Introduction

The NEWDIGS FoCUS consortium (payers, providers, patient advocacy organizations, pharmaceutical developers, academics and others) has been working collaboratively since 2016 to address the need for new, innovative financing and reimbursement models for durable/potentially curative therapies in the US in order to ensure patient access and sustainability for all stakeholders. FoCUS does not address how to value these therapies or set their prices. Payers and other organizations have methodologies to do so. Rather, FoCUS seeks to create precision financing solutions for durable, potentially curative therapies with large, upfront costs whose benefits accrue over time.

FoCUS participants identified over 20 individual financing tools, no single one of which could meet all needs for every stakeholder. The participants then combined the tools into sets that formed Financial System Solutions (FSS), which in combination could address significant financial challenges for the stakeholders. The multi-stakeholder FoCUS participants created these customizable Financial System Solutions in FoCUS “Design Lab” workshops held every six months with sub-teams working between Design Labs.

The highest potential precision financing solutions identified by FoCUS participants are listed below. By clicking on each solution, you can find a concise description of each and links to additional resources.

Milestone-based Contracts Multi-year Milestone-based ContractsPerformance-based AnnuitiesPayment Over Time/Installment FinancingReinsurance/Stop Loss Insurance Risk Pools
Orphan Reinsurer and Benefit Manager (ORBM)

Milestone-based Contracts

Milestone-based Contracts

Definition

A short-term performance-based agreement in which the payer makes an upfront payment for the full negotiated price of the therapy.  The developer is then contractually obligated to provide a partial refund if specific patient performance milestones/outcomes are not met.

Risks addressed

✓ Performance uncertainty

Requirements

  • Therapy performance established over a brief period
  • Preference for rebates rather than prospective payments
  • Ability to align on elements of a performance contract
  • Infrastructure for patient tracking to assess outcomes

Issues to explore

  • Medicaid-best price triggers

A milestone-based contract helps payers manage potential performance risk associated with a therapy. As the figure below illustrates. it assumes an upfront payment by a payer of the agreed price for a medicine. The developer is then contractually obligated to provide a refund for non-performance if specific performance milestones or outcomes are not met.


Figure: Conceptual One-Year, Milestone-Based Performance Contract

Such a model could be established between the payer and a developer, specialty pharmacy or wholesaler depending on the care setting and the medicine distribution model. This figure might suggest a contract for a single patient, but an agreement could cover multiple patients and be based on individual or group milestone(s).

FoCUS has defined Milestone-Based Contract to have a term of less than one (1) year. This is appropriate for therapies with specific outcomes that can be established within a one-year period. It also has fewer pricing regulation and accounting complexities than a multi-year contract. Operationally, it is also most consistent with existing rebate approaches. Longer-term milestone-based contracts are possible and discussed under the section on Multi-year Milestone-based Contracts.

Milestone-based contracts need to clearly specify upfront, based on the specifics of the medicine:

  • The contract term and specific milestones points for outcomes measurement
  • The covered population for the performance agreement
  • Easily administered, relevant outcomes performance metric(s)
  • Minimum performance thresholds, outcomes measures, and timing that will trigger any milestone rebate
  • The amount of the refund (full, partial; amount or percent) associated with failure to meet the performance standard
  • The rebate basis and methodology (by patient, by population, by time period)
  • The mechanics and individual stakeholder responsibilities for gathering performance data, measuring and adjudicating the outcome metric, and triggering and processing any rebate.
  • How patient movement across plans or providers will be handled

Payers would need to have rebate administration capabilities. Barring these, payers might wish to consider outsourcing to an organization capable of providing those capabilities: a health plan, PBM or other entity providing elements of FoCUS’ Orphan Reinsurer and Benefit Manager concept.

Additional information on milestone-based contracts may be found in FoCUS’ Precision Financing Solutions for Durable / Potentially Curative Therapies white paper. FoCUS’ Research Brief, Model Contracts for Innovative Oncology Therapies, provides more detailed guidance on elements to consider in designing performance metrics. Additional insights on patient movement across plans can be found here.

A toolkit to assist State Medicaid organizations in designing, negotiating and establishing milestone-based contracts has been developed, building on experiences of State Medicaid leaders. It may be accessed here.

Multi-year Milestone-based Contracts

Multi-year Milestone-based Contracts

Definition

A longer-term performance-based agreement in which the payer makes an upfront payment for the full negotiated price of the therapy.  The developer is then contractually obligated to provide partial refunds if specific patient performance milestones/outcomes are not met.

Risks addressed

✓ Performance uncertainty

Requirements

  • Therapy performance established over several years
  • Payer ability to sign contracts for period >1 year
  • Preference for rebates rather than prospective payments
  • Ability to align on elements of a performance contract
  • Infrastructure for patient tracking to assess outcomes

Issues to explore

  • Payer accounting requirements
  • Medicaid-best price triggers

A multi-year milestone-based contract is similar to the Milestone-based Contract, but it is assumed to have a term of greater than one year.

A multi-year milestone-based contract helps payers manage potential performance risk associated with a therapy over multiple years. As the figure below illustrates. it assumes an upfront payment by a payer of the agreed price for a medicine. The developer is then contractually obligated to provide a refund for non-performance if specific performance milestones or outcomes are not met.


Figure: Conceptual Multi-Year, Milestone-Based Performance Contract

Such a model could be established between the payer and a developer, specialty pharmacy or wholesaler depending on the care setting and the medicine distribution model. This figure might suggest a contract for a single patient, but an agreement could cover multiple patients and be based on individual or group milestone(s).

FoCUS has defined Multi-Year Milestone-Based Contracts to have a term of greater than one (1) year. The model is appropriate for therapies whose value will be demonstrated over a longer period of time, though there may still be first year milestones. For example, therapies may have initial milestones and treatment success rates in the first year, as well as longer term outcomes milestones based on the same or different metrics that need to be hit to ensure the full value is realized. For single-year contracts please see the Milestone-Based Contracts section.

Milestone-based contracts need to clearly specify upfront, based on the specifics of the medicine:

  • The contract term and specific milestones points for outcomes measurement
  • The covered population for the performance agreement
  • Easily administered, relevant outcomes performance metric(s)
  • Performance metric data source
  • Minimum performance thresholds, outcomes measures, and timing that will trigger any milestone rebate
  • The amount of the refund (full, partial; amount or percent) associated with performance failure
  • The rebate basis and methodology (by patient, by population)
  • The mechanics and individual stakeholder responsibilities for gathering performance data, measuring and adjudicating the outcome metric, and triggering and processing any rebate.
  • How patient movement across plans or providers will be handled.

Due to its multi-year nature, a multi-year milestone-based performance contract raises additional patient tracking, pricing regulation, and potentially accounting issues. A multi-year performance contract will require tracking patients over time. FoCUS envisioned that patients may be incentivized to participate in ongoing monitoring to support the assessment of outcomes and their use for performance guarantees. Payers would need to have rebate administration capabilities. Barring these, payers might wish to consider a prospective payments approach with Performance-based Annuities or outsourcing to an Orphan Reinsurer and Benefit Manager, both of which are described in this resource.

A description of the pricing regulation issues—particularly Medicaid Best Price rules as written—may be found in the Policy Enablers section of the toolkit. Appropriate accounting treatment will require payers to consult their accountants. Depending on the details some performance guarantees may need to be recognized up front rather than when they are paid.

Real-life multi-year milestone-based contracts can have uneven milestone timings and even change performance criteria.  One example is Spark Therapeutics' offer of an outcomes-based rebate arrangement for LUXTURNA® (voretigene neparvovec-rzyl), paying rebates if patient outcomes fail to meet specified thresholds in both the short-term (30-90 days) and longer-term (30 months).

Additional information on milestone-based contracts may be found in FoCUS’ Precision Financing Solutions for Durable / Potentially Curative Therapies white paper. FoCUS’ Research Brief: Model Contracts for Innovative Oncology Therapies, provides more detailed guidance on elements to consider in designing performance metrics.  Additional insights on patient movement across plans can be found here.

Performance-based Annuities

Performance-based Annuities

Definition

A multi-year payer-developer agreement in which the payer makes an up-front payment for part of the price of the therapy, as well as a commitment to further periodic payments as specific patient performance milestones or outcomes are met.

Risks addressed

✓ Payment timing
✓ Actuarial
✓ Performance uncertainty

Requirements

  • Therapy performance established over a period >1 year
  • Payer ability to sign contracts for period >1 year
  • Preference for prospective payments to smooth payments rather than rebates
  • Ability to align on elements of a performance contract

Issues to explore

  • Payer accounting requirements
  • Medicaid-best price triggers

A performance-based annuity helps payers manage potential performance risk associated with a therapy and spreads the cost of that therapy over time, thus smoothing payment timing. It reflects that therapy performance is established over a period greater than one year and thus a contract term of greater than one year.

By spreading payments over multiple years, it also partially mitigates the actuarial risk of both a surge from patient backlog and rare, but high-cost, cases.

As the figure below illustrates, this approach might include an up-front payment of some portion of the product cost, as well as a commitment to further payments from the payer every year for a defined number of years, with outyear payments triggered by outcomes being achieved.


Figure: Conceptual Performance-Based Annuity Contract

Performance-based annuity contracts need to clearly specify upfront, based on the specifics of the medicine:

  • The contract term and specific milestones points for outcomes measurement
  • The covered population for the performance agreement
  • Easily administered, relevant outcomes performance metric(s)
  • Performance metric data source
  • Minimum performance thresholds, outcomes measures, and timing that will trigger any milestone rebate
  • How any lag in metrics achievement will impact payments and include a clear definition of performance failure to halt future tracking and payments
  • The mechanics and individual stakeholder responsibilities for gathering, performance data, measuring and adjudicating the outcome metric(s), and triggering and processing any payment.
  • How patient movement across plans or providers will be handled. Please see the Patient Mobility section for additional discussion of this point.

Due to its multi-year nature, a multi-year performance-based annuity raises additional patient tracking, pricing regulation and accounting issues. A multi-year performance-based annuity will require tracking patients over time. FoCUS envisioned that patients may be incentivized to participate in ongoing monitoring to support the assessment of outcomes and their use for performance guarantees.

A description of potential pricing regulation barriers and obstacles—particularly Medicaid Best Price rules as written—may be found in the Policy Enablers section of the toolkit. The annuity also raises accounting considerations, which are discussed in FoCUS’ White Paper: Precision Financing Solutions for Durable / Potentially Curative Therapies. Appropriate accounting treatment will require payers to consult their accountants. Depending on the details some payers operating under accrual accounting—e.g., private payers in the US—may need to recognize future payments up front or to reserve for them. Medicaid payers operating under cash accounting would not, though they may be hampered by single year budgeting rules. FoCUS has identified potential finance solutions for these challenges, but each organization would need to engage with its technical experts.

We anticipate that some payers may have more challenges with performance-based annuity contracts. Some States prohibit multi-year Medicaid contracts. Self-insured employers’ 1 year stop loss contracts may inhibit their use of this solution because the stop loss insurance would cover the cost of the durable therapy beyond the employer’s limit.

Payers who are not able or willing to undertake prospective payments under performance-based annuities, might wish to explore Multi-year Milestone-based Contracts.

Patient financial implications need to be considered. Patient incur two types of copays today.  First, medicine copays—they may incur a copay on their medicine, where they pay a certain amount of the cost of the medicine. Second, service copays -- they may incur a copay associated with a physician service, including administration of a medicine. Conceivably, breaking medicine payment down into an annuity could trigger multiple patient medicine copays as the payor also makes multiple payments. Under the scenario discussed in FoCUS patients will not incur future co-pays or deductibles related to these annual payments. Service copays would not be impacted by medicine financing approaches. FoCUS did envision that patients may be incentivized to participate in ongoing monitoring to support the assessment of outcomes and their use for performance guarantees. Future payers may also not share the FoCUS perspective on this point and design their patient benefits to require co-pays in each annuity period if they take on responsibility for future payments. FoCUS participants strongly recommend that safeguards for patients be established to prevent ongoing patient payments. Additional detail on patient financial implications may be found here.

An example of a real-life performance-based annuity is bluebirdbio's proposal of a 5-year installment payment model in Europe for ZYNTEGLO® to treat beta-thalassemia, with payment only if the treatment works.

Payment Over Time/Installment Financing

Payment Over Time/Installment Financing Snapshot

Definition

Paying for a treatment over multiple years rather than in one upfront payment.

Risks addressed

✓ Payment timing

✓ Actuarial

Requirements

  • Payer ability to sign contracts for period >1 year

Issues to explore

  • Payer accounting requirements
  • Medicaid Best Price triggers

Payment over time or installment financing helps payers manage payment timing risk by spreading the cost of a therapy over time. It requires a contract term of greater than one year. By spreading payments over multiple years it also partially mitigates the actuarial risk of both a surge from patient backlog and rare, but high-cost, cases.

As the figure below illustrates, this approach might include an up-front payment of some portion of the product cost, as well as a commitment to further payments from the payer every year for a defined number of years.

Figure: Conceptual Payment Over Time Contract

Patient financial implications of payment over time need to be considered. Under the scenario discussed in FoCUS patients should not incur future co-pays or deductibles related to these annual payments, although the implementation of this will require operational changes and in some cases the insurer may need to file plan amendments with state regulatory bodies. In the event contract responsibility travels across payers, future payers may also not share the FoCUS perspective on this point and design their patient benefits to require co-pays in each period if they take on responsibility for future payments. FoCUS participants strongly recommend that safeguards for patients be established to prevent ongoing patient payments. Additional detail on patient financial implications may be found here. Additional discussion of issues associated with patient movement across plans and/or providers may be found here and in the FoCUS Research Brief: Impact of Patient Mobility on Annuity/Performance-based Contracting.

A performance contract can be added to payment over time. This is discussed in the performance-based annuity contract section of this toolkit. Payment over time raises both accounting and pricing regulation considerations (particularly Medicaid Best Price rules as written), which are discussed in FoCUS’ White Paper: Precision Financing Solutions for Durable / Potentially Curative Therapies, and the Policy Enablers section of the toolkit respectively.

A real-life proposal for payment over time was made by Avexis for ZOLGENSMA®.  Avexis arranged to have the option for payment over time be made available by an independent third party, Accredo specialty pharmacy, which is owned by Cigna's Express Scripts pharmacy benefit manager.

Reinsurance/Stop Loss Insurance

Reinsurance/Stop Loss Insurance Snapshot

Definition

Reinsurance -- Insurance for insurance companies to reduce the impact of unexpected high costs for a patient or group of patients.

Stop Loss Insurance -- A product that provides protection against unpredictable costs for a patient above a specified threshold.  It is purchased by employers who have decided to self-fund their employee health plans.

Risks addressed

✓ Actuarial

Issues to explore

  • Reinsurance/stop loss insurance coverage levels
  • Gene and cell therapy class inclusion
  • Coverage lasering policies
  • How reinsurers will treat any multi-year payment models

With the advent of durable therapies, payers will want to consider whether their current actuarial risk management and risk pooling strategies will meet their future needs.

Reinsurance purchased by an insurance company or health management organization (HMO) allows them to pass all or part of their risk to another insurance company. Self-funded employers purchase stop-loss insurance to protect against large claims on any one person (Specific Stop Loss) or higher than expected claims overall (Aggregate Stop Loss).

Existing reinsurance and stop-loss products help payers and employers manage single-year actuarial risk. Insurance companies include a percentage cost factor in their premiums to account for unexpected costs in a premium year. Reinsurance purchased by an HMO or insurance company allows them to pass all or part of their risk to another insurance company that is better able to handle that risk. Self-funded employers purchase stop-loss insurance to protect against very large claims on any one person (Specific Stop Loss) or higher than expected claims overall (Aggregate Stop Loss). In a one-year period, we expect these tools can work effectively to mitigate actuarial risk if organizations have appropriate coverage.

However, payers will want to review a) their coverage levels and b) their coverage details. Reinsurance/and stop loss coverage can mitigate actuarial risk with respect to durable therapies, provided that reinsurance companies do not exclude such transformational treatments or the patients that could benefit from them from their offerings. As the goal of reinsurance is to cover unknown risk, once a patient is identified as having/needing a particular therapy, they may be excluded from ("lasered out" of) the next year’s coverage. Therefore, using a payment over time model (either with or without performance guarantees) may not be ideal, as the reinsurer may only be responsible for the 1st and/or 2nd payment in this scenario and removed from responsibility for payments in future years.

For multi-year contracting models, payers will want to understand how the reinsurance carriers will treat the models. Stop-loss and reinsurance providers routinely exclude the known high costs of patients to adhere to the principle that these policies are to manage unknown financial risk, not to finance known costs. Payers need to ensure that they do not face potential stop-loss or reinsurance disruption if patients are lasered out of policies in later years or annuity payments spread costs in a way that falls below single-year deductible levels.

Payers may wish to 1. Ensure that their level of reinsurance/stop loss coverage appropriately addresses their needs with respect to durable, transformative therapies, both in level of coverage, and inclusion of both therapies and patients; and 2. Explore with their reinsurance/stop loss carriers the implications of any multi-year payment models they consider with developers.

Additional information may be found in the FoCUS Research Brief: Stop-Loss Insurance or Reinsurance for Multiyear Contracts and the FoCUS White Paper: The Role of Stop-Loss Insurance and Reinsurance in Managing Performance-based Agreements.

Risk Pools

Risk Pools

Definition

Federal or state government programs in which they pay insurers for a portion of high cost or 'uninsurable' patients.

Risks addressed

✓ Actuarial

Issues to explore

  • Risk pool size and sufficiency
  • Risk Corridors

With the advent of durable therapies, payers will want to consider whether their current actuarial risk management and risk pooling strategies will meet their future needs.

Additional risk pooling could potentially help particular payers mitigate their actuarial risk, reducing variability by increasing the effective number of covered lives across which risk is spread.

For example, State Medicaid agencies may form a risk pool with a carveout that may be used to pay for patient therapies. Historical experiments raise caution. Prior to the Affordable Care Act, some states established high risk pools to aid patients with high cost pre-existing conditions who were either priced out of insurance markets, refused coverage, denied employment due to insurance cost concerns, or some combination of these and other factors. The experience of these risk pools was generally poor due to inadequate funding for the costs of the patients included. Any pool for durable/curative therapies would need to be carefully designed to ensure appropriate funding and share unexpected risks for affected patient populations.

Commercial insurers and self-insured employers who pool through reinsurance and stop-loss policies respectively will want to reassess their current level of risk coverage and ensure that their reinsurance carriers do not exclude such transformational treatments or the patients that could benefit from them from their offerings.

Orphan Reinsurer and Benefit Manager (ORBM)

Orphan Risk and Benefit Managers

Definition

A FoCUS-proposed, new service solution that can provide services to payer organizations not wanting to build their own capabilities to manage durable gene and cell therapies.  The proposed ORBM combines the risk-bearing of reinsurers with the therapy contracting capabilities of pharmacy benefit managers, the provider network building and medical management capabilities of insurers, and perhaps a specialty pharmacy distribution capability.

Risks addressed

✓ Executional

✓ Actuarial

✓ Performance

✓ Payment Timing

Issues to explore

  • Elements that payer cannot/does not wish to manage in house
    —Ability to independently carve out and pool risk
    —Ability to contract with developers
    —Ability to track patients and adjudicate performance rebates
    —Ability to coordinate care and manage physician networks
  • Provider capabilities
  • Timeframe in which ORBM is needed

A FoCUS-proposed, new service solution, the Orphan Reinsurer and Benefit Manager (ORBM), may be helpful to payer organizations that desire assistance managing actuarial risk and executional challenges associated with making durable gene and cell therapies available to patients.

Many durable, potentially curative therapies target conditions that are orphan (<200,000 US patients) or ultra-orphan (<10,000) diseases. Small patient numbers mean that some insurers—in particular smaller insurers—may not have many of these patients in their beneficiary populations. As a result, it may not be efficient for all insurers to build capabilities internally to serve these patients or establish their own contracts with treating providers and manufacturers. Moreover, smaller insurers may not be in a position to manage the actuarial risk of uncertain and variable numbers of affected patients, which could lead to significant swings in plan cost in some years.

An ORBM can help facilitate access to durable, curative therapies and use of precision financing solutions by:

  • Carving-out actuarial risk
  • Providing medical management
  • Enabling scale for innovative contracting and financing

This proposed intermediary ORBM combines the risk-bearing of reinsurers with the therapy contracting capabilities of pharmacy benefit managers, the provider network building and medical management capabilities of insurers, and perhaps a specialty pharmacy distribution capability. It has similarities to carve-outs for mental health and provider centers of excellence in other areas (transplant centers, cystic fibrosis care centers, etc.).


Example capabilities that could be delivered by an ORBM

One issue to manage with an ORBM is the scope of patient services covered. If, for example, an ORBM manages rare disease and a primary insurer manages routine patient care/co-morbidities, there can be a risk of cost shifting that needs to be avoided.

While there is no entity today in the market that calls itself an “ORBM,” there are organizations that are already beginning to explore providing some of the services described above. We expect multiple types of ORBMs to emerge, each of which would select its range of services to offer, diseases to cover, and risk to bear.

While numbers of durable therapies available today are still small, ORBM may offer some payers options as they consider how they will manage these therapies. We expect that large commercial payers and Medicare fee-for-service may have less need for an ORBM’s services, but small commercial payers, self-insured employers, Medicaid and smaller Medicare Advantage plans may choose to utilize some or all of these services.

Additional detail on potential ORBM services may be found in the Bibliography.