Third-party litigation funding stifles healthcare innovation and raises costs for patients

Americans are proud to have the best hospitals, the most talented doctors, and by far, the most innovative companies and research institutions across the globe. In the past few years, the
COVID-19 pandemic
showed our ability to adapt quickly and develop therapies for previously untreatable diseases. People of any political persuasion can also agree that despite having the best
healthcare
system in the world, more can be done to bolster healthcare innovation, create new and better treatments, and lower costs for families.

After working in healthcare policy for decades, I’ve learned there’s a lot to be proud of and a lot to improve. When addressing something as complicated and sprawling as the healthcare system, there aren’t always straightforward fixes or bipartisan solutions. But one idea both parties can get behind is addressing the growing and persistent threat of meritless patent infringement litigation backed by third-party funders, which damages healthcare innovation and raises costs for consumers.

THE STATES ARE THE APPROPRIATE LABORATORY FOR MEANINGFUL HEALTHCARE REFORM

Third-party litigation funding is not widely discussed, but in
2021
, it was a $12 billion industry in the United States that is showing no signs of slowing down. Globally, estimates show the industry could reach more than $30 billion by
2028
. It is an extremely profitable investment scheme, with little oversight of the funders, in which an investment group pays for legal costs, and, in return, they receive a significant portion of any settlement or award. These litigation funders are essentially exploiting the legal system for their own financial gain, frequently without any transparency as to who they are.

Those already familiar with third-party litigation funding and the medical industry often first think of the substantial investments litigation funders have made in
medical malpractice
lawsuits. The well-known “ambulance chasing” strategy has driven up costs for consumers and increased liability for those in the medical profession, but third-party-funded litigation is now a drag on the healthcare industry in other ways that have real consequences for medical innovation over the long term.

In recent years, the litigation industry has become increasingly focused on patent infringement lawsuits. IP protections, including patents, are the engine of our innovation economy and are critically important in healthcare, from the creation of new medical devices to biomedical research. Now,
nearly one-third
of all new third-party litigation-funding capital commitments in the U.S. are directed toward patent litigation.
Estimates
from 2022 show that about 30% of patent litigation appeared to be backed by litigation funders. And this is likely a low estimate because there are few disclosure requirements to reveal who’s truly behind these abusive lawsuits. Litigation funders also often direct their investments to what are known as nonpracticing entities or companies that don’t create or use the patent for anything other than asserting infringement claims in search of large settlements or awards.

And while the tech sector takes the most incoming fire from litigation funders and nonpracticing entities, the healthcare industry is in
second
. In an era when health and technology innovation are more closely connected than ever, this spells trouble for medical innovation. Here’s why this is so damaging to our healthcare system.

In the early days of the COVID-19 pandemic, one might remember the concerns and news stories about ventilator and PPE shortages. While most people were working together to overcome this crisis, nonpracticing entities and their deep-pocketed backers saw an opportunity for profit. For
example
, one of them sued a company that made COVID-19 tests, and another sued a company making ventilators. These greedy, frivolous lawsuits didn’t help anybody other than the investors funding them. They do, however, slow down new technological advancements and prevent technologies from getting to patients quickly, all while adding costs that get passed on to patients and consumers.

The first step to fixing any problem is to understand it fully, and we are not there yet with third-party litigation funding. In most cases, the other parties involved in the lawsuits — such as defendants, juries, and even the judge — don’t have access to information about what entities are driving the lawsuits from behind the curtain. There have been some positive signs lately, with individual judges exposing litigation funders’
abuses of the courts
, but these types of transparency mandates have to become standard if we are ever going to find solutions to litigation funders blocking innovation through meritless litigation.

Elected leaders and public servants should use every possible tool to bring costs down for families and support life-saving innovations. Medical innovation in the U.S. is the envy of the world, and we must keep it that way. To continue advancing the best new healthcare technologies, we must remove barriers that hold us back. Increased transparency for third-party litigation funding, whether it be through the courts or Congress, is a much-needed, commonsense idea both parties can get behind.

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Tom Price served as the 23rd U.S. secretary of Health and Human Services. He also served as a U.S. representative for Georgia’s 6th Congressional District and the chairman of the House Budget Committee.