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 transformative cell- and gene-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 critical precision financing dimensions to be addressed were payment timing, performance, and actuarial risk. Each FoCUS precision financing solutions identified addressed key challenges associated with cell and gene therapies but no one solution addressed them all.

The financial tool selected for payer use will be based upon a payer’s assessment of the specific therapy and their organizational needs.

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 FinancingSubscriptionReinsurance/Stop Loss Insurance Risk Pools
Orphan Reinsurer and Benefit Manager (ORBM)Warranty

Milestone-based Contracts

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

The amount of the refund associated with agreed upon standards and the rebate basis is subject to compliance with Medicaid Best Price. The definition for MBP may be found in the glossary.  Further discussion on MBP is found in the policy maker section.

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

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.

Pricing regulation issues—particularly Medicaid Best Price rules as written— will influence the amount of rebate and methodology for payment by patient or population. The definition for MBP may be found in the glossary. Further discussion on MBP is found in the policy maker 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 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

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 Policymakers 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. Patients 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. This arrangement was reportedly in place with a German health insurer prior to bluebirdbio’s decision to withdraw from the European market.

Payment Over Time/Installment Financing

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), which are discussed in FoCUS’ White Paper: Precision Financing Solutions for Durable / Potentially Curative Therapies, and the Policymakers 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.

Subscription

A subscription model helps payers manage total budgetary cost of a medicine and to some extent actuarial uncertainty for the payer around how many patients might be taking a particular therapy by establishing a fixed fee for a given year for either a target level or unlimited drug supply. A multi-year subscription can also mitigate the actuarial risk of a surge from patient backlog. It can be structured to help align public health, payer and manufacturer incentives to support increased patient access to medicines.

As the figure below illustrates, once the contract is agreed upon, this approach might include an up-front or periodic payment of the product cost, with individuals treated as needed. Depending on the contact, treatment is either unlimited (e.g., Netflix) or up to a target level of usage.

Figure: Subscription Contract with Performance Component

While not part of the basic contract, a performance component could also be added to the subscription agreement contract, whereby an outcome metric is evaluated and rebates provided for under performance (Performance-based subscription agreement).

Figure: Subscription Contract with Performance Component

This basic subscription approach has been used in practice in Louisiana and Washington State for contracting for Hepatitis C (HCV) medicines. Depending on the design, the model can address a variety of patient access issues. For example, Washington State’s approach was part of an overall State approach to eliminate Hepatitis C, addressing issues including patient outreach and screening.

Reinsurance/Stop Loss Insurance

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. This risk can be transferred on a per person basis (Specific Excess) or on a pooled basis (Aggregate Excess or Quota Share). 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). Reinsurers and stop loss carriers assuming this risk are often referred to as excess loss insurers.

Payers will want to review their excess loss insurance coverage levels and details. Excess loss insurers generally cover all or a portion of total claims for individuals that exceed some threshold (the deductible or attachment point.) during the contract period. This coverage can mitigate actuarial risk with respect to durable therapies. But patients identified as having or needing a particular high-cost therapy present a “known” exposure and may be excluded from ("lasered” out of) coverage.

Contracts will vary between excess loss insurers and payers in terms of coverage levels, exclusions, premiums and loss mitigation strategies. Combining any of the new financing models with excess loss insurance would require a review of the impact on coverage. A drawback for payment-over-time models is the excess loss insurer may only be responsible for the first or second payments and not further payments unless the excess insurance is specifically structured to assume this risk (which would increase the overall cost of the insurance). For durable therapies, the association of payment with long-term therapy performance is one potential cost mitigation strategy. However, traditional contracts are generally written on an annual basis and do not allow for matching costs with benefits over time.

Payers and employers should understand the risk being transferred to excess loss insurers, including coverage for currently approved durable therapies as well as the treatment of forthcoming therapies. They should review terms of coverage as they may vary for amount paid, Centers of Excellence payment only terms, etc. Even though the payers are transferring this risk to excess loss insurers they should understand the importance of identifying this risk early and getting their insurer involved as early as possible as any cost incurred by the insurer for these therapies will be incorporated into the payer’s experience and charged back to the payer over time. The implications of any multi-year payment models should also be explored with excess loss insurers, and their resources and loss mitigation expertise with durable therapies should be an additional consideration.

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

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, a number of organizations are now offering the potential to pool risk for specified cell and/or gene therapies through novel models of insurance products. Unlike reinsurance or stop-loss, these specific therapy carve outs may or may not include total patient medical and drug costs.

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)

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 here.

Warranty

A warranty model helps payers manage potential performance risk associated with a therapy over one or multiple years. A warranty reimburses payers for other drug and medical costs should the performance risk associated with a therapy be actualized.  It allows a developer to stand behind the promise of a durable therapy.

Conceptually, a developer would make a product warranty available on a named patient basis to cover expenses and other costs that would have been avoided had the product performed as intended. Operationally, the warranty would be administered by a developer, an external management resource, or a new administrative entity referred to as an Outcomes Based Contract Administrator (OBCA). The policy is issued to the payer and reimburses the policy holder for future expenses incurred due in the event that the covered therapy does not meet the developer’s efficacy promise, as the below figure illustrates.  Warranty payments are thought to represent covered damages as opposed to a rebate associated with the price of the therapy.

Each warranty policy focuses on the therapy-specific developer promise, coverage terms, and triggers that can collectively result in claims payments.  In some cases, it may be necessary to address additional outcomes-based scenarios that occur outside of the standard coverage.  This can be handled through Riders or addendums to cover specific scenarios, for example, known severe outcomes, or mortality through life insurance.

Figure: Conceptual Warranty Model

As an example, in the case of Hemophilia A, the developer may insure payers against the consequences if the durable effect diminished over time, resulting in the need for supplemental Factor VIII.  In essence, the warranty would reimburse the payer for the costs of the supplemental Factor VIII if needed by a gene therapy-treated patient. The warranty would not provide any refund on the price of the gene therapy product itself.

The warranty shifts the administrative burden of tracking patients to the OBCA.  It may address volatility challenges of current Medicaid Best Price calculations if only the cost of the warranty premiums is included in the “price” of the medicine – an interpretation that appear plausible based on similar historical examples, but remains to be tested.

The warranty model relies on clear, easily identifiable and measurable clinical markers to reduce claims adjudication subjectivity.  However, in the presence of clear biomarkers, the warranty provides the flexibility for developers use to other validated efficacy monitoring mechanisms as part of the pre-defined criteria.  Additionally, the warranty model does not address the issue of coverage portability present with all existing financing and efficacy solutions.

Pfizer currently offers a warranty for their product Xalkori with details available here. Additional detail on the proposed warranty model may be found in this FoCUS white paper.