Are You Afraid Of Adopting New Outsourcing Models?
By Dan Schell, Chief Editor, Clinical Leader
People can get really fired up about some clinical trials outsourcing topics. I’m sure you’ve heard some version of any or all of these:
- Big CROs are focused more on profits than patients!
- Site networks are going to diminish the role of CROs!
- The FSP model is better than full-service!
Ever since my interview with Samir Shah about changes to the clinical outsourcing model, I’ve spoken with and heard from various industry experts about some of these issues. Considering Shah contends the FSP model is the rising star of the industry, a lot of my conversations centered around pricing strategies. For instance, take the whole evolution of CRO pricing strategies. We’ve seen pay-by-the-hour models that morphed into rigid full-service-with-milestones types of models. The latter involved CROs taking on more performance risk in the relationship, a concept some of the experts I spoke with said should really still be a focus for those CROs that can be more efficient in their operations. But that takes a big leap of faith — aka, the possibility that they may lose money — which makes a lot of CROs and service providers nervous. So they stick with the more comfortable option.
“A lot of CROs and service providers perpetuate this kind of low-risk approach; it's easier for them to just charge for the hours they work,” explains an industry exec I spoke with who has many years of pricing experience in CROs and sponsors. “And it doesn’t help that a lot of pharmas also support this model, saying they don’t want to deviate from their traditional hourly-rate structure. But if you start trying to negotiate every little rate for service, nobody's going to win. It's just a race to the bottom. You can always find some company that can do the work for less money and charge a lower rate. But in doing so, you are not incentivizing the CRO or service provider to invest in efficiency and technology. And, you're not incentivizing your people to figure out how to be more efficient by doing things in less time until you structure your pricing differently.”
It's ironic that one of the biggest complaints about CROs is that with the hourly type of model they nickel and dime you with change orders, but you don’t have that situation with a more risk-based model where a CRO simply provides a deliverable for a flat fee. Sure, if you break it down, the CRO is probably charging more than the per-hour model, but there’s a cap. There could always be extenuating circumstances that cause some level of renegotiating in this model, but it should be rare.
SPONSORS OFTEN OVERLOOK FSP CHALLENGES
My father worked his entire career as a purchasing manager in the manufacturing sector, and I remember he once told me that there was never one type of pricing status quo; models would come in and out of favor and they would often bleed into each other. The same is true in clinical trials. For example, utilizing FSPs isn’t a new concept, it’s just more popular now. And there are nuances to that, too.
Normally, you would choose an FSP model for resources such as data management, project management, biostatistics, medical writing, monitoring, and pharmacovigilance. CROs incur little risk with this model other than providing the sponsor with the resources needed. The allure to the sponsor is a cheaper invoice when comparing it to, for example, a full-service type of plan. But there’s a catch, according to another industry expert with whom I spoke. “There's this stereotype that FSPs are less expensive than full service. On a per hour or even on a per month basis, that's true. But what a lot of sponsors who go into FSPs don't realize is that you’re paying for these staff, but you have to manage them. You might even have to provide them with their equipment and the software platform to work on. There’s also line management and extra overhead. So yeah, the invoice is cheaper, but now you have to scale up internal resources.”
CROS AREN’T COMPLAINING ABOUT THIS MODEL
Enter the hybrid model. Here, sponsors say they want an FSP, but they also want their CROs to use their equipment and have their line managers supervise the FSP employees and even construct bonus structures. It’s part FSP and part full-service. It is a bit more risky for a CRO but, again, if they are good at what they do, it could be more profitable for them in the long run. And remember, today’s large CROs are expanding their service offerings with their own tech stacks and site networks, both of which likely have higher margins than some traditional services like monitoring that are quickly becoming commoditized.
“That's why CROs aren't complaining [about this hybrid model],” says one of the execs. “Their cost of customer acquisition is real low, in fact, it's really just an expansion of work. And they already provide FSP services, so it's not like they had to figure out how to make that work.”
There’s no way to neatly categorize each pricing strategy nor can you say one method is going to be the best for each of your trials. I realize both of those statements are no-brainers to experienced pricing, contracting, and/or procurement specialists, but still, being “innovative” in outsourcing and pricing is risky. And scoping every aspect of a trial to be resourced in the best possible way takes an immense amount of time, and even when you have what you think is the perfect plan, things can still go haywire. It’s easy to see why people on both sides of the discussion get so fired up.