PHTI: How buyers can leverage digital health solutions to implement performance-based contracts
Buyers are increasingly seeking performance-based contracts, where payments are tied to outcomes, as well as digital health solutions. However, enforcing these contracts is difficult, especially for employers with limited resources.
That's why the Peterson Health Technology Institute (PHTI) last week released a playbook for buyers on how to effectively execute performance-based contracts. The playbook was created in collaboration with health plans, providers, brokers, consultants, data warehouses, and other stakeholders.
“We keep hearing from health plans and employers that the negotiation process for performance-based contracts is still very difficult. … We really want to see buyers come to the table as customers with high standards, and we want to raise the bar for purchase,” PHTI executive director Caroline Pearson said in an interview. “Every payer should hold their partners accountable for the outcomes that really matter.”
In addition to sharing best practices for implementing these contracts, the handbook provides toolkits on how to create performance-based contracts for digital diabetes management, virtual musculoskeletal solutions, digital hypertension management, and depression and anxiety virtual solutions.
Here are five things buyers should know from the report:
1. Buyers have broad goals when adopting digital health solutions, including increasing member satisfaction, expanding access, improving outcomes and reducing costs. Performance-based contracts should tie payments to these goals while protecting buyers from risk—especially when the solution is new, unproven, or relies on long-term membership participation. This approach makes it easier for buyers to invest in new solutions with confidence.
2. Buyers’ ability to design and manage effective performance-based contracts varies widely, and most are still in the early stages of adoption. Early performance-based contracts were largely experimental and constrained by limited data and resources, leading to challenges in measuring results and enforcing accountability. Larger organizations generally have more advantages in structuring performance-based contracts as they often have in-house actuaries and dedicated benefits teams, while smaller organizations often do not have the resources required and must rely on consultants.
“To expand the use of PBC, suppliers and buyers need to align on standard definitions and methodologies while streamlining the performance adjudication process,” the report said.
3. Buyers are abandoning experimentation and moving toward consistent, data-driven, performance-based contracts. Leading organizations are testing vendors through structured pilots, using scorecards to guide updates, and verifying that digital tools actually expand access before scaling. Many are also investing in centralized data infrastructure and audit rights to verify results and improve contracts over time.
4. Many performance-based contracts include performance guarantees, such as clawback arrangements, which require the buyer to pay the supplier up front and subsequently claw back a portion of the payment if agreed performance targets are not met. However, many buyers are frustrated with this model because they often lead to disputes with suppliers and do not provide good accountability.
Instead, PHTI recommends a “dual-stream payment model: a participation fee combined with a performance-based component that is withheld until performance is verified. This approach is designed to balance the supplier's payment needs to support ongoing participation activities with the buyer's desire to be rewarded with meaningful outcomes.”
5. According to PHTI, successful performance-based contracts require agreement in three core areas: what the payment model will be, how results will be measured, and what the operational components of the contract will be. For the latter, this includes deciding who is responsible for outreach to members and what data will be shared back and forth between payers and providers.
“Many of these decisions require trade-offs, such as sacrificing specificity to reduce administrative burden, or prioritizing predictability at the expense of supplier liability,” PHTI said.
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