A value-based healthcare contract is an innovative payment model in which two parties, typically the healthcare payer and the pharmaceutical company or health service provider, agree to make payments for services depend on value creation.

A VBHC contract might reduce the payer’s risk of a sub-optimal purchase, facilitate earlier access to new health technologies because the risk is shared between payer and provider, provide higher value care for the patient since their feedback can be incorporated into the performance measures, and can serve as a catalyst for generating enhanced real-world medical evidence.

Despite the potential benefits, the use of VBHC contracts is still limited. One reason for this is that the design and implementation of value-based contracts are complicated. Agreeing on the terms of a contract can be challenging, especially under conditions of uncertainty and asymmetric information, involves difficult tradeoffs.

Designing a contract involves trade-offs between several different goals of contract design; coordinating (ensuring that the products are offered at the right time and place), motivation (ensuring that the contract parties have individual incentives to take socially desirable decisions), and transaction costs (ensuring that coordination and motivation are provided at the lowest possible cost). However, prioritizing one objective might come at the cost of another.

This paper gives a systematic coverage of a pay-for-performance contract between a private health service provider and a Danish public health care payer. This regulatory practice is compared with the theory of contract design outlined by Bogetoft and Olesen (Bogetoft P & Olesen HB, 2004). The systematic analysis of the contract is used to discuss specific and general issues of how to balance different goals of contract design within value-based health care. The discussion shows that focuses on some goals leads to downgrading others and that some trade-offs are crucial.

Key words: Contract design, incentive regulation, value-based health care, innovative contracting