What CR sites need now is Financial Management 101
Better terms, collections & budgets
It's difficult to imagine another industry that would tolerate six- to 18-month lag times on payments for services or products. Yet it has been a tradition in the clinical research (CR) industry.
This budding trend is part of a bigger picture in which CR sites are becoming aware that better financial management will be crucial to their survival in an increasingly difficult clinical trial industry.
Some CR leaders are forming best practices that include asking for, and often receiving, 25-30 day payment cycles. They're also managing their accounts receivables more actively, and are making other changes that result in higher productivity and better cash flow.
The prolonged recessionary climate has been damaging for CR sites, and each year a number of them close because of their inability to manage their finances. One of the problems is that they have to make payroll every two weeks while sponsors might make them wait months for reimbursement for their work, experts say.
"I suspect a lot of businesses are suffering through that slow-payment process," says Bobbi Tafara, CCRC, director and owner of Suncoast Clinical Research in New Port Richey, FL.
Suncoast Clinical Research has addressed this issue in the past couple of years by asking sponsors for 30-day payments in contracts, Tafara says.
"I've heard of a number of sites that have closed their doors, and, sadly, a number of people couldn't ride out the storm," she says. "But we've been around since 1988, and we apply conservative principles to our financial management, and I think that's paid off."
The most recent principle has been to ask for better payment terms while showing sponsors what the site can deliver. This is a trend that's beginning to catch on with other CR sites too.
Aspen Clinical Research in Orem, CO, began to ask for 25-30 day payments from sponsors at the beginning of 2010, says Jon Ward, BSc, CIPN, CCRC, chief executive officer of Aspen Clinical Research.
Also, the research organization has asked sponsors to make pass-through payments on a monthly basis instead of quarterly, he adds.
"Pass-through invoices like advertising and imaging services and pharmacy preparation are paid monthly, which means within 45 days of the actual event occurring," Ward explains. "If we did an MRI on the first of this month then we want it paid by the 15th of the following month."
The switch from quarterly payments to monthly payments has taken some time, but it progresses with each successful study, Ward says.
For instance, Aspen Clinical Research's first contract with a sponsor might be set at the quarterly payment cycle. But once the CR organization proves that it can deliver studies on time and produce quality data, Ward will ask for monthly payment cycles for any future studies.
"We build a relationship and build up rapport," Ward says. "Too many people are afraid to ask for it."
Sponsors and CR leaders should view the current three to six-month payment cycle as a major problem for the industry, he says.
"The more research sites lack payments, the more stress it puts on a site," Ward says. "And the more a site stresses about payments and bills, the more it distracts from their overall ability to collect data."
Tafara has helped build momentum for monthly payment cycles when she meets with industry leaders at CR conferences and courses. It takes CR site leaders to push the pharmaceutical chief executive officers and the industry toward this trend, she notes.
"People in the industry and who have a good reputation can say, 'Look here, these are my results; I do good work and I want something in return for that,'" she explains. "That's a push that's going on and it seems to be working."
CR sites also should ask for better reimbursement for study procedures, and they can only do this if they have a thorough and accurate budgeting process, says Steven Ziemba, MS, MBA, PhD-candidate, director of clinical research at Phoebe Putney Memorial Hospital in Albany, GA.
Researchers at large institutions need accurate budgets for both the site's financial well-being and also to justify any requests they make for hiring new staff, Ziemba notes.
"Let's say your site is understaffed, and you're not necessarily tracking revenue coming in, or you're not negotiating an adequate amount to cover your costs and other expenses," he explains. "When you come back to the administration to say you really need a data manager or research nurse, you have to demonstrate that revenue increase."
If a CR director cannot demonstrate that the site has enough business and revenue to justify the new staff position, then it will be difficult to convince the administration that the need really is there, he adds.
"A research administrator should be familiar with exactly how much you should be charging on an hourly basis for your staff members," Ziemba says.
Tafara and Ward suggest these additional ways that CR sites can improve their financial management and succeed even during difficult economic times:
Be proactive with accounts receivables: "My key point is, 'Why aren't these guys actually paying?" Ward says.
Often the hold-up is an oversight, and the sponsor simply needs a reminder.
This is why Aspen Clinical Research sends out routine invoices regardless of the sponsor's preference.
"Most monitors and CROs [clinical research organizations] say, 'Don't send me invoices; these forms are sent out automatically, so we can't do anything about it,'" Ward says.
But this means that payment could be delayed even when everything has been cleared and accepted by the monitor.
"So we send out invoices automatically every two weeks, and we include all the supporting data," Ward explains. "If the invoice is for advertising, we send out details from the media company, the IRB's approval of the ads, and the monitor's email that said we should go ahead with the ad."
Another strategy is to move away from having contracts based on what was monitored and to instead have them based on data entered and approved without query, Ward suggests.
"If there are no conflicts, then we submit this for payment," he adds.
Research sites should install a good clinical trial management system, selecting one that is adaptable to their own business models, Tafara suggests.
"The system we're using now is more supportive and user-friendly of our invoicing process," she says. "When we were smaller we could rely on an individual's follow-up and memory, but you can't do that when your site gets bigger and your receivables are larger."
Research organizations should pay attention to their contracts' fine print, especially if they do not send out invoices routinely.
Some sponsors will send payments automatically, but others might hold off until they receive an invoice, and a research site might not realize that is the case, Tafara says.
Electronic clinical trial management systems also should include reminders about overdue invoices. And sites should track their own follow-through on payments to see if they are letting money fall through the cracks.
"Be extra diligent and review what you do periodically," she says. "A lot of companies run reports and never look at them."
Know your costs and true budget: "When we first receive a contract, we have an employee who compares what is offered with what our metrics are for the different services," Tafara says. "If a sponsor is offering 50% of what we'd typically bill for that service, then we have to provide justification for why our charge is higher."
Every clinical trial organization should build up its own metrics to identify the site's profit margin, Tafara says.
This retrospective review of costs should grow as the site grows.
"It's a variable business, and probably every month a study comes along that has a new process or service in it," Tafara says. "You do your work and find out what it costs and negotiate for that fee and add it to your metrics."
The key is to be flexible and grow, she adds.
Hone negotiation skills: CR sites can do a great job tracking and collecting payments, but if their contracts are structured in a way that costs them money with unrealistic timelines and expectations, then there's a problem, Ward says.
Contracts based on unrealistic timelines and expectations should be avoided.
"Negotiate for 25 to 30 day payments," Ward says.
Sites also should negotiate for administrative and start-up payments to help tide them over during the first long stretch before they enroll subjects and begin to bill for the visits, he says.
"The costs are there, so we have to have the start-up payments in place," Ward says. "Even if you are a phenomenal enroller, your payment easily could be five months after your first subject was enrolled."
The best strategy for negotiating better payment terms is to create value for your research site by meeting goals, he says.
"We typically under-promise and over-perform on all of our contracts," Ward says.
Research sites can make handshake deals with sponsors, in which they can demonstrate their commitment to a study by meeting enrollment and data collection goals in exchange for a promise to agree to a monthly payment schedule in the future, he says.
Ask subcontractors for better prices: "Don't be afraid to ask," Tafara says. "When we outsource our radiology tests, we go to the radiology facility and ask them to accept the Medicare allowance rate."
Sometimes Tafara will ask a vendor to accept the Medicaid prices.
"We ask vendors, 'What is your best price?'" Tafara says. "I think most facilities accept that this is like a Medicare payment and that's all they're going to get for the service."
Clinical research sites need to protect their bottom line by buying on bulk and paying attention to everything they outsource or buy, she says.
"You have to ask," she says. "There's no place to be shy or humble."
Operate more efficiently: Clinical trial business often results in busy and slow periods. Many sites will reduce their staff when times are slow and add more employees when business picks up.
But this is not necessarily the most efficient way to operate since it's very costly to hire and train new employees, and sites lose valuable experience when they let go of existing professionals.
A better method is to cross-train staff and help employees build skills that could be useful in the lean times.
For example, Suncoast Clinical Research will shift clinical trial staff to recruitment work when there are fewer studies underway.
"If you don't have a lot of studies, then you can enroll more people into the studies you do have, Tafara says. "They could review charts in physicians' offices, make phone calls, and distribute fliers in the community."
Sponsors rarely tell sites to not enroll more subjects because a number of their sites will under-enroll, she adds.
Shifting staff to new roles makes everyone happy, she notes.
"When they enroll more patients they can go back to seeing patients," Tafara says. "It's a win-win-win."
At Suncoast Clinical Research, each employee is trained in all study visit tasks so they can serve as back-ups when needed.
"Our coordinators know how to recruit, see patients, draw blood, enter data, and schedule appointments," she says.
It's difficult to imagine another industry that would tolerate six- to 18-month lag times on payments for services or products. Yet it has been a tradition in the clinical research (CR) industry.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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