Financial Steps for Sites

Today, the key to clinical trial management depends on a site's ability to successfully manage financial data and their trials portfolio with greater business acumen. Successful financial results require sites to smartly select studies that maximize the strategic and financial goals, and to effectively manage budgets, patient accrual, and collection. This will ensure an increased cash flow and improve a site's bottom line.

According to Parexel International, 2007 was a record year for study starts, which represented an increase of 12% from the prior year.¹ Industry spending on clinical trials also is rising. Comprehensive costs of developing a new drug have steadily increased over time. In 2006, the total costs to bring a new drug to market were approximately $1.2 billion. At the same time, the number of sites greater than one month behind subject enrollment targets was 70% to 72%. This has created continued pressures for both sponsors and CROs to manage costs, while demanding greater overall efficiency from sites.

Sites also are being pressed for improved performance and lower costs during a time when they are realizing decreased compensation from procedures. Reasons for this include: requests from regulatory agencies for larger amounts of data to support submissions; an increase in the number of unique procedures between 2000 and 2007; and a growing number of complex trials and procedures. All of these add to the operational requirements for sites.

Research as a business

In taking a high level view at the business side of clinical research, sites are facing significant challenges. Reported margins for sites increased from 11% in 1999 to 14% in 2004. However, when taking into account the full cost of conducting clinical trials research, the current profit margin for sites has decreased—the average reported profit margin for sites is now approximately 2%. At the same time, payment cycle time frames are extremely long in terms of payment receivables. Site receivables currently are reported to average about 118 to 140 days.

In the case of one hospital, between 1995 and 2000 its Office of Research was able to break even. By 2005, however, the hospital subsidized $1.29 for every dollar of revenue from research. Of that site's approximately 75 active protocols, just 35 had revenues in 2004. And of the 35 protocols with revenue, seven accounted for 50% of the total revenue.

The driver was not the result of those managing the studies, but a direct result of a strategic decision to accept more studies. While the volume increased, the result was overtaxing the system. The time spent by study coordinators on upkeep of the studies (i.e., adverse event reporting, IRB continuing reviews, sponsor inquiries, etc.) limited the time available to enroll and manage patients in the study.

In the end, operating a sustainable clinical research venture requires applying key business principles, including smartly selecting studies (i.e., portfolio management), developing solid budgets, achieving enrollment targets, and monitoring and collecting cash from sponsors.

Case study

The Clinical Trials Office (CTO) of Columbia University College of Physicians and Surgeons and New York-Presbyterian Hospital, like many other academic CTOs, is realizing increased competition for the best studies, the challenge of tracking multiple sponsor contracts, and pressure to maintain the bottom line. Columbia needed a way to show value and that it was not losing money in its clinical trials. Additionally, Columbia University's Cancer Center created a sense of urgency with an upcoming NIH/NCI review that required a way to capture data in a central location. At that time, data was located in a variety of different areas.

"About three to four years ago, when the Cancer Center began evaluating more efficient data management systems, we also decided to take a closer look, as we knew our organization needed a more effective means of managing data," said Susan Adler, Applications Administrator, Columbia University Medical Center, CTO department. "As it turned out, Columbia had a clinical trial management system already in place. The Cancer Center was using that system, but the CTO was not." Adler was part of a project team tasked with reviewing that system to evaluate whether it met Columbia University's needs.

"We had a list of over 100 items we needed to evaluate to determine whether we were effectively managing our clinical trials," said Adler. "We needed to determine whether we were capturing all possible revenue to ensure we were not losing money. After a thorough investigative process, we concluded that our existing CTMS system could not manage financial transactions, which was a problem, so we needed to find another CTMS system."

Columbia University contracted with Allscripts, Inc, for its EHR system, which offers StudyManager's CTMS system to its EHR customers. "Once we discovered StudyManager was part of our Allscripts package, we realized we had a system available to us that we weren't using and decided to give it a closer look," said Adler. "The project team put StudyManager through the same evaluation process we put the other CTMS system through, and quickly found it met all the requirements we needed to accurately capture and report all our financial data."

As part of a pilot phase, Columbia initially rolled out the CTMS to three areas: Vascular Surgery, Nephrology, and Liver Disease and Transplantation divisions, and found it to be a manageable system.

The project team found that a CTMS allowed the CTO to transition from spreadsheets and paper-based processes to a single, centralized database that provides tracking and reporting features, allowing their department to capture data they could not previously capture. "I was able to reconcile our financial data including catching up on outstanding invoicing issues right away. It is now much easier to track patient status and finances across multiple areas," said Adler.

"We're able to look at groups of information and identify areas we need to improve," said Adler. "For example, we created a dashboard that shows the enrollment status of patients, and looks at trending patterns. At one point we saw we were recruiting at 50% to 60% (of targeted enrollment), which we quickly knew needed improvement. Having access to this type of data makes us attractive to sponsors."

The ability to manage studies across the entire research operation also helps keep a busy CTO on track. "The software also helps us evaluate specific studies, which is critical when you are contracting and negotiating as many as 20 different studies at a time. In some cases, we can tell if we are going to lose money on a specific study and evaluate what we need to change before signing the final contract."

Additionally, hundreds of patients interact with Columbia University's clinical partner for ancillary testing each year. As a result, payment reconciliation and processing is a huge challenge. The CTMS provided the only efficient way of labeling, tracking, and reconciling invoices and payments per study.

One of the limitations for CTMS is having the right data in the system. Columbia used the CTMS vendor's support team to migrate data into the CTMS system and design the reporting structure and reports, thereby reducing the burden on existing staff.

Said Adler, "We also entered closed studies into StudyManager and were able to recoup some of the costs from those studies. Simple things like knowing when to invoice and being able to evaluate specific studies gives us the tools we need to be successful, and prove that our clinical trials make financial sense for our enterprise."

Balancing the portfolio

The transition for Columbia's CTO allowed it to manage its portfolio and help it strike a better balance between the need to ensure the studies meet sites' mission while ensuring studies within the portfolio are profitable. This balanced portfolio approach is critical to all sites and can be accomplished by evaluating a potential study based on two parameters: strategic impact and financial impact.

To apply these measurements, it's important to define strategic alignment, which can mean different things to different sites. For some, it is best science or getting in the best patients; for other sites it may be taking on studies that are best for long-term strategies or attracting the best sponsors. However a research site defines "strategic alignment," the goal of the portfolio management matrix is to reinforce the need to consider the financial and nonfinancial implications of each study on the portfolio and balance those implications with the long-term goals of the organization.

Selecting the right study

A feasibility analysis is a critical mechanism to implement the portfolio management strategy. While a feasibility analysis needs to be customized to your site and the approach to your management of clinical research, it can be a tool to quickly help evaluate potential studies to determine strategic fit and financial potential. Sites should conduct a high-level feasibility analysis prior to dedicating time to the budget, contract, and other reviews. This can be done through a committee review, simple one-page forms, select individuals to screen studies, etc. Some good questions to ask in a feasibility analysis include:

• How would you rank the level of scientific interest in this study relative to existing studies?

• How could patients benefit from this study?

• Are there available patients that would meet the inclusion or exclusion criteria?

• How many patients are expected to be enrolled?

• What is the time frame for enrollment and what factors will impede enrollment?

• What is the expected financial impact of this study?

Covering your BAC

When the right study is selected, the "BAC" methodology can be implemented. It is comprised of three parts:

• B—Budgets that are accurate and fully loaded and milestones reflect the timing of expenses

• A—Accrual targets are reasonable and patients and visits can be tracked

• C—Collection of cash is supported by invoicing and A/R management

Clinical trial budgets. If your organization is not already doing so, it is critical to establish a budget. Budgets aid administrative decision makers in their feasibility assessments aid research personnel in managing the financial aspects of specific trials, and are a mechanism for monitoring certain billing compliance initiatives. They also should include all costs of conducting clinical trials such as study start-up costs, IRB and departmental taxes, patient care items and services, and supplies.

A critical part of your clinical trial budget is evaluating milestones and how they impact your budget. The milestone method aligns incentives of the site and sponsor, but in general, sponsor payments tend to be spread over the life of a study with an emphasis on payments at the completion of the study, while most of the expenses occur at the beginning of the study. This can have a negative impact on budgets. Therefore, timing of expenses and sponsor payments is important to consider in sponsor negotiations or even determining whether to take on a study.

Patient accrual. It is widely understood that patient accrual is important to any study. However, patient accrual has a major impact on the financial success of sites. It's important to evaluate criteria such as fixed cost per patient, start-up costs, and patient management costs. For example, let's look at how fixed cost are recovered. A study is expected to enroll 10 patients with a fixed cost of $3500 (or $350/patient). If the study were to enroll 12 patients, the site would receive $4200 (12 x $350) for a gain of $700. However, in the event the study only enrolls five patients, the site would receive $1750 (5 x $35) for a loss of $1750.

Also, in many cases adding even one more patient can have a positive impact on the bottom line. Based on a recent review of 100 closed studies over a 12 month period at one academic medical center, the incremental revenue of adding just one more patient per closed study revealed a revenue potential of more than $1.26 million. Part of this recovery would be to pay for additional costs and coordinator time, but a large portion would be the estimated fixed costs and overhead, which do not increase materially for one additional patient enrolled. Therefore, adding one more patient could have the effect of transforming the clinical trials portfolio from a break-even to a revenue generating venture and at the same time help fund needed expansion and additional resources.

Collecting cash and sponsor invoicing. Many sites face challenges related to sponsor invoicing including: undefined processes for tracking when milestones are reached, absence of a process for creating an invoice, difficulties tracking how long an invoice is outstanding, waiting for monitor visits, sponsor hold-backs, contracts that are not clear on when the sponsor must pay for separate billable items, and other issues. These factors combine to add to an already lengthy payment time frame, and can potentially result in missed payments.

Conclusion

To ensure a site is profitable, it's important to evaluate the types of studies performed and what financial and strategic factors can help. From a financial perspective, factors such as looking at patient accrual and how adding just a single patient can have a dramatic impact. Other factors include evaluating how negotiations with sponsors are handled and exploring what information management systems are available to help centralize and manage this information. In the end, the key is to make sure the right study is selected using a portfolio approach and to cover your "BAC."

Neil Warnock,* MD, MBA, is Vice President, Medical Affairs, at StudyManager, 520 Pike Street, Suite 2522, Seattle, WA 98101, email: nwarnock@studymanager.com, and Matthew Lester is Managing Director for Huron Consulting Group, Chicago, IL.

*To whom all correspondence should be addressed.

References

1. ACRP Wire, "Record High Number of Clinical Trials Initiated," July 3, 2008, http://newsmanager.commpartners.com/acrpwire/issues/2008-07-03/4.html.