Medtech POV Blog

Exposing the Litigation Financing, Advertising and Gaming Techniques That Are Threatening American Health Care

Originally published on Responsible Advertising for Patient Safety

Medical device manufacturers are increasingly targeted by a mass tort generation machine of unprecedented size and scope. A too hidden network of financiers and claim generators fund TV, radio, internet, and social media ads to recruit large numbers of potential plaintiffs. The lawyers then leverage the sheer number of filings, regardless of the merit of each claim, into consolidated proceedings and pressure companies into mass “inventory settlements.” They are manufactured purely to feed a business model that takes advantage of the civil justice system.

This piece shines light on this mass tort generation machine against medical device manufacturers, explaining how it works and cautioning against the impact it is having on American healthcare.

Investment Capital Funds the Generation of Mass Tort Litigation

As the New York Times exposé How Profiteers Lure Women into Often-Unneeded Surgery found, mass tort litigation, particularly against medical device manufacturers, is now “fueled by banks, private equity firms and hedge funds.” These financiers inject huge amounts of investment capital into generating litigation, a new phenomenon that is responsible for the recent explosion of lawsuits over many medical devices and prescription drugs. They generate “immense” profits by funding mass marketing campaigns to recruit plaintiffs and lawyers to litigate the claims.

Third Party Litigation Financing, as this new financial sector is called, is a multi-billion dollar industry that is growing exponentially. There are now at least 30 firms dedicated to litigation financing, with start-ups regularly entering the market to finance personal injury, class actions, business disputes and other types of cases.

Their business model was largely developed after the Great Recession. They front money to lawyers and businesses that specialize in “claim generation” as non-recourse loans. If the litigation generates a settlement or verdict, they are often paid first and handsomely. The concept is based on cross-collateralization; instead of realizing returns on an individual case basis, their return depends on the ability to generate mass settlements.

Accordingly, the financiers are becoming increasingly sophisticated legal handicappers. As silent partners in the litigation, they often retain the right to oversee litigation, approve expenses, control hiring of experts, and participate in settlement negotiations without needing to transparently disclose their involvement. Industry watchers believe that they soon will have in-house operations to manage discovery and other pre-trial services to conserve costs. Today, the overwhelming majority of mass tort plaintiffs are recruited through these well-financed marketing campaigns.

Sophisticated Marketing Campaigns Are Used to Recruit Lawsuits

This influx of cash has spawned a new industry of claim generators. These businesses use sophisticated campaign-style multimedia marketing techniques to recruit plaintiffs for lawsuits. They use television, radio and online ads, as well as direct marketing techniques. X Ante, a firm that tracks plaintiff-lawyer advertising, found that annual spending on lawsuit TV ads has tripled in the past decade, now exceeding $1 billion.

Online leads are often generated by click-through ads. Clicking on an ad directs the viewer to a call center, where aggregators screen the claims to identify those that meet basic criteria and refer or sell those claims to lawyers. X Ante found that law firms have paid up to $100 per click-through for these leads. In mesh litigation, some lawyers paid $3,000 for the name of each woman who had an implanted mesh device. In addition, lawyers sponsor websites meant to look like news articles to attract people who are searching for health information on a device or drug.

The tactics of lead generators can be misleading. Some ads are disguised to look like FDA public service announcements or give the misimpression that a product is no longer approved or cleared for use or that it is particularly harmful. For example, ads feature altered FDA logos and flash  “MEDICAL ALERT” or “CONSUMER ALERT.” Some ads use the word “recall” in its title, or present information on “dangerous” medical devices without distinguishing between those that have and have not been recalled.  In September 2019, the U.S. Federal Trade Commission sent letters (FTC Flags Potentially Unlawful TV Ads for Prescription Drug Lawsuits) to several lawyers and lead generators warning against these tactics.

The Quantity, Not Quality, of Claims Is Leveraged to Score A Payday

When plaintiffs’ lawyers amass a few dozen or hundreds of claims, they typically seek to have the claims consolidated into a federal multi-district litigation (MDL) or state mass tort panel. The mere formation of an MDL may become fodder for a new round of advertising, as do victories in procedural rulings or bellwether trials. Their goal is to use the MDLs and the sheer number of claims they generate to create the impression that the allegations have merit. They then try to force the defendant into settling these claims as a whole.

Judge Clay Land of the U.S. District Court in Georgia issued an order in a mesh MDL in 2016 that called out these tactics, saying many of these claims “probably should never have been brought in the first place” and:

The Mass Tort Generation Machines Put Litigation Awards Above Patient Safety

In addition to the massive injustice perpetrated on the courts, this lawsuit generation machine has serious consequences for public health. Physicians report that lawsuit ads that overemphasize risks, imply a product is dangerous, or suggest a product has been recalled have scared patients from using FDA-approved or cleared devices and drugs, even when important to that patient’s health. Manufacturers have also removed devices from the market in an effort to avoid the expense of litigation—not because a device is actually harmful—which negatively impacts many people who could benefit from the device.

The American Medical Association (AMA) has passed resolutions against the “fearmongering” in lawsuit advertisements. In 2016, AMA found that these ads were “dangerous to the public at large” because they emphasized potential lethal side effects or complications without informing viewers of the small degree of risk generally associated with that side effect, the device’s benefits, or that FDA allows the device to be marketed. In 2019, the AMA found that “actual patient harm is occurring” and called for commonsense reforms, including prohibiting ads from using government logos or the term “recall,” and requiring ads to clearly warn patients of the danger of stopping a course of treatment without first speaking with their doctor (see AMA Res 208 [2016] & AMA Res 222 [2019]).

The AARP, which advocates for seniors, issued a similar caution in Don’t Let Lawsuit Ads Put You at Risk, stating: “A surge in television, radio and internet ads from law firm and lawsuit marketing companies is causing some patients to take serious risks. . . . [T]he rhetoric of these ads have frightened some patients into stopping critical life-saving medications without consulting a healthcare practitioner.”

Conclusion

The influx of billions of dollars of third-party litigation funding has fundamentally changed the dynamics of mass tort litigation. No longer can judges or the public presume that a lawsuit represents a plaintiff’s personal allegation that he or she was harmed by a product, sought needed medical care and retained a lawyer to seek redress. No longer are plaintiffs’ lawyers, who take claims on contingency fee bases, taking risks only on real cases in which they believe the allegations are credible. Rather, it is investors speculating for a payday who drive litigation. Their goal is to amass enough claims to overwhelm the civil justice system, convince judges and the public that the number of claims—not the validity of those claims—mean that their allegations are credible, and pressure the device manufacturer into paying them off regardless of merit, medical science or patient safety.

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