Could An Incentive-Based Pricing Model Improve CRO Performance?
By Ed Miseta, Chief Editor, Clinical Leader
One of the hardest tasks of any clinical executive is choosing the right CRO for their project. But once that decision is made, another daunting decision awaits: What type of pricing model should you put in place? Fully understanding the list of potential costs you might encounter in a clinical trial is difficult for even the most seasoned outsourcing professional. For a smaller company entering clinical testing for the first time, fully understanding those costs can be near impossible.
When speaking to clinical executives, I will often ask about their likes and dislikes around various pricing models they have experienced. I also ask about those features they would most like to see in a pricing model, especially if they had the opportunity to design one from scratch. Not surprisingly, many executives mentioned similar preferences. One that came up frequently was incentives. There are many challenges that exist in all pricing models, and aligning incentives is one way to overcome many of them.
Unfortunately, putting the right incentives in place can be a challenge when partnering with a CRO. When a sponsor company is conducting trials in-house, it will have easy access to the clinical data generated. That information is useful when creating incentives for employees, such as goal setting aligned with employee bonuses. Unfortunately, companies will often lose that data transparency when outsourcing its clinical trial, eliminating the opportunity to align goals and incentives. Companies can still pay CROs at the completion of specified milestones, but how can they ensure there are performance incentives in place for them?
A Focus On Speed Rather Than Quality
It’s been mentioned that in pharma manufacturing and clinical trials, companies want quality, speed, and low cost. Unfortunately, you can generally only get two of those three. Deciding which of those two is most important is a difficult decision. If your pricing model can help you control your costs, that simplifies things by allowing companies to focus on quality and timeliness.
Timeliness is already a focus for many drug sponsors. Both the time and cost of conducting trials are on the rise, and for that reason the industry seems to have an increased focus on speed. Progress has certainly been made in the difficult and time-consuming area of study start-up, and timelines can be a focus when negotiating contracts. Unfortunately, there do not seem to be many incentives that focus on quality. Quality can be difficult to define, and outsourcing contracts do not often provide incentives that focus on it.
While quality might be difficult to define, there are certainly controllable factors that can impact it. One of those factors is the resources CROs commit to your study, which is often a pain point for many sponsors. Clinical executives will often tell me about CROs who like to promise everyone is working with their “A Team.” Unfortunately, most companies will end up with the “B or C or D Teams.” By the time some companies get to the end of their studies, they are well down the alphabet. They must also deal with changes in team members throughout the project, which can slow progress and create an increased likelihood of errors.
Dedicated resources are another area that warrants attention. If it’s estimated that 500 FTEs are required to perform a trial, that means it could be performed by 500 individuals or 1,500. The higher figure becomes a reality if there are many individuals each performing a small task on the study and then handing it off to others. Having more individuals involved with a trial can increase costs and, again, increase the possibility of errors.
Both are areas that could be improved by ensuring incentives are part of your pricing model.
Tying Cost To Tasks
There are different pricing models that sponsors can employ, including fixed unit pricing, fixed pricing at the study level, and fixed pricing at the portfolio level.
I have spoken to several clinical executives who seem to prefer a pricing model that specifies fixed rates to perform certain tasks. Negotiations with the CRO then revolve around determining the hours necessary to complete these tasks.
Although that model seems straightforward, it can be difficult for many clinical executives to know how long it might take to perform certain tasks. There is not a lot of data available on this front and simply estimating those numbers could end up being very costly.
Even if you have the data you need, however, the biggest problem with this model still revolves around incentives. If a CRO is getting paid by the hour, tasks that take longer than expected translates into additional billing for the CRO. What incentive do they have to improve a process or make efforts to cut the time required to complete tasks?
Change orders are another concern that I often hear mentioned with this business model. Change orders can decimate a budget and should be minimized as much as possible. Pricing models should allow companies to accurately predict costs and produce reliable financial forecasts. Doing so means eliminating unnecessary change orders that increase costs and drive sponsors crazy.
Focus on Efficiency
Regardless of what pricing model you use, your primary concern should be high productivity from your CRO partner. Staff at both the sponsor and the CRO should be committed to creating greater efficiencies and driving out inefficiencies.
Bernard Ravina, CMO at Praxis Precision Medicines, recently told me that he looks for CROs that will best help his company realize trial efficiencies. That might mean helping the company conduct multiple trials at the same sites, better engagement with sites and investigators, ensuring adherence to protocols, and/or providing economies of scale. Partners can also bring new technologies and processes to a trial that will impact efficiency.
Becoming more efficient also means eliminating inefficiencies such as staff changes and large numbers of people transitioning processes to one-another.
An Incentive-Based Pricing Model
If your primary concerns are quality, timelines, and efficiencies, what should your ideal pricing model look like?
Well, there are ways to put a focus on all three factors. If sponsors want their partners to be focused on quality, they should consider penalizing CROs who do not achieve quality standards. Timeliness can be achieved by mandating CROs to meet key milestones, including agreed upon key performance indicators (KPIs) in the study. Efficiencies can be achieved by placing a focus on additional value provided by CROs.
I already noted the difficulty of properly defining what quality is. One clinical executive told me this can be managed by developing and focusing on quality indicators. Those indicators could include how data is entered, the accuracy of the data, time limits for data entry, query resolutions, study start-up (opening sites, closing non-performing sites, and timely patient recruitment), the conduct of audits, and more. Penalties can then be imposed for quality indicators that are not met, while bonuses can be attached to those that are.
If trial efficiencies are a primary goal for the sponsor, a monetary reward can impact that outcome. CROs can be instrumental in helping pharma to identify trial efficiencies and doing the work to implement them.
To eliminate change orders, CROs can similarly be held financially responsible when the changes are a result of their actions. One executive went so far as to tell me that CROs should pay a penalty for changes made to a study project team. Surprisingly, that comment came from an executive working for a CRO, not a sponsor company.
While bonus payments to CROs are nice, I don’t expect many of them to be happy with a model that can penalize them for not achieving specified results. However, if that partner wants your business and is confident in their ability to help you achieve your goals and bring quality and efficiencies to your trial, then a stick and carrot approach seems like something worth discussing. With the right model in place, perhaps you can achieve all three goals of cost, timeliness, and quality.