Are value-based contracts the next generation of performance guarantees?

As Medicare and commercial health insurers continue to experiment with and deploy value-based care (VBC) arrangements, employers have yet to gain momentum in the effort to implement value-based programs.

Employers are rethinking approaches to improving the quality of care provided to their people while also reducing the cost of care per employee. The Willis Towers Watson 2020 Health Care Delivery Survey indicated that 73% of employers intend to adopt alternative care delivery models by 2023.1 

How can companies ensure a meaningful Return on Investment (ROI) after they contract directly with providers (or other point solutions)? Performance guarantees? Value-based care?

Short answer: Both.

Long answer: If we consider value-based contracts to be an evolution of performance guarantees, implementing a value-based strategy becomes critical for any care delivery model. 

Value-Based Contracts and Performance Guarantees
The majority of HR and Benefits professionals are familiar with performance guarantees (PG). A PG represents a contractual obligation between a plan sponsor and a provider to achieve certain performance objectives. PGs incentivize providers to deliver high quality service by putting fees at risk for performance falling below expectations or projections. (Note: Service Level Agreements, or SLAs, is another common term used in contract language. Both PGs and SLAs accomplish the same purpose and are structured similarly, and can be considered synonyms.)

The goal of VBC is similar in that it holds providers accountable for the patient care they deliver, but it goes a step further by incentivizing providers to improve clinical outcomes, reduce cost of care and shift away from fee-for-service (FFS) revenue. 

Both PGs and value-based contracts shift risk from the payer to the provider by making compensation contingent on results. While PGs only represent penalties for unmet contractual commitments (read as: downside risk for the provider/supplier), value-based contracts introduce varying levels of shared risk and savings potential (Table 1). For example, in a shared savings value-based payment model, the provider is paid a percentage of net savings achieved, while the payer retains any losses. This gives upside potential for the provider to exceed expectations and receive financial reward. And while PGs can be introduced to contracts with any provider, value-based arrangements are specifically relevant to providers who aim to impact population health and claims spend.

Table 1 | Comparison between value-based contracts and performance guarantees


Value-Based Contracts

Performance Guarantees


Any contract that is not strictly FFS, but primarily one in which reimbursement is contingent on cost of care outcomes

An addendum to a contract that specifies specific guarantees on services with penalties associated

Type of Vendor

Providers and point solutions that impact population health and claims spend

Any provider or supplier

Risk Burden

Shifts risk from buyer to the provider

Actuarial/Analytics capabilities needed


  • Integrated claims
  • Retroactive analysis
  • Risk assessment 




  • Pay for Performance
  • Bundled Payments
  • Shared Savings
  • Shared Risk
  • Capitation

Metrics may vary, but common metrics are:

  • Member Satisfaction
  • Claims Accuracy
  • Average Speed to Answer
  • Reporting Timeliness
  • Site Uptime


Introducing CARROT, Contract Addendum for Retrospective Reimbursement on Outcomes-based Treatment
If you are still wondering what the difference is between value-based contracts and PGs, you’re asking the right question. At the extreme, they can seem completely different. For example, capitation, where a provider is paid a fixed fee for all the healthcare services a patient may receive during a specific period of time, is a value-based contract that does not require any guarantees, as all of the financial risk is already assumed by the provider.

However, PGs and value-based contracts are not mutually exclusive. In fact, providers and payers have tried to turn standard contracts into value-based agreements with PGs, such as ROI or trend guarantees.

Historically, these provisions have been extraordinarily difficult to implement. They require actuaries on both sides to share data, mutually define the approach, and provide retrospective accounting. This process often involves an actuarial consultant to mediate. And even then, the provider is usually the one adjudicating for themselves.

To simplify the terms, we have developed CARROTContract Addendum for Retrospective Reimbursement on Outcomes-based Treatment.

Carrot venn diagram

CARROT is a standardized cost of care performance guarantee that enables value-based contracts. Stay tuned for more details on CARROT, and how Accorded can administer CARROTs as an impartial third party.

When to consider value-based care
If you are an employer/payer that wants to ensure pricing is aligned with ROI and to select providers who can drive the most clinical and financial value to your organization, value-based contracts can help you to maximize your healthcare investments. Instead of wondering if the cost of care savings projections will come to fruition, a value-based contract with a CARROT ensures the cost of care impact is being measured and met. 

If you are a provider that is confident in the value you provide and is seeking a way to prove it and be rewarded, then value-based contracts can enable the proper financial incentives. Specifically, adding a CARROT to the contract allows you to minimize the payer’s reluctance in adopting VBC.

Implementing a value-based arrangement can be operationally complex and costly, requiring actuarial methodologies to assess risk and impact pre-contract, and to adjudicate on cost of care outcomes. However, with the right tools and standards, this experience can be simplified.

How Accorded helps payers, providers, and everyone else
At Accorded, we believe all healthcare stakeholders should have access to reliable risk management capabilities in order to accelerate the shift to VBC and usher in the next generation of care delivery. 

By providing the CARROT framework, Accorded standardizes and simplifies value-based contracts for common adoption. Furthermore, the Accorded Platform adjudicates the CARROT, eliminating the actuarial and administrative burden of reconciling claims and value determinations. 

Accorded translates powerful actuarial methodologies to user-friendly tools for a transparent and value-centered approach to the entire contract lifecycle between payer and provider. The Accorded Platform enables users to: forecast savings opportunity of a provider solution on a payer’s population; design and evaluate contract terms across different outcome scenarios; monitor and adjudicate provider performance using an impartial, actuarially sound approach.

We can support any and all steps of the process, regardless if there is a contract in place or not. Find out how to implement CARROT or whether your existing contract is delivering on not just experience but on reducing total cost of care.


1Willis Towers Watson. (2020, October 16). 2020 Health Care Delivery Survey. Survey Report  2020 Health Care Delivery Survey. Retrieved August 10, 2022, from

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