Underwrite Before You Contract

Employers and health plans are often presented with point solutions like digital health vendors, navigation models, and condition-specific programs. The sales narrative is familiar: there is a meaningful problem, the solution addresses it, savings should follow, and contractual guarantees provide accountability.

Vendors typically present national prevalence, broad burden estimates, testimonials, case studies, and ROI claims to support their solution. The vendor charges a fee. And, increasingly, some portion of that fee may be placed at risk through a performance guarantee.

The sequence sounds disciplined. But several important questions can remain unanswered.

Does the problem materially exist in the purchaser’s population? How much spending or clinical exposure does it represent? What portion is realistically addressable by this particular solution? What change can reasonably be expected? What is that change worth to the purchaser?

Those questions should come before the contract.

Underwrite before you contract.

For a purchaser, underwriting a healthcare solution does not require predicting exactly what will happen. Healthcare populations are variable, operational performance is uncertain, and outcomes will never be perfectly deterministic.

The objective is more basic: understand what you are buying well enough to establish a reasonable range of value before agreeing on how to pay for it.

A guarantee may help allocate certain risks. It does not tell the purchaser whether the opportunity is large enough, specific enough, reachable enough, or valuable enough to justify the price in the first place.

The vendor’s market story is not the same as the purchaser’s economic opportunity.

The existence of a condition is not the same as the existence of an addressable purchasing opportunity.

A performance contract is not a substitute for understanding what the employer is buying.

A more disciplined purchasing process begins with the proposition and tests the vendor’s model against the purchaser’s own population and economics to establish a reasonable willingness to pay.

Start with the purchasing proposition

What, specifically, is the solution supposed to change?

A broad clinical narrative is not enough. The purchaser should be able to describe the relevant population, the intervention, the mechanism through which change is expected to occur, and the economic consequence the vendor is asking the purchaser to rely upon.

Establish the baseline exposure

The purchaser then needs to determine whether the identified problem is material in its own population.

That means moving from general statements about healthcare waste, poor outcomes, or high-cost events to purchaser-specific utilization, spending, prevalence, or other relevant exposure.

A large national problem does not automatically represent a large purchasing opportunity for a particular employer.

Determine what is addressable

Even when meaningful exposure exists, the entire baseline is rarely available to the solution.

Eligibility, clinical appropriateness, member identification, participation, provider relationships, geography, benefit design, competing programs, and other constraints can reduce the portion that is realistically addressable.

How much of the purchaser's baseline opportunity can plausibly enter the vendor's operating model?

Estimate achievable change

Addressable opportunity is still not expected performance.

The purchaser needs evidence supporting what the intervention can reasonably change within the addressable population and under conditions sufficiently similar to those in which the solution will be deployed.

This is where evidence quality, implementation requirements, participation assumptions, operational dependencies, and uncertainty become important.

Together, these factors inform the modeling assumptions required to develop a reasonable range of expected results.

Translate change into economic value

Clinical improvement, utilization change, and purchaser savings are different propositions.

The purchaser should determine how the expected change reaches its own economics: which services or expenditures change, over what period, against what denominator, and with what offsets or additional costs.

This produces an estimated economic value before vendor pricing is considered.

Establish willingness to pay

Once a reasonable range of economic value has been established, the purchaser can determine what it is willing to pay to obtain that value.

That judgment can reflect uncertainty, implementation costs, competing uses of plan resources, and the portion of expected value the purchaser intends to retain.

The vendor's proposed price can then be evaluated against a purchasing position grounded in the purchaser's economics rather than the vendor's price architecture.

Uncertainty and Performance Contracts

There will still be uncertainty. Implementation may underperform. Participation may differ from expectations. The vendor may fail to reproduce the mechanism described during the sale.

Purchasers do not need perfect certainty. Every purchase does not require a randomized trial.

They should establish the economic proposition before using the contract to manage what uncertainty remains.

A performance guarantee may be useful for allocating some residual uncertainty between purchaser and vendor. But the guarantee does not establish the baseline opportunity, determine whether the intervention can reach it, demonstrate the expected change, or tell the purchaser what the solution is worth.

A purchaser that begins with these questions enters the contracting discussion knowing substantially more about what it is buying, and why.

The first task is not to perfect the guarantee.

The first task is to understand the proposition.

Underwrite before you contract.