Investors profit by funding surgeries

NEW YORK, Aug 19, (RTRS): In July 2013, California urogynecologist Andrew Cassidenti received an email from an entrepreneur named Otto Fisher, who had a proposition. Fisher was looking for surgeons to perform operations to remove pelvic mesh implants from women.

Intrigued, Cassidenti responded. In a phone call, Fisher said he needed doctors to operate at outpatient centers in California and Las Vegas. Fisher said he could guarantee Cassidenti $2,500 for every surgery the doctor performed, “whether it took five minutes or two hours,” or even if the doctor did not remove any mesh, according to the surgeon’s sworn court statement recounting the conversation.

Cassidenti said the conversation made him suspicious. During the call, Fisher referred to litigation that is pitting tens of thousands of women against the makers of pelvic mesh.

The devices, mostly made of plastic and varying in size and shape, have been surgically inserted into millions of women to treat urinary incontinence and other disorders. They are the target of about 100,000 suits in state and federal courts - the biggest onslaught of personal injury litigation since the asbestos battles of the 1970s, 1980s and 1990s.

Fisher, the surgeon said, claimed that the federal judge overseeing the cases “needs to see key phrases in the operative report,” like “defective mesh” and “mesh erosions.” Cassidenti asked if Fisher was trying to dictate what he should write about his patients.

“No,” Fisher told him. “But it’s just a game, and we have to play the game.”

Fisher denies making those statements. Cassidenti told Reuters he stands by his affidavit.

Unbeknownst to Fisher at the time of the call, Cassidenti was a consultant to device maker American Medical Systems. And AMS, along with device giants Johnson & Johnson, Boston Scientific and C.R. Bard, was one of the biggest defendants in the mesh cases.

Cassidenti suspected he had stumbled onto a scheme to recruit doctors willing to overstate women’s injuries from implants, thereby driving up awards in cases against mesh makers. He alerted AMS, which persuaded a judge to give it the power to subpoena documents and obtain testimony in an investigation of Fisher and the surgical lending company he was working with, MedStar Funding. The other major mesh makers launched probes, too.

Previously undisclosed deposition transcripts from these investigations and Reuters interviews with mesh patients have provided rare details about a little-known business: investing in surgeries for injured plaintiffs. It’s a practice that has become deeply entangled with medical device litigation.

Medical funders, often working through go-betweens like Fisher or doctors’ billing services, purchase medical bills at a deep discount from physicians, hospitals and others who have provided care to patients involved in personal injury litigation. Some medical funders also provide “concierge care” to these patients, fronting them travel and expense money at a high rate of interest.

Patients who rely on medical funders tend to be poor. They either lack private insurance or can’t afford to pay cash deductibles or out-of-network fees charged by their doctors.

When a patient’s lawsuit settles, the medical funder stakes a claim to part of the settlement by placing a lien for the full amount of the surgical bill. The funder’s profit lies in the difference between what it pays the medical provider to buy the bill and what it is able to recover from the patient’s settlement. These medical liens sometimes spiral to as much as 10 times what private insurers or government programs like Medicaid would pay for the same procedures. The standard insurance reimbursement for mesh removal surgery, for instance, ranges from about $2,000 to $7,000. Medical lenders have demanded as much as $62,000 for surgery and related services from patients whose care they funded.

Mesh patients such as Traci Rizzo, a 42-year-old mother of three from Gulf Shores, Alabama, say they were not adequately informed by their funders, lawyers or physicians that liens could gut their payouts from defendants.

Rizzo said her lender, MedStar, paid her surgeon, John Miklos, $17,000 for a mesh removal operation. A spokeswoman for Miklos declined to comment. Rizzo’s health insurer, Blue Cross and Blue Shield of Alabama, told Reuters it customarily pays doctors between $900 and $1,300 for the same surgery. MedStar and its affiliates then sought to charge Rizzo more than $60,000 for their services, according to documents Rizzo showed Reuters.

“I don’t begrudge anybody their share,” said Rizzo. “But when businesses are abusing already injured people, it is greedy, it is wrong and it shouldn’t be allowed.”

MedStar owner Daniel Christensen did not respond to requests for comment.

The medical funding industry is opaque and fragmented. It is composed almost entirely of small firms that guard such operational details as the identity of their investors, their revenue and the number of medical bills they buy each year.

Most funders buy bills owed by uninsured or underinsured patients with slip-and-fall, car accident and workers compensation suits. But over the last several years, the business has evolved to include funding surgeries for patients involved in mass litigation over drugs and medical devices.

Reuters could find no independent organization that tabulates the money spent on such lending. Faith Larson, managing director at litigation financier Javlin Capital in Omaha, Nebraska, estimated that lenders have invested as much as $100 million in health care for mass torts plaintiffs. These include patients suing over hip and knee replacements, intrauterine birth control devices and the anti-psychotic drug Risperdal.

The sheer size of the litigation over pelvic mesh has lent momentum to the burgeoning business. Since 2008, women and their sexual partners have filed an estimated 100,000 suits against seven mesh manufacturers, alleging that dozens of devices were poorly designed and made from materials not intended to be implanted in the vaginal area.

Plaintiffs blame mesh implants for injuries ranging from pain and bleeding during sex to organ damage and, in rare cases, death. Women with mesh have won multimillion-dollar verdicts in 10 of the 13 suits that have gone to trial against manufacturers since 2012.

The vast majority of mesh cases, however, will never reach a jury. Defendants facing mass litigation almost always reach global settlements, in which they resolve hundreds or thousands of suits at a time.

The first major mesh manufacturer to agree to a multi-case settlement, AMS, has put up about $1.6 billion to resolve claims by about 45,000 mesh patients. More recently, Boston Scientific agreed to pay $119 million to settle nearly 3,000 of the 26,000 mesh claims it faces. Based on those figures, the average mesh settlement is about $40,000 per patient. Boston Scientific says settlements vary, and averages shouldn’t be extrapolated to all cases.

Generally, plaintiffs lawyers and defendants in mass settlements establish a matrix to compensate patients, based on the extent and severity of their injuries. That system, according to defendants in many mass cases, gives a financial incentive to plaintiffs lawyers working on a contingency basis: It’s in their interest to claim that their clients’ injuries are severe enough to require corrective surgery.

Based on court records and interviews with funders, at least several hundred women with claims against mesh makers appear to have used medical lenders to fund surgery to remove their implants. And at least “a couple hundred” of those surgeries were funded by MedStar, the surgical lending company that spoke with Orange County surgeon Cassidenti about joining its network.

That figure is contained in a 2014 deposition by MedStar founder Christensen, who is also a lawyer for plaintiffs in personal injury suits.

The total number of mesh-removal surgeries involving medical funders could be much higher. In a different court filing, Christensen said that as many as 3,750 of the 125,000 medical bills MedStar purchased between 2008 and 2014 were related to mesh surgery. At his deposition he declined to provide more specific information.

The mesh makers’ investigations of Christensen also showed the range of “concierge” services, in addition to surgical funding, that he provided to plaintiffs and eventually charged as liens against their settlements.

A Christensen company called Pharmacom Injury Meds paid for patients’ drugs. His litigation lending company, Beacon Legal Funding, advanced cash to plaintiffs at high interest. Tracy Rizzo, for instance, borrowed $1,200 in April 2014. Beacon’s term sheet on her loan said her debt would be $1,800 in a year and $2,650 in two years, putting the compound interest rate at about 50 percent a year.

Yet another Christensen company, MedCare Managers, helped shepherd patients through the surgical funding process, tracking cases, filling out paperwork and collecting payments.

Medical funders say they perform a valuable public service. They say they facilitate surgery and other treatment for patients who otherwise couldn’t afford it. By guaranteeing surgeons revenue, they say, they give patients access to good doctors who don’t want to wait years for bills to be paid from settlement proceeds.