Wall Street’s latest blank-check company promises to be a litigation finance nightmare for property and casualty insurers.
MSP Recovery, a Miami-area company that earns revenue by winning lawsuits against insurers, merged with a special purpose acquisition company in July. Last week, MSP and its new partner Lionheart Acquisition Corp. II announced that Virage Capital Management LP, a litigation finance investor, had agreed to pay $3 billion for rights to collect 50% of future awards against insurance companies. The company previously had invested $440 million in MSP.
“What this tells you is that a company that’s been with us and has invested is so gung-ho and believes in our company and our management and the success that we have had that were now upping their investment by almost seven times,” MSH founder and Chief Executive Officer John H. Ruiz told the Claims Journal on Friday.
Ruiz said income from the Virage deal will come over and above the income projections that it showed to investors in its SPAC deal, which he expects to close in about 60 days. In an investor presentation, the company said it expects revenues of $992 million in 2022, $3.1 billion in 2023 and $23.8 billion in 2026.
MSP says its software has found $50 billion in Medicare claims that should have been paid by other payers, such as auto insurers, and expects that to grow to $263 billion. The company is also hoping to earn revenue by recouping payments made by Medicaid that should have been paid by others, but it doesn’t project any revenue from that endeavor until 2023.
Ruiz founded MSP Recovery in 2014 after creating software that identifies claims for medical treatment that was paid for by Medicare but should have been paid for by a private insurer. The Medicare Secondary Payer Act allows private litigants to collect double damages from insurers that were liable for medical care and failed to reimburse Medicare after the program paid for the treatment. The law also requires insurers to report any settlements with Medicare beneficiaries that include a promise to pay for future medical care.
Ruiz said MSP has been collecting on average 2.11 times the face value of the medical bills paid by Medicare. That’s because insurers have to pay interest on top of double damages. What’s more, they have to pay the market rate for the medical care received rather than the discounted rate that Medicare pays.
MSP Recovery’s business plan got a boost from federal appellate court rulings that established Medicare Advantage Plans have a private right of action under the Medicare Secondary Payer Act.
Ruiz said Friday that he purchased recovery rights from Medicare Advantage Plans for the bills they paid that should have been paid by insurance companies. He said Virage is paying $3 billion for 50% of those collection rights. MSP will get the rest.
MSP said in an Aug. 4 report to the Securities and Exchange Commission that it generated $230 million by selling 20 million units to investors in its initial public offering. Special purchase acquisition companies, also called blank check companies, differ from conventional stock offerings in that they raise capital from investors to fund future acquisitions before they have any commercial operations.
MSP and Lionheart valued their merger at $32.6 billion. Reuters reported that it was the second-largest SPAC deal in history.
An MSP subsidiary files the lawsuits that seek Medicare Secondary Payer Act recoveries out of the company’s office in the Miami suburb of Coral Gables. In August, the company filed a whistleblower lawsuit in the U.S. District Court for Eastern Michigan that seeks billions of dollars from 315 auto insurers that it accuses of deliberately filing false reports to Medicare.
“This case is based on what MSP Recovery has seen over the last seven years as auto insurers knowingly and willfully turn a blind eye and evade their obligations to Medicare,” Ruiz said in a press release at the time.
Ruiz’s business plan appears to be generating a healthy income.
According to a Sept. 24 article in TheRealDeal, he sold a 10,000-square-foot waterfront house in Coral Gables for $13.8 million, after buying the home for $11 million in March 2020.
Earlier this month Ruiz paid $25 million for a 14,433 square-foot mansion in Gables Estates, the news site, which covers the South Florida real estate market, reported. Last year he also paid $49 million for a “resort-style” estate in Gables Estates, the second-second-highest price for a single-family home ever in Miami-Dade County, according to the article.
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