By Bruce D. Schatzman

CEO and Founder

Advanced Clinical Software

For hospitals, clinics, and academic medical centers, one of the most troubling aspects of being in the clinical research industry is the increased competition for research dollars.  As pharmaceutical companies try to trim more out of their already thin budgets, a growing number of research centers find it increasingly difficult to make a profit or at least break even. Despite the competition and thin budgets, some research centers thrive while others barely eek out a living. What’s the secret?

There are a large number of factors that contribute to a research center’s success.  Solid business management, high-quality patient care, effective marketing, research staff experience, investigator reputation, and many other variables can mean the difference between success and failure. Although all these factors are important, one specific area that most research centers admit they have trouble with is financial management. If you don’t have a grip on your financials, all the other success factors won’t necessarily pull you through.

In this first installment of a two-part blog focusing on financial management in clinical trials, we’ll take a look at clinical trial budgets and discuss how to make sure your trials are profitable.  In part two, slated for next week's blog, we’ll handle the next most important factor – tracking and reconciling revenue to make sure you’re paid everything that is due. Due to a limited amount of space, we’ll have to keep the focus on industry-sponsored trial budgeting, not grant-oriented budgeting, but some of the techniques apply to both. Study budgeting could easily occupy a whole book, so all I can do is offer a few highlights.

Research Budgeting

For a clinical trial sponsor, the purpose of the budgeting process is to ensure that they (the sponsor) can conduct a trial while keeping expenses under tight control. If the trial is terminated due to problems such as adverse events or lack of efficacy (a likely scenario), the sponsor can minimize their losses with a tight budget.

For a research center, the purpose of the budgeting process is to ensure that they (the research center) can conduct a successful trial while extracting a profit, or at least breaking even for non-profit organizations.

During the budgeting process, the single most important objective for a research center is estimating the actual total cost of operating the trial, comparing this with the budget being offered by the sponsor and determining whether the profit is worth the effort of conducting the trial.  It sounds simple, but the devil is in the details.  Although there are a range of factors to consider, two of the most baffling are:

                         How do you figure the “true” costs of doing each visit or procedure?

                          When and how should overhead be factored in?

Estimating True Visit and Procedure Costs

In order to estimate your true costs, the usual approach is to list all the procedures required for each study visit, and then indicate the direct (out-of-pocket) expenses, if any, for each procedure. These include items that you pay for and the sponsor doesn’t reimburse. For example, phlebotomy kits, pharmacy fees, certain radiology fees, on-site labs (urinalysis, pregnancy test), specimen shipping, document copying, and many others may be part of the protocol but not directly reimbursable. These direct costs are then added to labor costs such as study coordinator time and/or investigator time required for each procedure, then multiplied by the corresponding hourly pay rate for the employee(s) involved. The sum of these costs is then considered to be the “true” cost for the procedure. Overhead, which is calculated separately, is discussed below.

Standardization of true costs for procedures is important.  Most hospitals and academic medical centers have “charge masters” for all the medical procedures done by that institution. These charge masters are just a list of all standard procedures and the institutional fees for each procedure.  Research departments within an institution are usually required to use these standard fees when they negotiate study budgets.

The advantage of fee standardization is that direct and indirect charges are already calculated and used over and over again for each study budget, which saves time and minimizes costly mistakes.  Often, however, procedures listed in clinical protocols don’t appear in a basic hospital charge master because they are esoteric, experimental, or require a combination of steps or other procedures that can’t be separated financially.  In this case, the research department has to calculate a fee that reflects the cost of the procedure as accurately as possible.  This isn’t always easy.

Smaller research centers often don’t have a charge master, but they should develop their own to save time, especially if there are plans to do a lot more trials at that center. All this means is that with every clinical trial, you should keep a database or spreadsheet of the standard (or “default”) fees and costs involved with each procedure so these amounts don’t have to be refigured each time that procedure appears within another clinical trial.

The Study Manager™ clinical trial management system enables you to easily add and maintain a charge master with standard costs, but goes one step further. Each time a new study protocol is entered into the system, Study Manager automatically builds a complete budget based on the standard fees and costs listed in the charge master. These costs can then be adjusted for a specific study without affecting the charge master. This type of automatic study budgeting saves research administrators many hours of time, especially within busy research centers doing dozens (or even hundreds) of trials.

Overhead – The Profit Spoiler

One budgeting approach taken by some research centers is to calculate labor and materials for all study visits (or on a per-patient basis), then “tack on” some percentage (such as 20%) for profit.  Although this might work, research centers that do this don’t really understand their actual profit until the end of the year when their accountant does their taxes – which may be too late. In order to determine what “profit percentage” to use, research centers sometimes ask other research centers what number they use, and take that number and use it for their own studies. Asking other research centers what kind of profit percentage should be used can lead to problems because research centers are different and each one needs to factor in a different percentage depending on many different things. A research center based in midtown

Manhattan may have tripled the overhead of a research center in Des Moines, Iowa.

There are basically two types of overhead that should be factored into your study budgets:

Study Overhead: This is the total additional labor and materials required to conduct a study after the labor and materials have been calculated for each protocol visit, patient, or procedure. For example, the time your research director spends managing the trial, the time your financial administrator spends reconciling checks from the sponsor with work performed, the time your investigator spends responding to CRF queries, the time the study coordinator spends handling unexpected requests from the project manager, and so on.  This type of overhead is the most difficult to calculate because it varies so much across studies.  At least be aware that study overhead can eat into your research center’s profit, so a good guess is better than nothing.  The more studies you do, the better you’ll understand what these costs are.

Business Overhead: This includes the lease on your office space, computer equipment, medical equipment, office supplies, fire & theft insurance, malpractice insurance, utilities, attorney fees, telephone and Internet costs, dues and subscriptions, marketing costs, travel, temporary help and contractors, food for staff meetings, the office holiday party, and so on.  As this list shows, your overhead may be much more than you realize, and your study revenue needs to cover it.

Unlike study overhead, business overhead is much easier to calculate. The best way to determine business overhead is to go to the source – your accounting system. All good accounting systems let you generate reports that will show you your basic business overhead by month, quarter, or year.  It may take a day or so of analysis, but it’s possible to get an accurate accounting of your total overhead costs using this simple approach.  Larger research centers and institutions conducting large numbers of clinical trials might want to hire a consultant to perform a thorough analysis. Although consulting can be expensive, a good consultant can ultimately save you money, much like a good tax accountant.  There are a number of good consultants that specialize in clinical trial work.

Once you understand your overhead, you can factor it into your clinical trial budgets by amortizing part or all of it over the trials you do. How you do this depends on a lot of issues, such as whether your organization only does clinical trials or whether you have a private practice clinic that accounts for some of the overhead, and so on. The key is to absorb as much overhead directly into your study budgets to maximize your profit.

As long as your business overhead is somehow distributed across your clinical trial budgets, you’re off to a good start. Your true profit is then anything you earn from the sponsor after you account for direct costs, labor costs, AND overhead. In some cases, there isn’t much room for profit after all these costs are added up, especially when you’re looking at a “take it or leave it” budget from a sponsor that barely covers all your costs.

Accepting an unprofitable trial may be a mistake because you’re using your valuable resources to tread water without moving your research center forward. That’s why some research centers are able to expand while others simply stagnate. The more successful research centers have a good reputation for quality work that sponsors are willing to pay more for, so those research centers request and receive larger budgets that account for all the costs plus a good profit. The less experienced research centers blindly accept the budget offered by the sponsor without much negotiation simply because it looks good on paper.

What Level of Detail?

One of the questions I encounter frequently is: “What level of precision is necessary when costs are calculated?  Is it sufficient to estimate roughly, or should costs be figured down to the penny?”  As you can imagine, there are two camps. One camp insists that precision is the only way to really know what your profit is while the other camp claims that too much precision actually eats away profit because it takes too much administrative time to calculate.

As an example, consider a blood draw for study ABC.  To calculate the labor cost involved, the precision camp may try to figure the time taken by a study coordinator to open the phlebotomy kit, draw the blood, label and pack the sample, and send it to the lab. The total time is then multiplied by the hourly salary of the specific coordinator assigned to study ABC to get the labor cost of the blood draw.  Perhaps for some percentage of the blood draws, this will be an accurate figure.

From the perspective of the non-precision camp, calculating each procedure to the minute gives only a perceived level of accuracy, not an actual level of accuracy. This camp claims that the many unanticipated events that often happen while performing a blood draw (or any procedure) tend to cancel out most attempts at accuracy. For example:

                        .       A specific patient may be uncooperative or drag out the procedure in some way.

                        .       An “alternate” coordinator at a much higher or lower salary may have to cover for the                                       primary coordinator who is out sick for a week.

                        .       A procedure may have to be repeated without reimbursement from the sponsor, or may                              not be required under certain circumstances.

                        .       The trial may be extended at the same budget for another year during a period when your                                             research center is growing and overhead is increasing rapidly.

There is no perfect way to calculate labor costs. Just do what you feel is best for your research center and the type of trials you perform. In some cases, the sponsor will require that you calculate labor charges according to their standards, so you have no choice.  If possible, try to understand what the average labor will be for a specific visit or procedure, then apply some percentage of “padding” on top of that to handle the unanticipated events that always arise.

Software can Make a Difference

Ultimately, the best way to get your budgeting process under control is by tracking your profitability on each trial using spreadsheets or clinical trial management software.  The advantage of clinical trial management software such as Study Manager is that it automatically tracks your profits as you conduct the trial so you can see whether or not the budget you negotiated really works. Each time you record a study visit in the software, Study Manager automatically pulls the budgeted amount due from the sponsor, then subtracts your research center’s internal cost and overhead. You can print many different reports that show your current profitability for every one of your studies. This makes it easy to see which budgets work and which don’t. Over time, tracking your clinical trial finances on a computer will not only help refine your budgeting techniques, it can make you more profitable and enable you not only to grow your research center but provide better quality service as well.

Next week Part 2 will focus on tracking and reconciling revenue to make sure you are paid for everything that is due.

By Bruce D. Schatzman

CEO and Founder

Advanced Clinical Software

Academic Medical Centers (AMCs) have been at the forefront of clinical research for decades.  They possess unique characteristics that should be more seriously considered by the biopharmaceutical industry.  As an addendum to the first feature article in this month’s issue of Study Manager e-News, we’d like to highlight a few of the more beneficial characteristics:

§         AMCs are where cutting-edge medical research already happens – both sponsored and unsponsored.  They are where the country’s best and brightest academic physicians make medical breakthroughs every day.  Many academic physicians are world-renown in certain areas, which bolsters their research credibility.

§         Experienced academic research physicians understand not only the process of research but the science of research and can contribute to the clinical development process in unique ways.  Protocol design and data analysis are just a few areas in which academic physicians can make a significant impact.

§         The faculty at AMCs tend to be more motivated to participate in research for the sake of the advancement of medicine, not solely for the development of new revenue streams, as is more frequently the case outside of academia.  Although the “research for revenue” approach certainly works, it can in some cases foster a “production line” approach where the emphasis is on moving patients through the protocol, not on the research itself.

§         AMCs have direct access to huge patient populations in almost every therapeutic area, indication, and demographic category.  This can speed recruitment for any study but is especially important for studies focused on more esoteric indications for which patients come to AMCs for treatment because nobody else has the expertise.

§         Many AMCs have close affiliations with other AMCs, and these affiliations can be leveraged for faster investigator selection.

§         AMCs have been identified by the NIH, NCI, and other government agencies as key partners in the advancement of medicine.  Because of this, government focus will continue to be aligned towards AMCs, bringing more resources to academic research.

It’s important to point out that physicians working at private practice research centers, hospitals, and research institutions/foundations can, in many cases, offer some of the same benefits listed above.  However, when considered as a group of advantages, AMCs more frequently meet the criteria.

Next week I will discuss a few of the mysteries of clinical trial budgeting, and why being more thorough and “scientific” about your budgeting process can lead to much better profitability. 

Bruce D. Schatzman
CEO and Founder
Advanced Clinical Software, Inc.

There are more than a few people who can best be described as exhausted, having spent the last several years rolling out EDC solutions.  Although there were many doubters at the beginning, EDC has delivered on its promise of a much improved clinical data collection process; it just took about 10 years longer than most people expected.  In any case, EDC is mature and working just fine.

So why would we want to take those dedicated but exhausted professionals and give them new mountains to climb?  There is plenty of additional work to do, especially in the areas of integrating EDC systems with clinical data management systems, building or improving data warehouses, implementing CDISC instead of just talking about it, and many other bioinformatics projects that offer years of fun and challenge for IT professionals.

Although these projects are certainly worthwhile, a growing community within the biopharma industry understand that EDC only makes the process of clinical data collection and analysis more efficient – it has little or no impact on cost reduction in other areas of the clinical development process.  Unfortunately, there seems to be a lingering perception that EDC represents the majority of the solution to the problem of clinical trial inefficiency.  There’s no mathematical formula for measuring what percent of a “total possible efficiency” EDC represents, but when we think about some of the other production components of a typical clinical trial, it’s clear that EDC is just one slice of a much larger pie.

You can think of a clinical trial as being divided into two areas: clinical and operational.  EDC, clinical data management (CDM), biostatistics, clinical data warehousing, and related topics cover most of the clinical side.  That’s where the vast majority of the time, money, and energy has been dedicated – not just for efficiency reasons but because data accuracy, subject safety, and longitudinal analysis are also addressed with these technologies.

Now let’s look at the operational side.  Consider, for example, the amount of time and money CRAs spend preparing for site visits, conducting the visits, and compiling trip reports.  Or what about tracking and graphing trial milestones on a site-by-site basis such as contract signature, site initiation, enrollment opened, FPI (first patient in), enrollment quota achieved, enrollment closed, LPO (last patient out), and other key progress indicators that warn you when things aren’t going according to plan.  Now consider the administrative nightmare of tracking and paying sites for their services – by procedure, by CRF, by randomized patient, by contract milestone, or dozens of other possibilities.  This might involve complex rules and dependencies, such as enrollment bonuses based on randomization or study completion, quarterly payments for clean CRFs, a 20% withholding amount that is reconciled at the end of trial, and so on.

I could go on for pages, citing other operational tasks such as regulatory document tracking, site education and team collaboration, subject recruitment tools, CRA scheduling and resource management, budgeting, pre-trial enrollment and financial projections, study feasibility analysis, investigational product manufacturing, clinical supply management (i.e. drug inventory), collecting and evaluating site performance metrics, site qualification and selection, and so on. 

Viewed as a group, the operational challenges of clinical research are just as big as the clinical challenges.  Because CTMS is a larger galaxy of problems, one could argue that from an efficiency perspective, there is a bigger opportunity to slash clinical research costs than anything we’ve achieved through EDC.  That’s why CTMS has the potential to become the “second revolution” in clinical research (EDC being the first).

For the purpose of illustration, consider a typical site payment scenario:  The sponsor mails a check at the end of the quarter based on CRFs submitted by a site.  However, the contract stipulates that the site will additionally be reimbursed for up to two abdominal MRIs per patient ordered at the investigator’s discretion at any time during the trial.  Two months ago, the site invoiced for four MRIs but the site isn’t sure whether these are covered by the check they just received since the check didn’t come with a clearly itemized statement. The site calls Accounts Payable at the sponsor and asks whether the check covers the MRIs.  The already harried A/P person now has to investigate yet another problem and determine what the check covers and whether the site has exceeded is allotment of MRIs.  Several phone calls are exchanged between site and sponsor for clarification, and resolution finally comes at the cost of 30 minutes spent by each side.  Now multiply this by 30 sites and perhaps 5 A/P calls per site during the study. The result is 150 hours (conservatively) of combined sponsor and site time for that study.  The site may decide not to work with the sponsor again because getting paid is like squeezing water from a stone.  The purpose of CTMS is to prevent exercises in futility like this, and countless other frustrating scenarios as well.  Over many studies, it adds up to thousands of hours of time saved.

Although CTMS will impact both CROs and biopharma, it will impact them differently.  CROs are embracing CTMS because they succeed by offering premium service, expertise, and unique (or “niche”) capabilities at the lowest possible price.  CRO profit margins are slim due to the often ruthless competition in this space, so CTMS provides the perfect solution by reducing expenses, which increases margins.  CROs will use CTMS to achieve a clear advantage over competitors that are slow to adopt technology – not just because their operating costs are lower, but because they can market cutting edge capabilities to sponsors.  Most sponsors finally realize that CROs with mature, state-of-the-art research management infrastructures are likely to perform better and be much more responsive to “sudden needs” that pop up almost daily during clinical trials.  Successful CROs therefore seize every opportunity to “parade” these infrastructures in front of sponsors.

In contrast, sponsors know that reducing product timelines is the key consideration, so this will be the primary reason why they will purchase CTMS.  Overall efficiency is important, but meeting trial deadlines is the cake, not merely the icing.  Therefore, sponsors (especially the ones that use CROs exclusively for all their trials) may gravitate more towards CTMS systems that focus on pre-trial resource planning and forecasting, but basic tracking capabilities will certainly be necessary.

I’ve heard claims (or maybe threats) that sponsors may eventually leverage CTMS and EDC tools in order to bypass CROs to cut costs, but this won’t happen systemically.  Sponsors that have an unlucky history of problems with CROs may try this, but staffing challenges, lack of site selection capability, lack of trial management expertise, and many other factors won’t ever make this the predominant model, especially for larger phase II and phase III studies that are impossible for smaller biopharma to handle.  CROs will be around for a long time.

So let’s turn our attention to the new crop of products from an ever-proliferating group of vendors. Some of these are nothing more than EDC vendors that now offer CTMS products.  5 years ago, there were only 2 or 3 commercially available CTMS packages.  Today, there are about 20 reputable vendors with respectable solutions at all price levels.  The wide range of choices has helped accelerate the interest in CTMS solutions because more CROs and sponsors can finally get what they want.

Unfortunately, choosing a CTMS isn’t easy.  One of the most confusing things about CTMS products is how different they all are from each other.  Although there is general industry agreement on what EDC is, there is no clear definition of what “clinical trial management software” really means, so CTMS products tend to focus on totally different areas, depending on what the vendor sees as a good market.  Some CTMS systems track site payments; some don’t.  Some offer CRA scheduling and automated trip reports, others don’t.  Functionality you may think is essential for your operation may be missing completely, so make sure you understand exactly what you’re getting before you buy.

Some of the new solutions are mainly extensions to existing EDC systems and these leverage some of the data that is available within EDC databases such as patient enrollment statistics, subject visit logs, CRF statuses, and so on.  But EDC-based CTMS systems often lack the full functionality of software products that were designed from the ground-up as trial management systems.  You may also have to use the vendor’s EDC system in order to get any value out of their CTMS system.  Buying a CTMS system that can work independently of any specific EDC solution is a must because it gives you the flexibility to use different EDC systems for different studies.  It’s certainly more work and system integration cost to feed data into your CTMS from multiple EDC databases, but the better CTMS vendors have no problem helping with this, and you’ll be glad you’re not stuck using one EDC product.

In order to simplify the CTMS evaluation process, you can consider the various packages to be divided into two classes:  large and small.  This may seem like an over-simplification, but let me explain.  Large CTMS’s include packages such as Impact from Perceptive Informatics and Siebel Clinical Trial Management System (recently acquired by Oracle Corporation).  Small CTMS’s include packages such as StudyManager from Advanced Clinical Software (www.studymanager.com).

Despite the fact that some medium size CROs and biopharma companies have purchased large CTMS, these solutions are suitable exclusively for large, global enterprises with thousands of employees conducting dozens or hundreds of clinical trials.  This doesn’t always stop aggressive sales people from trying to sell large solutions to small or medium-size companies, but the result here is usually a disaster.  The resources necessary to implement global CTMS packages are substantial – well more than most small-to-medium size companies can dedicate, so don’t over-buy because you think you might need every conceivable capability.  You’ll end up using far fewer features than you might think simply because you don’t have the resources to leverage them.  Consider how much of Microsoft Office’s powerful and comprehensive capabilities your company actually uses, then ask yourself why it would be any different with a CTMS?

Large packages may be extremely powerful but they’re usually so complicated to set up and configure that entering data for a single study could take over a month and require a small team of system experts.  But if you’re part of a large pharmaceutical company, don’t bother with the small packages unless you have the autonomy to purchase a departmental-level solution for a few studies instead of using the top-down corporate-wide solution.  The large packages also tend to provide global resource planning and management, which is usually lacking in the small packages.  Resource planning is essential for studies spanning a large number of sites and multiple countries.

Small CTMS packages tend to focus less on resource planning and forecasting, and more on trial operations, so they’re ideal for the majority of the non-global trials.  These packages have a number of advantages, perhaps the biggest of which is that they can take less than two months to fully implement, and a day or two to set up a complete trial (not including CRFs, if the system includes an EDC component).  Compare this with larger systems that take a minimum of a year to implement, and upwards of 2-3 years to fully deploy throughout a corporation.

Another advantage of the small packages is that user adoption tends to be much smoother and certainly more enthusiastic.  CRAs, CRCs, project managers, and other users strongly prefer the user interface simplicity the small packages offer.  Power comes at a steep price, and the larger packages often bewilder users with sophistication.  The ongoing cost per user of supporting the larger packages is likely to be an order of magnitude greater than the smaller packages.  For better or for worse, the purchase decision is often made by top-level managers that become mesmerized by product sophistication during sales demos.  Unfortunately, they don’t always understand that these features are beasts that need to be fed, and the users in the “trenches” aren’t given the time to feed them. 

The graphic shown below is from Advanced Clinical Software’s StudyManager, one of the “small” but capable CTMS applications.  The graphic is produced automatically, with no configuration necessary, and is based on enrollment data within the subject tracking portion of the database. The data shown is just a sample.  Getting this information from large systems isn’t so automatic, but large systems are able to display much deeper levels of detail.

Whether you’re in the market for a large or small solution, the good news is that there are more choices now than ever, and you’re much more likely to find something you like.  Evaluate your needs with your feet on the ground before you buy, then ask yourself what capabilities you actually have the resources to implement.  Focus only on critical needs and don’t be dazzled by capabilities that look valuable but don’t represent your core focus.  If you follow this advice, you’re more likely to be successful with choosing and implementing a CTMS that has significant impact.

Many of our StudyManager clients have discovered a great benefit of StudyManager CTMS - even before a study is initiated. It's using StudyManager CTMS as a study negotiation tool.

Here's how it works. Use the Study Budgeting portion of the Financials module to enter a sponsor's offered payments and milestones, your anticipated study costs, and any required mark-up.  Once entered, run the Budget Summary Profit Report (Select by Arm if it's a Multi-Arm Study) and, Presto!, you have a preview of your potential gain/loss for this particular study.

As negotiations between the sponsor and your organization progress, simply modify the sponsor's offered payment numbers to get updated gain/loss figures.

Comments?  Let us know!

The StudyManager Team

Users of StudyManager, the industry leading clinical trial management software, has just launched a new web site portal dedicated to exsting StudyManager users.

The new web portal can be found at: www.studymanageruser.com. The site offers community forums, self-service support resources, online support case submission, surverys, and peer-to-peer interaction to help improve company-wide products and services.

Give us your feedback on this new portal.  Is something missing (other than online videos - they are coming!) or a recommendation on how we can improve our resources for existing customers.  We want to know and now's your opportunity to do so!

The StudyManager Team