Proving The Value Of Value-Based Deals

Several times a month, Michael Sherman, MD, gets a call from someone curious about his deal-making. Sherman is not a venture capitalist or head of technology transfer at a university, though. He is chief medical officer at Harvard Pilgrim Health Care Inc., which is the second largest health insurer in New England. But his willingness to embrace a controversial approach in the US toward negotiating with drugmakers has placed him at the center of a growing debate over the value of prescription medicines.

Over the past two years, he has inked half a dozen outcomes-based contracts with drug companies, making Harvard Pilgrim something of a trailblazer among payers. The arrangements vary, but basically...