MSP Recovery, Inc. 10-K

Item 1 . Business. Industry Overview The market for healthcare data solutions and healthcare Claims recovery solutions is large and growing. In 2020, the U.S. national health care expenditure was an estimated $4.1 trillion and accounted for 19.7% of the U.S. gross domestic product (“GDP”). The Office of the Actuary of the Center for Medicare & Medicaid Services (“CMS”) estimates that the U.S. national health care expenditure will amount to $6.2 trillion, accounting for 19.7% of the GDP in 2028. National health care expenditures are projected to grow 1.1% faster than the GDP between 2019 and 2028. CMS estimated that $1.6 trillion would be spent on Medicare and Medicaid in 2021. This $1.6 trillion includes $684 billion on Medicaid expenditures and $923 billion on Medicare expenditures. We estimate the serviceable addressable market for Medicare was $102 billion and $75 billion for Medicaid for 2021. Further, CMS estimates that they review less than 0.2% of the over one billion Claims that Medicare processes every year, which leads to a potentially high frequency or number of improper payments of Claims submitted. The Company’s Business Overview We are a leading data analytics company specializing in healthcare Claims recovery. Our Assignors are healthcare providers and payers (the “Assignors”) that have irrevocably assigned to us their recovery rights associated with certain healthcare Claims. We obtain Claims data from the Assignors and leverage our data analytics capabilities using our Claims recovery platform to identify payments that were improperly paid by our Assignors. We then seek the full recoverable amount from those parties who, under applicable law or contract, were responsible for payment (or reimbursement). Our Assignors fall into three general categories: o Medicare Advantage. Medicare Advantage organizations (“MAOs”) contract with CMS to administer Medicare benefits to Medicare beneficiaries pursuant to Medicare Advantage plans; and MAOs, in turn, contract with Medicare first-tier, downstream, and related entities to assist the MAOs in administering those Medicare benefits. o Medicaid. Health coverage provided to eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. o Commercial Insurance. Employer-sponsored or individual purchased health insurance coverage. In January 2022, the Company announced the launch of LifeWallet. LifeWallet is a data ecosystem that is in continuous development to provide innovative data solutions for a variety of industries, including, but not limited to, sports, education, legal, and healthcare. LifeWallet is being developed to employ sophisticated data analytics to enable informed decision-making and improved patient outcomes. Our assets are generally comprised of recovery rights assigned by our Assignors relating to the improper payment of medical expenses. As opposed to service-based contracts, the entirety of these recovery rights have been irrevocably assigned to us, and because we own these rights, our recovery rights for Claims being pursued cannot be revoked. Although our Assignors are primarily MAOs, Management Services Organizations (“MSO”) and Independent Practitioner Associations (“IPA”), we also can (and in certain cases do) provide our Claims recovery services to other entities such as: • Health Maintenance Organizations (“HMOs”) • Accountable Care Organization (“ACOs”) • Physicians • Home Healthcare Facilities • Self-Funded Plans • States and Municipalities • Skilled Nursing Facilities • Hospitals/Health Systems Our data recovery system operates across a Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) compliant IT platform incorporating the latest in business intelligence and data technology. Due to the sensitive nature of the data we receive from our Assignors, we ensure that our data systems comply with the security and privacy mandates by federal law. In April 2022, Marcum LLP (“Marcum”), a HITRUST authorized External Assessor Organization, completed an independent assessment of MSP 4 Recovery’s system and service commitments, concluding that our system met the requirements to satisfy the applicable trust services criteria and HITRUST CSF criteria. This independent assessment verifies that we met the healthcare industry’s highest standards in protecting healthcare information and mitigating this risk, including compliance with HIPAA rules and regulations. On March 2, 2023, Marcum provided MSP Recovery a report demonstrating that our data recovery system’s commitments and system requirements meet or exceed the stringent SOC 2 Type II applicable trust services criteria. For our cloud computing services, we currently use the HITRUST certified Amazon Web Services (“AWS”). The Company’s History In April 2014, MSP Recovery’s predecessor, La Ley Recovery Systems, entered into its first assignment agreement. Later that year, MSP Recovery, LLC was founded to provide data driven solutions, and La Ley Recovery Systems filed its first lawsuit against a primary payer—Allstate Insurance Company. In late 2014, we entered into assignment agreements with our second and third Assignors. To date, we have over 160 Assignors. Since 2014, we have had significant legal victories, including several significant federal appellate court wins. In these opinions, the courts agreed with us on a variety of key issues, holding that: • downstream entities, such as MSOs and IPAs have standing to sue primary plans under the Medicare Secondary Payer Act (“MSP Act”) and associated federal regulations (collectively, the “MSP Laws”); and • a settlement agreement with a Medicare beneficiary is evidence of constructive knowledge that the primary payer had reimbursement obligations. Claims Recovery Model Identifying Opportunity. Our primary focus is on the Medicare and Medicaid markets. Medicare is the second largest government program, with approximately 65 million enrollees and estimated annual expenditures of approximately $930 billion during 2022. Medicaid is a state-based program with approximately 85 million enrollees and estimated annual expenditures of approximately $864 billion during 2022. Under the MSP Laws, Medicare is the secondary payer in those instances where a primary payer is obligated to provide coverage to an insured. When Medicare (or an MAO) makes a payment for medical services that are the responsibility of a primary payer under the MSP Act, those payments are subject to recovery where, and to the extent that, one of the statutorily enumerated sources of primary coverage was contractually obligated to pay. Subsequent MSP Act legislation authorizes private parties to recover unreimbursed payments in cases where a primary plan fails to provide payment (or appropriate reimbursement) in accordance with MSP Laws. We believe our access to large volumes of data, sophisticated data analytics, and a leading technology platform provide a unique ability to discover and recover Claims. Using Algorithms, we identify fraud, waste, and abuse in the Medicare, Medicaid, and commercial insurance segments. Our Algorithms have identified what we estimate to be significant value in potentially recoverable Claims. Of the amount spent yearly by Medicare on medical expenses for its beneficiaries, we estimate that at least 10% are improper payments by private Medicare Advantage plans where a primary payer was responsible to make the payment. We seek recoveries of the Billed Amount from responsible primary payers, and in some instances, double damages and statutory interest pursuant to the MSP Laws. Pursuit of Recoveries. After potentially recoverable Claims are identified using our Algorithms, and vetted by our team of professionals, we formally retain counsel, including La Ley con John H. Ruiz P.A., d/b/a MSP Recovery Law Firm (the “Law Firm”), described in more detail below under “Fee Sharing Arrangement,” and other law firms, to pursue recoveries using a variety of methods, including, but not limited to, demand letters, litigation, private lien resolution programs, and the submission of Claims to mass tort or antitrust settlement coordinators. Medicare and the MSP Law The Medicare Secondary Payer Act The MSP Act states that, under certain conditions, Medicare is the secondary payer rather than the primary payer for its insureds. When Medicare (or an MAO) makes a payment for medical services that are the responsibility of a primary plan under the MSP Act, those payments are conditional. Conditional payments are made by Medicare (or an MAO) as an accommodation for its beneficiaries but are secondary and subject to reimbursement in all situations where one of the statutorily enumerated sources of primary coverage was obligated to pay instead. Subsequent to the initial passage of the MSP Laws, Congress provided a private cause of action, authorizing private parties to recover unreimbursed payments in cases where a primary plan fails to pay or provide appropriate reimbursement in accordance with MSP Laws. We use the current MSP Laws, among others, including the double damages provision, to hold primary payers accountable. The U.S. Senate and the U.S. House of Representatives is currently contemplating the Repair Abuses of MSP Payments Act, re-introduced in May 2023, which seeks to limit the application of the private cause of action under the Medicare Secondary Payer Act and related double damages provisions. 5 Medicare Advantage Plans In 1997, Congress enacted the Medicare Part C program to allow Medicare beneficiaries to receive Medicare Part A and B benefits through privately-run managed care plans. Under the Medicare Advantage program, a private insurance company contracts with CMS to provide Medicare Parts A and B benefits on behalf of Medicare beneficiaries enrolled in a Medicare Advantage Plan ("MA Plan"). Under such a contract, the MAO receives a fixed amount per enrollee (the “Capitation”) and must provide at least the same level of benefits that enrollees would receive under the fee-for-service option. The Capitation structure incentivizes MAOs to provide Medicare benefits more efficiently than under the fee-for-service model due to the competition among MAOs for enrollees as well as the savings recovered from primary payers resulting in additional benefits to enrollees. An MAO’s payment obligation under Part C is coextensive with that of the Secretary under Parts A and B. Part C includes a reference to the MSP Act and renders an MAO a “secondary payer” under the Act. In addition, the CMS regulations provide that an MAO will exercise the same rights to recovery from a primary plan, entity or individual that the HHS Secretary exercises under the MSP regulations. The U.S. Court of Appeals for the Eleventh Circuit has accordingly recognized parity between MAOs and Medicare, as “Congress empowered (and perhaps obligated) MAOs to make secondary payments under the same circumstances as the Secretary.” MAOs, however, are merely the first layer of the Medicare Advantage program. Due to the customary practices within the MAO industry, the financial injury caused by a primary plan’s failure to reimburse conditional payments is often felt primarily by First Tier and Downstream Entities. First-Tier and Downstream Entities Federal regulations recognize Medicare first-tier and downstream entities as active participants in the provision of benefits under Medicare Part C. 42 C.F.R. § 422.2 defines a “First-Tier Entity” as “any party that enters into an acceptable written arrangement with an MA organization or contract applicant to provide administrative services or health care services for a Medicare eligible individual.” A “Downstream Entity” is an entity that enters into a similar written arrangement at a level below that of a First-Tier Entity. Such written arrangements continue down to the level of the ultimate provider of both health and administrative services. These contracts are both encouraged and regulated by CMS, which requires First-Tier and Downstream Entities to furnish healthcare services in a manner consistent with the dictates of the Medicare program and a MA plan’s obligations thereunder. In this way, First-Tier and Downstream Entities are the parties responsible for managing and providing healthcare services to Medicare beneficiaries under the Medicare Advantage program. First-Tier entities include MSOs and IPAs. An IPA is a business entity organized and owned by a network of independent physician practices for the purpose of reducing overhead and optimizing efficiency and effectiveness in the delivery of health care to Medicare beneficiaries. Put simply, IPAs are healthcare providers who often bear the full financial risk of managing their patients’ care. An MSO is a group that owns or manages multiple physician practices for the same purpose. The core business of IPAs and MSOs within the Medicare Part C infrastructure is to manage the care of patients, leverage their delivery systems, and focus on preventive health in order to create value and cost savings. Because of an MSO and IPA’s role as a point of service provider and manager of a beneficiary’s care, MAOs customarily pass their risk of loss onto MSOs and IPAs. Under these arrangements, an MAO deducts a percentage of the CMS capitation rate for its administrative costs and pays the balance to the IPA or MSO. In exchange, the provider (IPA or MSO) assumes the full financial risk for the care of the MAO’s enrollee. As such, “at-risk” IPAs and MSOs are charged with producing competition, innovation, progress, and savings in the Medicare Part C environment. In accepting the full financial risk of a Medicare beneficiary’s health care, an IPA or MSO assumes the MAO’s position within the Medicare Part C framework. When a Medicare Advantage enrollee is injured in an accident, an IPA or MSO can meet its obligation to that enrollee in one of two ways. First, it can render the requisite care to the enrollee directly through its network of physicians, providers, or medical centers. Under this scenario, the MSO or IPA suffers the full cost of providing items and services to the Medicare beneficiary. Alternatively, if the enrollee is treated in an emergency room or other facility outside of the MSO or IPA’s provider system, then the MSO or IPA may make a conditional payment for the cost of that treatment because it is financially responsible for the enrollee’s care. Under this second scenario, the contracting MAO pays the outside provider (i.e., the emergency room) and then charges the full amount of that payment to the MSO or IPA who bears the risk of loss. In other words, the MSO or IPA must reimburse the MAO for the full amount of its payment to the outside provider (or that payment is applied as a set-off against capitated funds that the MSO or IPA would otherwise receive). If an MAO makes a secondary payment which is later appropriately reimbursed by a primary payer, then the MAO will not charge and collect that same amount from the MSO or IPA responsible for that particular enrollee. On the other hand, if the primary payer violates the MSP Act, it is First-Tier and Downstream Entities that are damaged as a result. When an MSO or IPA is damaged by a primary payer, that entity may likewise turn to the MSP Act’s broadly worded private cause of action against the primary payer. Double Damages. Under existing statutory and case law, the private cause of action under the MSP Act permits an award of double damages when a primary plan fails to provide for primary payment or appropriate reimbursement. We are entitled to pursue medical expenses paid by our Assignors that should have been paid by Primary Plans. Under the MSP Act, we are entitled to pursue double the amount that a provider charged. The private cause of action under 42 U.S.C. § 1395y(b)(3)(A), works in concert with 42 6 U.S.C. § 1395w-22(a)(4), which expressly provides MAOs with the right to “charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy, described in such section the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services…” Moreover, the MSP regulations in Part 411 also support the fact that a provider may bill its full charges for services to primary payers. The statute provides the Company the ability to seek double the charged or otherwise Billed Amounts from primary plans. The payment disparity between the Paid Amount and the Billed Amount creates a free rider scenario where the primary payer is in a better financial position if it does not comply with the law. In other words, if a primary payer’s liability is capped at double the Paid Amount (an amount less than what the primary payer would have paid) then the entire purpose of the MSP Act—to make Medicare secondary—is defeated. That is why Congress set the damage amount at the amount billed by the provider; to incentivize compliance with the MSP Act. However, the Repair Abuses of MSP Payments Act (S.1607/H.R.3388) (the “RAMP Act”) introduced by Senators Tim Scott (R-SC) and Maggie Hassan (D-NH) and Representatives Brad Schneider (D-IL) and Gus Bilirakis (R-FL) in the U.S. Senate and the U.S. House of Representatives, respectively, could limit potential double damage recoveries to group health plans only, as defined in paragraph 42 U.S.C. § 1395y(b)(1)(A)(v)). This legislation, if enacted as proposed, would not apply retroactively, and would not affect our existing portfolio of Claims or lawsuits filed prior to its potential enactment. Interest Multiple. In addition to the Billed Amount, the Company is entitled to pursue interest pursuant to Section 1862(b)(2)(B)(i) of the Social Security Act and 42 C.F.R. § 411.24(m), which provides express authority to assess interest on Medicare Secondary Payer debts. Therefore, when recovery is pursued through litigation, we seek to recover double the amount owed for our Assignor’s accident-related medical expenses, plus accrued statutory interest due pursuant to the MSP Laws. Pursuant to federal and state laws, we believe the Company has an established basis for future recoveries, often in excess of the Paid Amount. By discovering, quantifying, and settling the gap between Paid Amount and Billed Amount on a large scale, we believe we are positioned to generate meaningful profit margins. Pursuant to the “right-to-charge” provision in the MSP Laws, an MAO may charge, or authorize providers to charge, insurance carriers for usual, customary, and reasonable charges permitted by the law, plan, or policy, such as the Billed Amount. As such laws, plans, and policies provide for payment of the providers’ actual charges (the Billed Amount), rather than the reduced Medicare payments, we pursue recovery of the Billed Amount and in certain cases, as provided by law, double the Billed Amount for medical services and treatments. The below graphic demonstrates the difference between the Paid Amount, the Billed Amount, and the potential for double damages. For additional information, see “Development of Medicare and the MSP Law” below. 7 Mandatory Reporting The Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”): MMSEA added mandatory reporting requirements with respect to Medicare beneficiaries who have coverage under group health plan arrangements as well as for Medicare beneficiaries who receive settlements, judgments, awards, or other payment from liability insurance (including self-insurance), no-fault insurance, or workers’ compensation. Failure to comply with MMSEA may result in a civil money penalty of $1,000 for each day of noncompliance for each individual for which the information should have been submitted. This civil money penalty is in addition to any other penalties prescribed by law and in addition to any Medicare secondary payer Claim under this title with respect to an individual. Although we are not entitled to pursue MMSEA penalties on our own behalf, we have filed a qui tam lawsuits on behalf of the federal government to enforce this federal law. Recent Updates - Corporate Rebranding In January 2023, we rebranded to LifeWallet. The core strategy and business of the Company remains the same—secondary payer reimbursement recoveries. However, utilizing the name LifeWallet reflects the diverse recovery opportunities presented by the Company’s growing technological innovations and consolidates current and future lines of business under one name, while positioning the Company for future revenues streams. The LifeWallet Ecosystem We are developing LifeWallet—a versatile, scalable, and expandable ecosystem, where tokenized data is stored in a secure, user friendly platform with multiple applications. LifeWallet is expected to provide real-time analytics at the point of care, helping identify the primary insurer, assisting providers in receiving reasonable and customary rates for accident-related treatment, shortening the company’s collection time frame, and increasing revenue visibility and predictability. The platform aims to avoid the improper documenting of medical Claims that lead to improper billing, thereby preventing fraud, waste, and abuse, and is also expected to provide an application programming interface that allows patients to gain immediate access to all of their medical records when seeking medical treatments. LifeWallet incorporates extensive privacy and security standards and is HIPAA compliant. 8 A number of applications that will be powered by LifeWallet are currently in development, including: • LifeWallet Sports. LifeWallet Sports empowers student-athletes to maximize their Name, Image, and Likeness (“NIL”) rights by connecting them with brands and businesses. The platform assists athletes in deal negotiation and rule compliance and enables brands and businesses to identify talent, schedule events, monitor campaigns, and much more. • Chase to Pay Services. Over time we intend to shift our core business to the Chase to Pay service platform powered by LifeWallet (“Chase to Pay”). Chase to Pay is being developed to locate and organize users’ medical records to facilitate efficient access and enable informed decision-making and improved patient care. A real-time, analytics driven platform that identifies the proper primary payer at the point of care, Chase to Pay is intended to plug into the real-time medical utilization platforms used by providers at the point of care. • LifeWallet Health. LifeWallet Health is being developed to give patients the ultimate control over their healthcare data by providing easy access to their medical history, providing healthcare notifications, and utilizing a wide variety of data points to improve overall patient care. • LifeChain. LifeChain is being developed to tokenize healthcare Claims and patient records using blockchain technology, to enable adjudication of Claims upfront, in real-time, with complete transparency. LifeChain aims to reduce costs, maximize provider revenue, improve patient care, and eliminate fraud, while maintaining patient privacy using decentralized biometric authentication. • LifeWallet 911. LifeWallet 911 is being developed for utilization by emergency service organizations to improve the facilitation of emergency services by providing 911 operators, dispatchers, and emergency medical providers with immediate access to vital information to reduce response times and improve patient outcomes. • LifeWallet Legal. LifeWallet Legal is being developed to bring together clients and attorneys through a trusted, verified data platform to facilitate the efficient processing of Claims for improved legal outcomes. • LifeWallet EDU. LifeWallet EDU is being developed to provide an intelligent infrastructure and security solutions for educational institutions, utilizing biometric technology to prevent safety breaches in real-time, thus providing unparalleled security for students, faculty, and staff. Competitive Strengths Irrevocable Assignments We differ from competitors as we receive irrevocable assignments of recovery rights associated with certain healthcare related Claims. When we are assigned these rights, we obtain ownership in those rights that our competitors do not. Rather than provide services under third-party vendor services contracts, we receive the rights to our Assignors’ Claims, and therefore step into the Assignor’s shoes. As assignees, we are the plaintiff in any action filed in connection with such Claims, we maintain control over the direction of the litigation, and we can pursue additional recoveries under numerous legal theories that our competitors cannot. Scale of Current Portfolio Our current portfolio has scaled significantly. As of December 31, 2022, we have been assigned recovery rights on Claims valued at approximately $1,574 billion in Billed Amount (and approximately $375 billion in Paid Amount), of which approximately $89.6 billion is PVPRC. We are typically entitled to 100% of recoveries pursuant to our Claims cost recovery agreements (“CCRA”). From those recoveries, we are typically contractually obligated to pay 50% of recoveries to the Assignor, plus attorneys' fees and costs associated with pursuit of the recoveries. In certain cases, we have purchased the Assignor's rights to recovery proceeds in advance of any collection; therefore, entitling the Company to retain 100% of the recovery proceeds, net of attorneys' fees and costs. As of December 31, 2022, we were entitled to up to approximately 54% in the aggregate of the approximately $89.6 billion in PVPRC. Our recoveries would constitute a portion of the approximately $89.6 billion in PVPRC that may be recovered, after giving effect to our expenses, including any contingent fee payment payable to the Law Firm. See “Risk Factors—Risks Related to the Company's Business and Industry.” This approximately $89.6 billion in PVPRC was identified using our Algorithms which comb through historical paid Claims data and to identify potential recoveries. As of December 31, 2022, the approximately $89.6 billion in PVPRC and approximately $375 billion in Paid Amount included approximately $5.5 billion and approximately $24.4 billion in capitated payments, respectively. Such capitated amounts are typically based on a fixed amount per enrollee in a plan rather than amounts paid on a fee-for-service basis and, in calculating the equivalent of Paid Amount for purposes of measuring potential recoveries, in cases where payments were based on capitated amounts, MSP Recovery reviews capitated encounter data typically found in Medicare Part B payments. The Company has successfully recovered full amounts on these capitated payments in prior settlements. The typical timeline for Claims being identified as potentially recoverable Claims to actual Claims recovery revenue can vary greatly depending on the complexity of the recovery strategy and litigation, as well as the status of each Claim in the recovery process. The Company monitors the penetration status of the Claims portfolio, which categories the status of cases based on their status in the 9 recovery process in the following categories: in development, recovery process initiated, data collected and matched, resolution discussions in process and other cases. Potentially recoverable Claims can take years to reach resolution based on a variety of factors. Our Proprietary Data Analytics System We believe our access to large volumes of data, sophisticated data analytics, and leading technology platforms provide a unique opportunity to discover and recover Claims. Our Algorithms comb through historical paid Claims data to identify potential recovery opportunities. As of December 31, 2022, we estimate a PVPRC of $89.6 billion. Through data mining, we continue to identify new recovery opportunities. Our Founders and Broad Team with Extensive Legal Experience Experienced management gives us a competitive advantage. Our founder, John H. Ruiz, is recognized as one of America’s pre-eminent trial lawyers, named “2019’s DBR Florida Trailblazer” for groundbreaking work in integrating data analytics into the practice of law and for the impact it is having on healthcare recoveries. Over the course of a distinguished 30-year legal career, Mr. Ruiz has gained national recognition in class action, mass tort litigation, multi-district litigation (“MDL”) consolidated cases, medical malpractice, products liability, personal injury, real estate, and aviation disaster cases. Our Chief Legal Officer, Frank C. Quesada, has extensive experience in healthcare litigation, including numerous legal wins in state and federal court, at the trial and appellate levels. Due to our team’s extensive knowledge of the MSP Laws, and decades of experience in data analytics within the medical industry, we believe we are well positioned to recover monies owed to our Assignors under the MSP Laws, as well as other state and federal laws. We use our proprietary software and a highly trained staff including IT personnel, accountants, statisticians, physicians, data analysts and attorneys to maximize the recovery of Claims already paid. Growth Strategy Expansion of Assignor Claims. CMS has projected that health spending will continue to grow at an average rate of 5.4% a year between 2019 and 2028. We anticipate that this trend will be reflected in our own growth. We plan to expand our Assignor base by implementing new strategies to secure new Assignors and continue receiving assignments of Claims from our existing Assignors. These strategies will include a platform to educate potential Assignors about our company, making strategic business partnerships, potential mergers, acquisitions of personnel, as well as other marketing strategies. Further Development of our Chase to Pay Services . The Company is currently developing the Chase to Pay model. This model will allow payers and providers to identify the proper primary payer in real time, at the point of care. Our plan is to develop these services to form a source of revenue that does not require the acquisition costs and recovery sharing associated with our Claims recovery business. Continued Development of our Data Analytics System. We will also continue to develop our proprietary system and anticipate shifting to AI and machine learning to better enhance our recovery potential. The development of our system will allow us to be more efficient in the services we provide our Assignors, as well as being able to attract more Assignors. 10 Monetizing Existing Software Applications. We intend to offer certain of our software applications, including our Claims to Med application as separate products. The Claims to Med application translates the codified component of procedural codes (“CPT codes”) from medical Claims data and medical bills into medical records that are consistent with Claims records. This allows patients, providers, attorneys, corporations, and the general public to better understand their medical history. Our Services Claims Recovery As part of our Claims recovery business, we pursue a number of types of recoveries, including: Contractual Cases When Medicare or an MAO, as a secondary payer, makes a payment on behalf of a beneficiary for injuries related to the use, maintenance, or operation of a vehicle, that payment may be recoverable from a no-fault insurer, as a primary payer. No-fault coverage does not require an assessment of liability, and thus, when a covered medical expense is incurred, the insurer must accept primary payer responsibility. The no-fault insurer’s failure to pay or reimburse Medicare and MAOs constitutes a breach of the beneficiary’s no-fault coverage, and a violation of the MSP Laws. Settlement Cases The MSP Act allows Medicare beneficiaries, providers and MAOs to seek reimbursement from any entity or person that has settled a dispute and failed to pay or reimburse Medicare and MAOs for an enrollee’s medical expenses related to that dispute. We review our Assignor’s Claims data and compare these records with the CMS database and court dockets to determine if any of our Assignor’s enrollees have been involved in a dispute that resulted in a settlement. Product Liability Defective or dangerous products cause thousands of injuries every year. Many product liability cases arise from instances in which an implantable medical device causes an adverse reaction due to a design or manufacturing defect. These adverse reactions may range from minor rashes to cancer and subsequent death. Where Medicare or an MAO has paid an enrollee’s medical expenses for these injuries, we can pursue recoveries. Antitrust-Pharmaceutical Antitrust laws, including the Sherman Antitrust Act of 1890 (the “Sherman Act”) and the Clayton Antitrust Act of 1914 (the “Clayton Act”) and analogous state unfair competition laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for products and services. The Sherman Act also outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade. Our antitrust cases typically derive from one of the two following scenarios: (1) either a group of manufacturers who make similar products decide to raise product prices collectively irrespective of market fluctuations; or (2) a manufacturer of a branded pharmaceutical enters into a “pay for delay” agreement with a generic drug manufacturer so that the generic drug manufacturer delays the market launch of a cheaper competing drug. We bring antitrust Claims on behalf of our Assignors under both scenarios pursuant to the Sherman Act, the Clayton Act and state unfair competition laws. False Claims Act The False Claims Act (the “FCA”) is widely regarded as an effective tool in combating waste, fraud and abuse against the federal government. The FCA prohibits the submission of false or fraudulent Claims for payment from the government. The FCA, which imposes civil penalties, fees, and treble damages for fraudulent claims, permits private individuals to file qui tam suits on behalf of the federal government. Mass Tort and Private Lien Resolution Programs When a defendant in an MDL settles its cases with the plaintiffs, the issues can be resolved through a Master Settlement Agreement (“MSA”), which settles all pending lawsuits and provides that the defendant(s) agrees to set aside funds to settle the MDL related cases involving various conditions. MSAs govern the terms of the settlement and provide for the resolution of all liens against the settlement proceeds. A lien resolution administrator assists in resolving all liens that are asserted by government payers or private payers against settlement funds and ensures that all such liens are resolved prior to settlement payments being disbursed to the settling claimants. An MSA typically provides for a Private Lien Resolution Agreement (the “PLRP Agreement”) whereby the lien resolution administrator and our entities (the “MSP Group”) establish an efficient procedure to resolve MSP Group’s Claims and liens accordingly. Upon payment of MSP Group’s liens as provided in the PLRP Agreement, MSP Group’s reimbursement Claims against recoveries by claimants as defined in the MSA are resolved, and all potential liabilities related to such liens in favor of MSP Group are 11 released. The only liens subject to resolution are those liens that qualify for a settlement payment pursuant to the MSA. No other Claims owned or otherwise held by the MSP Group are encompassed in the PLRP Agreement. MSP Group conducts an analysis of the claimants in the MDL settlement and identifies liens belonging to MSP Group arising from medical care and treatment provided to claimants for which MSP Group has a legal right of recovery. A lien administrator provides the list of claimants to MSP Group. MSP Group then provides the Claims data supporting MSP Group’s liens to the lien administrator, which includes the specific Billed and Paid Amount of MSP Group’s liens. The lien administrator reviews and verifies MSP Group’s data and confirms that the Claims included in the liens are reimbursable. Our Claims Portfolio As of December 31, 2022, we have received assignments to recovery rights for more than 160 Assignors in the Medicare, Medicaid, and commercial Insurance segments, associated with approximately $1.573 trillion in Billed Amount of health care Claims. We have been assigned Claims from all 50 states, as well as Puerto Rico. Each dot in the following graphic represents a ZIP code for which the Company maintains data. We typically acquire recovery rights by entering into a CCRA with an Assignor, pursuant to which the Assignor assigns all right, title, and interest in and to its Claims recovery and reimbursement rights to the Company, or to an affiliated entity, partner, or investor, in exchange for (a) deferred compensation, typically structured as 50% of any net recovery earned by and paid to us, or (b) an upfront lump sum payment. Some of these CCRAs are “limited recovery” agreements, meaning that they are limited in time or scope as to what is assigned to us. For example, certain of our CCRAs relate specifically to claims against manufacturers, distributors, and producers of Actos, pioglitazone, metformin, glimepiride, or Duetact. Additionally, certain other CCRAs relate specifically to healthcare services rendered and paid for during a specified timeframe. In general, our CCRAs allow the Company to recover historical Claims. Under some of the CCRAs, the Company has been assigned historical Claims and the Assignor has agreed to continue assigning Claims data. The Company currently expects to generate a substantial portion of total revenue from current CCRAs through recoveries on historical Claims under our Recovery Model. The Company believes as it builds out the Chase to Pay platform and recovery model, a significant portion of the Company’s revenue from these CCRAs will be derived through the Chase to Pay model by recovering on Claims as they occur. In the cases where we acquire recovery rights for an upfront lump sum payment, instead of a CCRA, we typically enter into a Claims Purchase and Assignment Agreement (“CPAA”). Under a typical CPAA, an entity assigns all right, title, and interest in and to its Claims recovery and reimbursement rights to us (or our affiliated entity, partner or investor) in exchange for an upfront lump sum payment. In these arrangements, we (or our affiliated entity, partner or investor) would typically own 100% of all future net recoveries from those purchased Claims. Often times the CPAA includes a provision to continue acquiring future Claims from the Assignor. MSP Lien Resolver We intend to further develop and expand the offering for our MSP Lien Resolver. MSP Lien Resolver is a disruptive new product that helps identify, quantify, and resolve outstanding liens. Key areas of functionality for MSP Lien Resolver include modules for related lien notices, Claims history, Claims dispute and negotiation, and case settlement and payment. MSP Lien Resolver benefits us because the additional proprietary data enhances overall data quality and efficacy. This product also deepens relationships with attorneys and outside information providers. 12 Sales and Marketing Our sales force is comprised of internal and external sales professionals. Our sales force identifies potential Assignors and manages relationships with existing Assignors. The sales force is incentivized via a recovery-based strategy. Once we have received recoveries for Claims related to an Assignor, the applicable sales professional is compensated. This mechanism ensures low fixed costs while offering a potentially generous commission model. Among other things, our marketing strategies generate new Assignor leads, by educating investors and Assignors about our Company. Licensing and Regulation We are subject to federal and state laws and regulations governing privacy, security and breaches of patient information and the conduct of certain electronic health care transactions, including, HIPAA and other health information privacy and security requirements. Some of our Assignors with which we have or may establish business relationships, are “Covered Entities” that are regulated under HIPAA. We also are a “Business Associate” of our Assignors; as such, we must comply with HIPAA regulations. To provide our Covered Entity Assignors with services that involve the use or disclosure of protected health information, HIPAA requires us to enter into Business Associate agreements with our Assignors. In addition to HIPAA, we may be subject to other U.S. federal and state laws relating to the collection, dissemination, use of and access to, personal information. While we believe that we are in material compliance with such laws and regulations, failure to comply with these laws could expose us to lawsuits, data security incidents, regulatory enforcement or fines. Intellectual Property and R&D We rely on trade secret laws. We use a combination of confidential agreements and licenses with our Assignors, employees, vendors, and other parties. We also rely on other security measures to control the access to our confidential information, software, and other intellectual property. Our research and development team uses proprietary software and a highly trained staff including I.T. personnel, accountants, statisticians, physicians, data analysts and attorneys to search through numerous data sources. We will continue the investment of resources into our proprietary systems. Our intellectual property licensing agreements grant, during the term of the agreement, a non-exclusive, non-transferable, non-assignable, irrevocable, worldwide, fully paid-up license under our software and technology to use, perform, import, export, and all other rights pursuant to our software and technology solely in connection with the parties’ assigned Claims and the transactions contemplated in the agreements between the parties. Nothing in these agreements affect our ownership or control in our software and technology. Except for the license, all of our other rights with respect to our software and technology are reserved. Competition We believe we do not have any direct competitors. Other entities in the industry act as vendors and pursue reactive recoveries, while we aggressively pursue recoveries on our own behalf, using various state and federal laws. Although somewhat different in approach, we compete with in-house recovery departments, collection and financial services companies and other companies. Some of these entities are Cotiviti Holdings, Inc., MultiPlan Corporation, Encore Capital Group, Inovalon Holdings, Inc., Optum, Inc., Verisk Health, Inc., McKesson Corporation, Change Healthcare Corporation, HMS Holdings Corp., The Rawlings Group, Equian, LLC, Trover Solutions, Inc. and other, smaller companies. Human Capital Our employees and culture are critical components to our success and growth as a company. As of December 31, 2022, we had approximately 100 employees. None of our employees are covered by collective bargaining agreements or represented by a labor union. We believe that the relationships we have with our employees are positive. In addition, we employ specialized contract or part-time employees on a temporary basis, which include highly trained IT personnel, accountants, statisticians, physicians, data analysts and attorneys to maximize the recovery of Claims. We have historically been able to transition many of these top performers from contract or part-time to full time employment. We strive to attract, develop, and retain the best talent by providing competitive pay and benefits, continuous growth and development, and a diverse and inclusive workplace. Our human capital resource objectives include not only acquiring the best talent but also motivating those that drive our business forward. We aim to achieve these objectives using generous compensation programs and offering a one-of-a-kind employee experience. To better develop and incentivize our employees, we regularly provide employee feedback and recognition. We have an annual bonus program, and we utilize spot bonuses in order to continue to drive our employees to find opportunities and innovate our business. 13 Fee Sharing Arrangements We engage with each Assignor independently. As stated above, typically our Assignors irrevocably assign to us broad recovery rights to the Claims assigned. Generally, the assignment agreements provide for the Assignor to receive 50% of the Net Proceeds of any recoveries from the Claims assigned. The “Net Proceeds” of any assigned Claim is defined as the gross amount recovered on an assigned Claim, minus any costs directly traceable to such assigned Claim(s) for which recovery was made. In some instances, we may purchase outright an Assignor’s recovery rights; in this instance, we are entitled to the entire recovery. We enter into legal services agreements with the Law Firm and the various entities that hold Claims. In this relationship, the Company (and other Claims holding entities) is the plaintiff and the Law Firm serves as its counsel. The Law Firm is engaged to act as exclusive lead counsel to represent MSP Recovery and each of its subsidiaries and affiliates (or other applicable entity) as it pertains to the Assigned Claims, on a contingency basis. The Law Firm engages outside litigation counsel from around the nation as co-counsel and these arrangements are made directly between the Law Firm and other counsel. For the services provided, the Law Firm is typically entitled 40% of our 50% portion of the Gross Proceeds (i.e., 20% of the total Gross Proceeds). This contingency fee can change in the future. The Law Firm is also entitled to attorneys’ fees that are awarded pursuant to any fee shifting statute, by agreement, or court award. The below is an illustration of how the recovery proceeds arrangement typically works when co-counsel is (and is not) involved: Seasonality Seasonality does not have a material impact on our business. Other Information about MSP Recovery, Inc. d/b/a LifeWallet We make available free of charge through our website, www.msprecovery.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, our website includes other items related to corporate governance matters, including, among other things, our corporate governance principles, charters of various committees of the Board of Directors, and our code of conduct applicable to all employees, officers and directors. We intend to disclose on our internet website any amendments to or waivers from our code of business conduct and ethics as well as any amendments to its corporate governance principles or the charters of various committees of the Board of Directors. Copies of these documents may be obtained, free of charge, from our website. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file periodic and other reports electronically with the SEC. The address of that site is www.sec.gov. The information available on or through our website is not a part of this Annual Report and should not be relied upon. 14 Forward-Looking Statements Certain of the statements contained in this Annual Report on Form 10-K (this "Annual Report") are forward-looking and constitute forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "could," "expect," "intend," "plan," "predict," "may," "should," and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts, including, for example, guidance for 2023 portfolio recovery and revenue. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance or results and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will not differ materially from our expectations. In evaluating such forward-looking statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." Any forward-looking statement made by LifeWallet herein speaks only as of the date made. The discussion of risks and uncertainties set forth in this Annual Report is not necessarily a complete or exhaustive list of all risks facing the Company at any particular point in time. New risks and uncertainties come up from time to time, and it is not possible for management to predictor identify all such events or to assess either the impact of all such risk factors on our business or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially from those contained in any forward-looking statement. LifeWallet has no obligation, and does not intend, to update any forward-looking statements after the date hereof for any reason, even if new information becomes available in the future, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to, LifeWallet's ability to capitalize on its assignment agreements and recover monies that were paid by the assignors; the inherent uncertainty surrounding settlement negotiations and/or litigation, including with respect to both the amount and timing of any such results; the validity of the assignments of Claims to LifeWallet; the ability to successfully expand the scope of our Claims or obtain new data and Claims from LifeWallet's existing assignor base or otherwise; LifeWallet's ability to innovate and develop new solutions, and whether those solutions will be adopted by LifeWallet's existing and potential assignors; negative publicity concerning healthcare data analytics and payment accuracy; compliance with the listing standards of The Nasdaq Capital Market; and those other factors listed under "Risk Factors" below and elsewhere in this Annual Report and other reports filed by the Company with the SEC. Unless the context requires otherwise or unless otherwise noted, all references in this Annual Report to "LifeWallet," "MSP Recovery," "MSP," "the Company," "we," "us," or "our" are to MSP Recovery, Inc., d/b/a LifeWallet, a Delaware corporation.