Clinipace worldwide-webcast-new-cro-pricing-model-value-based-vs-hourly

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Variable Billing vs. Fixed-Price Models:

How Does Your Clinical Trial Stand to Gain?

Mark Shapiro, MA, MBA, CCRA, RACExecutive Director, Clinical Solutions

CLINIPACE WORLDWIDE

David Hinds, MBAGlobal Project Director

CLINIPACE WORLDWIDE



www.clinipace.comRIGHT-SIZEDTM CLINICAL RESEARCH SERVICES

Technology-Amplified CRO

Project ManagementSite Selection and Global Study FeasibilityClinical Monitoring and Site ManagementData ManagementBiostatisticsMedical Management/MonitoringPatient RecruitmentRegulatory Services GxP Quality AssuranceMedical WritingDrug/Device Safety

Frictionless Services




Let’s get on the same page

Variable Billing Fixed-Price

HourlyBilling

FunctionalOutsourcing

Unit-Based Value-Based




So, here we are…CROs get paid for hours worked or tasks performed, not value providedCROs earn most of their money from high-volume task-level activities {the area least valued by sponsors}CRO pricing is often based on costs or effort not valueCROs have extensive, process-based intellectual property for how to conduct of the trial, but…Have commoditized their services and removed value from services in favor of units and volume




Variable billing is killing drug development, because it

Misaligns interests of the CRO and client…By not sharing project risk with the clientBy focusing on costs, not value creation

Focuses on efforts and inputs, not results, which…

Promotes a view of services as a commodityPenalizes technological innovationDoes not differentiate




Hourly, effort-and task-based pricing leads to

scope changes and change fees

THE CRO STATUS

QUO:




6 reasons we should change the status quo

1. It is time consuming without adding value2. It makes clients nervous3. It encourages lower productivity4. It lends itself to tedious work5. It doesn't stop scope creep6. It encourages an adversarial relationship




Drivers that are pushing traditional ways of billing aside

the recognition that hourly billing is excessive in difficult economic timesa gnawing feeling that clients are poorly served by hourly billing and the bidding practices that it engendersa shift toward building strategic relationships between CROs and sponsorsthe desire to mitigate risk and contain budgets.

http://www.lifescienceleader.com/index.php?option=com_jambozine&layout=article&view=page&aid=3931




Sponsors are buying results and

value, not time, work, or effort.

WHAT ARE SPONSORS BUYING?




Why value-based price?Clients know from the outset what the study will cost and can budget appropriately for it. Clients find the predictability especially valuable in a turbulent economy, when cost containment and cash flow management is crucial.Clients appreciate not getting hit with costs associated with scope changes that should have been anticipated from the beginning.




Common resistances to value-based pricing

Sponsor Different definitions of value Perception of risk CRO has little control over

clinical results Inertia Timing of measures Can discourage collaboration

around performance metrics Shared risk affects price Purchasing groups dis-

incentivized

CRO Little control over

outcomes Sponsors reluctant to

share metrics Requires much greater

pre-project feasibility Inertia Requires accounting

innovation Works best for new clients

and projects




A better modelSponsor/CRO first defines scope of value and performance metricsSponsor/CRO then determines scope of workAgreement of team composition and tenureCRO utilizes value-led costing rather than cost-led pricingSponsor/CRO agree upon invoicing methods –based on predictability not hours workedMeasurement systems provide continuous assessment of value creation




Value-led pricing

Service Cost Billing Value Sponsor

Sponsor Value Price Cost Service

Activity-led billing




The Value-Oriented CROStrategy

Delivery

Technology

Metrics

Value




Foundations of value pricingFocuses on value and effectiveness, not time and laborPlaces more importance on results instead of effortFosters creativity and innovation instead of a unit-volume production mentalityIncentivizes CRO to reduce time and costsShares risk between sponsor and CROAligns the interests of the sponsor and CRO




The CRO of the future

Profit Capacity Efficiency Activity-Based Price

Value Intellectual Capital Effectiveness Value-Based

Price

The CRO of the Past




In summary…Variable Fixed

HourlyBilling

FunctionalOutsourcing

Unit-Based Value-Based

Contract Focus Task-oriented Functionally-oriented

Input-oriented

Output-oriented

Billing Unit Actual Hours in arrears FTE-based Actual Units /

Milestones Planned Units

Monthly charges Highly variable

Slightly variable

Highly variable

Fixed / smoothed

Upper limit driver Estimated Hours

Resources x Duration

Estimated Units or Fixed Fixed Price

Best for…. Consulting Balance sheet mgmt

“Cookie-cutter”projects

Complex,shared risk projects




Q&A

Mark [email protected]

David [email protected]

mailto:[email protected]�

mailto:[email protected]�

Documents

Clinipace worldwide-webcast-new-cro-pricing-model-value-based-vs-hourly