Burford Capital Logo Light Burford Capital Logo Dark

Legal finance for the healthcare sector

June 4, 2024
Liz Bigham
Annie Spratt L8cbes6gc58 Unsplash Sm

The healthcare industry is undergoing radical shifts for patients, providers and insurers. While for patients the most salient trends are the reprioritization of preventive over reactive care, the adoption of virtual health and increasing costs, those in the business of healthcare are facing, in the US, significant increases in consolidation, inflation and labor shortages.

These factors are in turn impacting how healthcare companies think about and manage both costs and opportunities in their legal departments. Burford’s latest research reveals how finance and legal leaders at healthcare companies are managing their legal assets.

Insights from recent research into healthcare dispute dynamics  

Burford recently conducted research into economic impacts on different industries and their litigation portfolios. For senior in-house lawyers and finance leaders at companies in the healthcare sector, the key takeaways were:    

  • Finance and legal leaders at healthcare companies prioritize legal innovation as a way to generate value.

  • Seven in ten finance and legal leaders at healthcare companies say they expect use of alternative fee arrangements to increase over the coming years.

  • Finance and legal leaders at healthcare companies are 36% more likely than the average to say the most important benefit of legal finance is reducing costs.

  • Finance and legal leaders at healthcare companies are the most likely in any sector (95%) to agree that litigation is expensive and that even large companies benefit from reducing its impact on the P&L.  

How legal finance is used in the healthcare sector 

At its core, legal finance enables businesses in the healthcare sector to maximize their recoveries in commercial disputes and to ensure they can fully leverage their legal assets.   

There are numerous ways healthcare businesses can leverage legal finance to generate value from their litigation and arbitration assets—without impacting control of their disputes.   

  • Fund claims and recoveries: Burford takes on the financial burden of paying lawyers to pursue meritorious high-value claims, allowing businesses to pursue meritorious cases without incurring upfront costs.     

  • Eliminate downside risk: Legal finance provided by Burford is non-recourse, meaning that the investment and return are contingent on a successful outcome. This allows businesses to lock in guaranteed minimum returns and shift legal risk off their books.  

  • Manage cash flow: Burford can accelerate expected entitlements from pending claims and awards, providing companies with the flexibility to time cash flows according to their desired schedules, enhancing liquidity and working capital.    

  • Identify opportunities: Leveraging proprietary data and industry-leading insights, Burford can assist legal teams in setting priorities for their commercial litigation and arbitration portfolios. This helps businesses identify the most valuable claims and allocate resources effectively.  

  • Manage exposure: Burford can provide a hedge for litigation risk in the company’s portfolio. This allows businesses to mitigate the potential financial impact of litigation and protect their interests.  

  • Enforce judgments: Through funded enforcement and asset recovery, Burford can help businesses transform unenforced judgments and non-performing loans into cash.

How health insurance companies used legal finance to manage risk

The risk corridors program was created under the US Affordable Care Act (ACA) to incentivize health insurers to participate in state health exchanges. The program provided assurance that the government would repay insurers if their expenses exceeded a threshold, and vice versa. However, the ACA did not provide funds for risk corridor payments, leading to a shortfall of payments to insurers. This had a devastating impact on insurers, with many forced into liquidation.

In June 2016 Burford committed $30 million to a non-profit healthcare co-op which needed our capital to keep operating given accrued and expected risk corridors shortfalls totaling almost $100 million. Without Burford’s capital, the non-profit healthcare co-op would have not been able to satisfy its regulatory capital requirements and would have been in jeopardy of having to close.

In 2017 Burford provided additional capital, via monetization transactions, to insurers and liquidators overseeing insurers that had been forced out of business. As distinct from fees and expenses financing used to pay lawyers, monetization provides immediate liquidity as a non-recourse advance against expected payments from pending claims and awards, and in the case of risk corridors clients, Burford’s non-recourse investment provided working capital that was used in a range of business-critical ways. Because the capital was provided on a non-recourse basis, the insurers were not exposed to any downside risk if the matters resolved unsuccessfully.

The Supreme Court heard the case in December 2019 and issued its decision in April 2020: An 8-to-1 win for the insurers, holding that the government was obligated to pay, that no later statements or budgetary actions affected that obligation, and that payment was required without delay. Our capital enabled our clients to continue to serve their customers and to manage their balance sheet risk by monetizing valid claims and sharing risk with Burford.