Company Overview

MSP Recovery, Inc. (MSPRZ) is a leading healthcare recovery and data analytics company that has positioned itself as a disruptive force in the industry. The company's unique approach to identifying and recovering improper payments made by Medicare, Medicaid, and commercial health insurers has the potential to generate substantial annual recovery revenue at high profit margins.

Founded in 2014 as a Medicaid and Medicare Secondary Payer Act recovery specialist, MSP Recovery has since scaled its operations significantly. The company was initially organized to pursue recovery of healthcare claims that were improperly paid by private Medicare plans. In its early years, MSP Recovery focused on building its data analytics platform to identify potential recovery opportunities within the healthcare claims data provided by its assignors, which included health plans, providers, and other entities.

As of September 30, 2024, the company is entitled to a portion of the recovery rights associated with approximately $1.59 trillion in Billed Amount and approximately $380 billion in Paid Amount, which contains approximately $87.8 billion in Paid Value of Potentially Recoverable Claims.

Key Strengths and Growth Strategies

MSP Recovery's success is largely attributed to its proprietary internal data analytics platform, which allows the company to review historical medical claims data and identify recoverable opportunities. By utilizing sophisticated Algorithms and a team of experienced data scientists and medical professionals, MSP Recovery has been able to uncover a vast array of potential recoveries that have traditionally gone unnoticed.

One of the key drivers of the company's growth has been its strategy of obtaining irrevocable assignments of health claim recovery rights through Claim Cost Recovery Agreements (CCRAs) with a variety of sources, including Medicare Advantage organizations, Management Service Organizations, health maintenance organizations, hospitals, and other at-risk entities. This approach has given MSP Recovery control over the direction of litigation and the ability to pursue additional recoveries under numerous legal theories.

The company's growth trajectory has been impressive, with its portfolio of assigned claims expanding from 32 assignors in 2015 to over 160 assignors today. In 2015, MSP Recovery entered into a Claims Proceeds Investment Agreement (CPIA) with a third-party investor, Brickell Key Investments, to directly and indirectly invest in the company's claims. This arrangement provided MSP Recovery with additional funding to pursue its recovery efforts.

Recent Developments and Challenges

As part of its expansion, MSP Recovery launched the MSP Recovery Clearinghouse to help identify and resolve outstanding Medicare liens. In May 2022, the company consummated a business combination with Lionheart Acquisition Corporation II, a special purpose acquisition company (SPAC). This transaction, structured as a reverse recapitalization, provided MSP Recovery with additional capital and enabled it to become a publicly traded entity under the new name MSP Recovery, Inc.

However, the company's journey has not been without its challenges. In August 2022, the Securities and Exchange Commission (SEC) initiated an investigation into the company, requesting documents related to the Business Combination transaction, historical and projected financial results, investor agreements, and data analytic platforms. Additionally, in March 2023, MSP Recovery received a subpoena from the U.S. Attorney's Office in connection with a grand jury investigation. The company has cooperated fully with these inquiries and believes the investigations will be resolved without any material developments, but the outcome remains uncertain.

Additionally, in August 2023, MSP Recovery filed a lawsuit against Cano Health, LLC, alleging declaratory relief and anticipatory breach of various agreements between the parties. Cano, in turn, sued the company, alleging fraud in the inducement, breach of contract, tortious interference, and unjust enrichment. These matters were automatically stayed due to Cano's subsequent Chapter 11 bankruptcy filing, but the parties anticipate the litigation to resume under a new scheduling order.

Despite these challenges, MSP Recovery remains committed to its mission of reducing waste, fraud, and abuse in the healthcare system. The company's Chase to Pay model, which is designed to identify the proper primary insurer at the point of care, has the potential to substantially decrease legal costs of recovery and improve the company's net recovery margin.

Financials

In terms of financial performance, MSP Recovery has yet to generate substantial revenue from its recovery model. For the nine months ended September 30, 2024, the company reported claims recovery income of $9.88 million, compared to $6.48 million in the same period of the prior year. However, the company's net loss for the period was $578.83 million, driven primarily by claims amortization expense of $363.03 million and interest expense of $306.60 million.

For the most recent quarter, MSP Recovery reported revenue of $3.67 million, representing a substantial 734% increase compared to the same quarter in the prior year. This growth was primarily driven by increased settlement activity. However, the company's net loss for the quarter increased by 15% year-over-year to $29.85 million, mainly due to higher interest expenses.

The company's business is currently focused solely on operations within the United States, with no international market presence at this time.

Liquidity

Looking ahead, MSP Recovery's liquidity and ability to continue as a going concern remain a concern. As of September 30, 2024, the company had $4.75 million in unrestricted cash and has concluded that there is substantial doubt about its ability to continue as a going concern beyond the next twelve months, unless it is successful in raising additional funds through the offering of debt or equity securities.

To address these financial challenges, MSP Recovery has entered into various claims financing and settlement agreements, including a $48 million working capital credit facility with Hazel Partners Holdings LLC and a $250 million purchase money loan. As of the most recent quarter, $20.8 million of the working capital credit facility had been drawn.

The company's debt-to-equity ratio stands at 2.54, indicating a significant reliance on debt financing. Both the current ratio and quick ratio are at 0.009, suggesting potential short-term liquidity challenges.

Product Segments

MSP Recovery operates primarily through two main product segments: Claims Recovery and Claims Recovery Services.

The Claims Recovery segment forms the core of MSPRZ's business model. It involves pursuing and recovering proceeds related to claims recovery rights obtained through Claim Cost Recovery Agreements (CCRAs). The company uses its proprietary internal data analytics platform to review and identify claims with possible recovery paths. Once claims are assigned, MSPRZ's data analysts employ proprietary algorithms to identify potential recoveries, which are then quality-checked by the internal medical team. The company contracts with law firms, including an affiliated Law Firm, to pursue recoveries through settlement negotiations or litigation.

MSPRZ typically owns 100% of the assigned claims but is contractually obligated to pay 50% of the net proceeds to the original assignor. In some cases, MSPRZ has purchased the assignor's rights to recovery proceeds in advance, entitling the company to retain 100% of the net proceeds. Claims recovery income is recognized based on a gain contingency model when recovery amounts are reasonably certain of collection.

The Claims Recovery Services segment previously generated income by providing services to a related party and a third party to assist with pursuing claims recovery rights. However, during the nine months ended September 30, 2024, MSPRZ did not recognize any claims recovery service income, as the related third-party contract had expired and not been renewed.

Management and Corporate Governance

Despite the ongoing investigations and challenges faced by the company, MSP Recovery's key management team has remained stable. John H. Ruiz continues to serve as the company's CEO, while Frank C. Quesada maintains his position as Chief Legal Officer. Their continued leadership through these challenging times demonstrates a commitment to navigating the company through its current difficulties.

Conclusion

Despite the challenges, MSP Recovery's unique approach to healthcare claims recovery and its extensive portfolio of potentially recoverable claims continue to make it an intriguing player in the industry. The company's recent quarter showed significant revenue growth, although profitability remains elusive. Investors should closely monitor the company's ability to navigate the ongoing investigations, litigation, and liquidity concerns, as well as its progress in implementing its Chase to Pay model and generating sustainable revenue from its recovery efforts. The company's future success will largely depend on its ability to convert its vast portfolio of potentially recoverable claims into actual recoveries while managing its debt and operational costs effectively.