What You Should Know
- The News: The Peterson Health Technology Institute (PHTI) has released a comprehensive “Playbook on Performance-Based Contracting,” signaling a market-wide shift away from paying for mere access to digital health tools.
- The Pivot: The report argues that traditional “clawback” models—where vendors refund money if they miss targets—are failing. The new standard is a “two-stream” model: a base fee for engagement plus a withheld payment released only upon verified clinical results.
- The Tools: To speed adoption, PHTI released standardized contracting toolkits for four high-spend conditions: Diabetes, Hypertension, Musculoskeletal (MSK) care, and Depression/Anxiety.
The Death of PMPM: Why 2026 Marks the End of the ‘Trust Us’ Era in Digital Health
For the better part of a decade, the digital health economy ran on a simple, permissive fuel: Per Member Per Month (PMPM) fees. Employers and health plans paid fees based on eligibility, hoping that a sleek app or a virtual coaching platform would magically lower their total cost of care.
That era is officially over.
In a landmark report released today, the Peterson Health Technology Institute (PHTI) declares that performance-based contracting (PBC) is “no longer aspirational—it is table stakes”. The PHTI Playbook on Performance-Based Contracting, developed with input from over 50 industry stakeholders, offers a brutal assessment of the current state of purchasing: buyers are skeptical, “clawback” guarantees are toothless, and the industry is shifting toward a model where vendors don’t get paid until they prove they worked.
“Far too often, exciting new digital health technologies are broadly adopted but end up delivering higher costs and only questionable improvements,” notes the PHTI leadership. The new playbook is not just a set of guidelines; it is a survival guide for a market moving from “trust” to “verify.”
The Core Conflict: Clawbacks vs. Outcome-Linked Payments
Historically, many contracts have relied on “clawback” performance guarantees. Under this model, purchasers pay upfront and attempt to recoup funds if targets are missed. However, this model has consistently underwhelmed:
- Friction and Disputes: Clawbacks are notoriously contentious and rarely enforced as written.
- Averaging Out Failure: Underperformance is often obscured when averaged across a total population, meaning a vendor can meet benchmarks while failing a significant subset of patients.
- Hidden Shortfalls: Shortfalls often become “future discounts” rather than actual refunds, undermining true accountability.
The New Standard: The “Two-Stream” Model
PHTI’s playbook proposes a radical restructuring of vendor payment into a Two-Stream Model designed to protect purchaser budgets while incentivizing actual care.
- Stream 1: The Engagement Fee. A lower base fee is paid solely for members who meaningfully engage with the solution. This replaces the “pay for eligibility” model that wasted millions on employees who never downloaded the app.
- Stream 2: The Performance Withhold. A significant portion of the contract value is withheld entirely. It is released only when the vendor provides verified data proving they achieved specific clinical or financial outcomes.
This shifts the financial risk back where it belongs: on the technology provider claiming to revolutionize care.
Standardizing the “Wild West” of Metrics
One of the report’s most valuable contributions is an attempt to standardize the chaotic definitions of “success” in digital health.
For years, vendors have graded their own homework. A vendor might define “engagement” as a user opening an email, while a purchaser expects that user to be completing clinical modules. The report calls for “meaningful engagement thresholds” to prevent paying for “superficial interactions”.
To operationalize this, PHTI released specific contracting toolkits for four high-priority conditions:
- Diabetes & Hypertension: Moving away from vendor-reported “point-in-time” readings to biomarker-based metrics like laboratory-reported HbA1c.
- Musculoskeletal (MSK): rejecting self-reported “surgical intent” (a notoriously soft metric) in favor of clinically validated pain and function scales.
- Mental Health: Standardization around PHQ-9 and GAD-7 scores, administered by clinicians rather than self-reported via the vendor’s app.
The Infrastructure Gap
The report tacitly acknowledges a major hurdle: you cannot contract on what you cannot measure. While large health plans have in-house actuaries and data warehouses, smaller employers often lack the infrastructure to validate these rigorous new contracts.
PHTI suggests that the market is bifurcating. Sophisticated purchasers are now investing in “audit rights”—the legal power to demand raw data to verify a vendor’s ROI claims. For the rest of the market, the Playbook serves as a equalizer, allowing smaller players to copy-paste the rigorous terms demanded by the giants.
The Implications
For digital health startups, the message is clear: the free ride of the PMPM era is over. Vendors who can survive in 2026 will be those confident enough to put their revenue at risk. As one vendor noted in the report, they are now “getting paid only if members engage and achieve meaningful clinical improvement”.
“Performance-based contracting is no longer aspirational—it’s table stakes,” said Caroline Pearson, executive director of PHTI. “Health plans and employers are demanding more from their digital health vendors, including access to data, proven health outcomes, and better value for their investments. At the same time, leading vendors are increasingly confident in their solutions, and ready to put their payments at risk.”
