A multi-year milestone-based contract is similar to a milestone-based contract but has a term 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, in this contract, the payer makes an upfront payment for the medicine, at an agreed price. 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 model could be used for a single patient or 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 year. This 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 ensure the full value is realized. For single-year contracts, please see the milestone-based contracts section.

Based on the medicine’s indication(s) and expected outcomes, multi-year milestone-based contracts need to specify upfront:

• 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 or 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 may require tracking patients over time by more than claims data. FoCUS envisioned that patients may be incentivized to participate in ongoing monitoring to support the assessment of outcomes and their use for performance guarantees. To use multi-year milestone-based contracts, payers need 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 (ORBM), both of which are described in this resource.

Pricing regulation issues—particularly Medicaid Best Price (MBP) rules as written—will influence the rebate amount and payment methodology by patient or population. 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.

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 can 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 the long-term (30 months).

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.