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

Medicaid Best Price (MBP) should be considered in developing these contracts. Under regulations for the Medicaid Drug Rebate Program, Medicaid is to be provided with net prices that are comparable to or lower than the best prices received by most other payers (the “best" price). The rebate amount associated with agreed-upon standards and the basis of the rebate is subject to compliance with MBP. Further discussion on MBP is found in the additional policy considerations section.

To use milestone-based contracts, payers would need 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’s Orphan Reinsurer and Benefit Manager (ORBM) concept.

Additional information on milestone-based contracts may be found in FoCUS’s Precision Financing Solutions for Durable / Potentially Curative Therapies white paper. FoCUS’s 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.

State Medicaid organizations can use this tool to design, negotiate and establish milestone-based contracts.