-network providers routinely bring claims against their insurance company counterparties, seeking to recover amounts alleged to have been improperly withheld," the article stated. These claims often result in significant awards, such as Envision Healthcare Corp.'s $91 million victory over UnitedHealthcare Group in May 2023, or a Radiology Partners affiliate's $153 million award against UnitedHealthcare later that year.

Impact of Private Equity and Antitrust Scrutiny

The ongoing tug-of-war between providers and insurers has driven both sides to consolidate further, enhancing their bargaining power. This trend is exacerbated by private equity firms employing strategies like "roll-ups" to gain market leverage and increase prices.

These strategies have drawn scrutiny from the media and federal government, leading to significant legal actions. A landmark lawsuit by the Federal Trade Commission targets U.S. Anesthesia Partners Inc., a private equity-backed venture accused of creating a monopoly and extorting insurers.

Burford Capital Healthcare Litigation: Future of Healthcare Litigation

In general, anticompetitive conduct can give rise to significant claims, as evidenced by the 2020 Blue Cross Blue Shield multidistrict litigation settlement of $2.67 billion. Griffin emphasized that companies can achieve higher recoveries by opting out of class actions and pursuing individual claims, an attractive scenario for litigation funding.

Griffin concluded that the American healthcare industry's current landscape makes future litigation almost inevitable. "All the instances discussed in the article are just the tip of the proverbial iceberg," Griffin said.