From The Editor | September 5, 2017

Is Your CRO Charging You The Right Price?

Ed Miseta

By Ed Miseta, Chief Editor, Clinical Leader

Is Your CRO Charging You The Right Price?

If you have a trial you need to outsource to a CRO, how do you know what is the right price you should be paying for it? If you receive RFPs with a wide variation in quotes, how do you know which one is the most realistic? If the study is delayed for some reason, what extra costs will you incur? Those are questions that a panel of experts answered at the inaugural Clinical Leader Forum. The session, moderated by John Hall, director of clinical operations at Noveome Biotherapeutics, featured: Darlene Panzitta, president of DSP Clinical Research; Guy Bolton, VP of clinical operations for Ferring Pharmaceuticals; and David Kim, executive consultant, Celeritas Solutions.

The session started off with an overview of the RFP process and what it should include. According to Kim, most companies will have an outsourcing strategy in place which will dictate, among other things, the CROs you can contact. If you don’t have one, the first step would be determining which CROs are able to provide the services you require. The best way to do that is via a request for information (RFI).  

“Based on the responses you get, you can begin determining which vendors are the best fit for your organization and your specific needs,” says Kim. “When you have the field narrowed down to three to five qualified candidates, you can send each candidate a RFP.”  

Since the RFP is specific to a particular study, it is best to provide as many details as possible. A draft protocol should generally be included, along with any other information that would be helpful to the CRO. Each vendor should be given at least three to five days to review the RFP and ask any questions they might have pertaining to the requirements of the study. Generally, problems with overcharging can be traced back to a lack of communication at this stage in the process.

According to Kim, the more information and clarification you can provide, the better. It is also good to provide each vendor with insight into what your expectations are regarding CRO conduct. Once all questions have been answered, vendors should be given another two weeks to provide a proposal.

Review The Proposals

The next step involves reviewing the proposals. Those reviewing the proposals can be a clinical team or a cross-functional team from across the company. These individuals would review the proposals and perform a deep dive into all aspects of the trial that will be outsourced. This review should look not only at cost, but which of the vendors you would be most comfortable bringing into the study.

Once you narrow down the choices, have each CRO come in and conduct a bid defense. That bid defense process should also enable you to really get to know the companies and understand the culture of the organization and its people.

“You can see their level of responsiveness,” says Kim. “You can determine what a relationship with them would be like. If you are speaking to both small and large CROs, this process will also allow you to determine how much value they might place on your business. Based on the additional information they receive from you, they may also request time to go back and revise their proposal. After that, it is simply a matter of each vendor fine tuning their proposals.”

The selection process takes time, and sponsors should be aware of that. Cutting corners, limiting discussions, and trying to rush the process can lead to lapses in communication and critical information not getting to the right people. That situation will almost always lead to pricing disputes down the line.

Fixed Or Variable Pricing?

In her business, Panzitta has always used a fixed-pricing model and is an outspoken advocate of it.  

“I don’t support hourly-rate billing or variable billing,” she declared at the conference. “In my company, I charge clients a flat rate every month for the duration of the project. Clients know they will never be charged a different rate. They can change their protocol, or add or delete sites or patients. Regardless of the changes, that monthly rate is never going to change.”

Panzitta’s model was created to remove the challenges she faced when working for sponsor companies. She has spent time working for companies with variable rate pricing models, and often spent more time managing the pricing than actually working on trials. She also spent a lot of time worrying about whether her CRO was overcharging her.

Panzitta believes risk-sharing is good in the context of clinical outsourcing. A fixed-rate model, she notes, is a true risk-sharing scenario. It creates a good balance between the sponsor and the CRO, and requires both to take responsibility for the trial. “Sometimes the sponsor is not going to benefit from this pricing structure, and sometimes the CRO is not going to benefit,” she states. “But it ends up being a good model for both companies over the course of a trial. CROs are paid in full for their time and sponsors know what their cost will be for the duration of the trail, regardless of the number of changes they have to make.”

Variable Pricing Creates Friction

Bolton sides with Panzitta when it comes to pricing. While he notes that variable pricing can provide greater flexibility for both partners, he believes there are too many flaws with the model.

“I am sure the finance folks love the variable model because it allows them to itemize every type of cost,” he says. “Unfortunately, it does not give either side a sense of ownership in the study, or make them feel they are part of a partnership. Sponsors can feel they are being nickel-and-dimed, and it becomes more difficult for them to challenge CROs on the charges.” 

Protocol changes also become problematic. Sponsors do not want to pay for changes or delays, especially when they are not at fault. With a variable model, there is no assurance they are not paying for changes. Even when sponsors request a protocol change, they do not want to feel they are being overcharged for it. If your charges are always changing, you really have no way of knowing how much any change costs. The move towards adaptive trials is also making the variable pricing model more difficult to manage.

Do CROs Actually Overcharge?

Sponsor complaints of being overcharged are certainly more likely to occur in a variable-pricing model. This is often where sponsors discover hidden charges or are simply unable to determine the true hourly rate they are paying.   

“That should be a clear sign that you might get overcharged,” says Panzitta. “If you don’t know your true hourly rate at the onset, how will you know what it’s going to be six months from now? Many of us have been in a situation where you go with the CRO with the lowest bid, but by the time the trial ends, you are paying a price that is much closer to the highest bid. If you do not have staff double-checking everything you are paying for, you are most likely being overcharged.”

Kim believes one way to make sure you do not get overcharged is by choosing an activity pricing model, where you pay the CRO a fixed amount to complete a task, regardless of how long it takes. He feels that type of model is the most transparent and gives the CRO the incentive to be as efficient as possible. If a CRO does not complete a task in a timely manner, they pay for the overtime. If they get it done faster, they can increase their own profit. This model also gives the CRO an incentive to improve their performance if they want future business, since sponsors can easily compare the time on a project with the time it takes other CROs to perform the same work. 

Another thing to be wary of is a human resource at the CRO being replaced by someone with an inferior skill set. Oftentimes, the CRO will continue to charge the original rate that was agreed upon in the proposal rather than adjusting the rate after a personnel change. Kim recommends questioning your team members about deliverables and the quality of work. If the timeliness and quality do not seem to measure up to what you are spending, that is an opportunity to discuss pricing with the CRO.

Proper Planning Starts With The RFP

There are several things sponsors can do to ensure they do not get into a position where they have to question charges from their CRO. Kim states the best place to start is the RFP process. This is when sponsors have the best opportunity to determine exactly what a study is going to cost.  

As noted earlier, the best way to determine the true cost of a study is by providing as many specifics as possible. Identify all of the important and particular aspects of your study. This is the best way to erase any ambiguity that might exist and avoid potential misunderstandings.

“If there are potential risks in your plan, it is best to discuss them with the CRO up front,” notes Kim. “For example, if you are planning for a study that you want completed in 18 months but suspect it might take longer, let the CRO know. During the RFP process, ask the CRO what the additional cost would be if it happens to go longer than the allotted time. These are optional costs that would only result if there are delays, but at least everyone is aware of them up front and no one will be shocked by the additional charges.”

Another example might be proactively identifying countries you may need to engage if countries identified for the study do not pan out. It’s a good idea to identify those contingent countries upfront and determine what the cost would be if you have to engage them.

Here again, a fixed-pricing model can alleviate some angst for the sponsor. “If you are paying $25,000 per month, you know that a two-month delay in the trial will cost an additional $50,000,” adds Panzitta. “If a protocol change adds four months to the study, it will cost the sponsor an additional $100,000. Everyone is always aware of what unexpected delays will add to the cost of the study.”