A Closer Look at the ‘Cost of Doing Business’

Karen Olson
February 5th, 2013

During many of our webinars on financial topics, including our recent presentation, “Financing Clinical Trials: Appropriate Compensation and Allocation of Study Budgets,” attendees often ask questions regarding the difference between the “cost of doing business” and “overhead” or “indirect costs.”

To find an appropriate answer to these common questions, I did some digging and, in my research, I was hard pressed to find definitions that differ. What I found is that the “cost of doing business,” “overhead,” and “indirect costs” all point to the same things. Those are the things in your business that either cannot be charged to a specific research study or those items that you need in order to do your work. Things such as your building or workspace (rent), insurance, computer system (hardware and software), utilities (phone, lights, heat), taxes and other professional services. Professional services can vary from the attorney that reviews your contracts to the HR department or consultant, or your accountant that handles your payroll.

Research sites might want to consider the details of  “other professional services” in order to include more of these hidden costs of doing business. Professional services includes keeping your coordinators and other staff trained, maintaining memberships in professional organizations that keep you abreast of industry developments, costs for software solutions that make your site more efficient and attractive to sponsors, and costs of your answering service. The more inclusive you are, the better you are at capturing all the costs that cannot be directly associated with a specific study. Your study budgets will be more accurate, and you will be able to make your trials more profitable.

When sponsors say you have to absorb something as the “cost of doing business,” feel free to push back and let them know, while you can appreciate their need to keep costs down, you have the same need to make sure the services they need from you are their “cost of doing business.”

To learn more about negotiating overhead costs with sponsors and assuring your site is appropriately compensated for clinical trial costs, read our free eBook “Negotiating a Stronger Clinical Trial Agreement and Budget.

Download the eBook: Negotiating a Stronger Clinical Trial Agreement & Budget

5 Comments

5 thoughts on “A Closer Look at the ‘Cost of Doing Business’

  1. Do you not agree that a well managed and financially stable medical facility that treats patients as their business, and participates in Sponsor funded clinical research as a way of contributing to the advancement of medicine, as well the possiblility of helping patients in ways that wouldn’t have been available to the patients otherwise, should be able to cover all “the costs of doing business” that are required for study activities by having a 25% Overhead applied to each of the procedures being performed? Additionally the fees that paid to the PI and SC for every visit?

  2. The overhead rate can vary based on the site’s geographic location and how thorough the site is in its overhead calculations. I have seen overhead rates no lower than 25% and up to 35%.

    1. Karen,

      I am intrigued by your statement that you have seen overhead rates no lower than 25%. We have a major name Big Pharma sponsor who has told us a number of times that their corporate policy is to cap overhead at 20% and will not budge. We are currently working on 16 active protocols with this sponsor alone across 3 locations/PIs and we cannot get them to relent. I would assume that we have negotiating power with them because I was able to get enough budgeted line items raised to correct for this, but they have drawn a line in the sand. Have you never run across this? Other than raising line item rates as we do, how would you suggest we address this in future negotiations?

      1. Hi Craig,

        I have seen that sponsors refuse to budge on overhead rates and in that case, I absolutely negotiate the line items and sponsors are usually more willing to do that in situations were they cannot or will not relent on overhead. Sometimes, I think it’s a shell game we all play!

  3. It is very difficult to decide comfortable cost of doing business because of various reasons, one important cost is to retain trained staff when there is no trial at site or the start is delayed and sponsor want whole site staff ti wait till start or recruitment stopped well before time or site has not recruited sufficient number of patients in trial & sponsor stooped recruitment. Sponsor will pay only per visit amount agreed by site but will not consider all other cost site has to bear due to reason beyond site’s control and in such situation site incur losses.

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