Economic Development, Government, and Health Care

Clinical trials generate cash flow

September 9, 2012
| By Pete Daly |
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According to the major pharmaceutical industry organization in Washington, D.C., clinical trials of experimental drugs and equipment take place at many hospitals, clinics and doctor’s offices in Michigan, and one health care industry expert says they bring in welcome extra revenue.

Representatives of the three major hospitals in Grand Rapids, however, played down the economic benefit and claim that sometimes they lose money on clinical trials, despite the fact that trials conducted for pharma and medical device companies are negotiated contracts and purely optional on the part of the hospitals.

According to the Pharmaceutical Research and Manufacturers of America (PhRMA.org), as of April 2012, there have been more than 3,400 completed and active clinical trials in Michigan since 1999. More than 1,700 of those are trials of new medicines for asthma, cancer, heart disease, stroke, diabetes and mental illnesses, with cancer topping the list with 994 trials, followed by mental illness with 243.

PhRMA published a report this year stating that nationwide, “clinical trials are responsible for 45 to 75 percent of the $1.2 billion average cost of developing one new cutting-edge biotechnology medicine.”

Mike La Penna, founder of The La Penna Group in Grand Rapids, a consulting firm that specializes in health care business development, said that “absolutely, there is no downside” to a hospital or other health care business taking on clinical trials.

La Penna noted that hospitals lose money on some classes of patients, when the payer (the individual, his/her private insurance or Medicare) doesn’t cover all the costs of service. And hospitals, of course, cannot pick and choose the patients they admit.

Clinical trials are different, said La Penna. Pharma companies negotiate contracts with every hospital, clinic or organization interested in hosting a trial to reimburse them for all costs, and the pharma/device company has final say on the selection of the patients who will be the test subjects.

The clinics or hospitals “are absolutely making money off each clinical trial event,” said La Penna. He added that individual physicians also can add to their income by participating in clinical trials.

Some trials are brief, simple outpatient projects and may cost only a few hundred dollars, while others are major, long-term projects that can range into the hundreds of thousands of dollars.

Altogether, “this is big business,” said La Penna, because the pharmaceutical companies have to have a certain amount of test data before taking a new drug to the FDA for review.

In fact, he said there is a “brokerage community” in the business world that specializes in finding and recruiting potential patients for clinical trials.

“We see TV ads quite frequently, especially in large metropolitan areas,” said La Penna, urging people with certain illnesses or conditions to sign up for an upcoming clinical trial. He said the ads usually specify free treatment, free transportation and housing, “and in some cases, even a stipend for the patients themselves.”

The Business Journal found an ad posted on Craigslist in mid-August seeking “clinically-diagnosed OCD (obsessive/compulsive disorder) patients” for a research study at Brown University and Butler Hospital in Providence, R.I.

La Penna said in some cases, such as cancer treatment where the patient’s life is at stake, the options may be limited. The patient may choose to undergo the standard drug or surgery treatment and hope for the best. An alternative is participating in a trial of an experimental drug or procedure.

In clinical trials involving experimental drugs, patients routinely waive their right to legal recourse if it doesn’t work. But some patients in a clinical trial of an experimental drug are given a placebo, a requirement in double-blind testing. So if it turns out the experimental drug works, the patient who got a placebo instead is not able to sue.

Clinical trials are purely optional for the institution and the reimbursement is always negotiable when a pharmaceutical or medical device company is making the offer.

Clinical trials aren’t always first-phase experiments involving new drugs or devices not yet approved by the FDA, nor do they always involve hospitalized patients. Susan Hoppough, director of research and innovation at Saint Mary’s Health Care, said Saint Mary’s oncology clinical trials in later stages of pharmaceutical research generally involve the minimum standard of care for the patient plus approved drugs in different doses or combinations.

She said she has been involved with clinical trials where the testing organization was reimbursed $2,000 per patient for multiple visits, but phase one testing costs may be higher because “none of those things are billable to insurance.” In those, the organization may charge the company as much as $10,000 per participant.

Saint Mary’s has ongoing clinical trials in neurology, oncology and cardiovascular, according to Hoppough.

“Offering clinical trials is an option that I think most health care organizations want to make available for their patients. And having them available in West Michigan just allows people to stay in their community, instead of needing to go away to a major research center or university setting,” said Hoppough.

As for what the hospital charges for clinical trials, “it’s break even. We’re basically paid for the work we do and tests we run, as part of that clinical trial,” said Hoppough. She added that there is a lot of work to do maintaining regulatory documents, “but that’s not compensated. So in those studies, you end up in the hole.”

“I think that’s one of the misperceptions — that research is viewed as a profit center. And it’s really revenue to offset expenses,” said Hoppough.

Spectrum Health has the most clinical trials in the Greater Grand Rapids area, with 750 to 800 open now, according to Denise Roe, interim director of research. She said the research can come with a mix of funding sources, and the majority of clinical trials involving cancer treatments are through federal funding.

Roe said federal funding may cover up to 30 percent of Spectrum’s cost of some clinical trials, with industry covering probably 60 percent or more, and the rest coming from the hospital system through dollars set aside to help physician investigators just getting started in research projects.

Neither Roe nor Curtis Gritters, supervisor of clinical trials at Spectrum, would provide an estimate of how much revenue Spectrum takes in each year for clinical trials, although Roe said a highly complex study involving a number of patients over an extended period, and perhaps including hospitalization, could easily cost up to $200,000.

“We don’t get net revenue. There is no real revenue. You get reimbursable cost,” said Roe.

Bruce Rossman, media relations manager at Spectrum, said Spectrum’s total annual budget is close to $4 billion, and its research budget is “probably” less than 1 percent of that.

“But overall, Spectrum Health sees a loss” on its participation in clinical trials, said Rossman.

Metro Hospital probably has more than 20 clinical trials ongoing at any given time, according to Carmen Heaney, director of clinical research.

Metro is an affiliate site for trials arranged throughout the nation by Hoosier Oncology Group in Indiana, according to Heaney. Metro also is partnering with Van Andel Research Institute on a citywide project.

“Our primary goal here for providing clinical trials is to have treatment options for patients … so they don’t have to travel to larger academic centers,” said Heaney.

Metro Health could not provide an estimate of the cost range for clinical trials there, and Kris Kurtz, the controller, said clinical trials represent only “fractions of a percent” of Metro’s total revenue.

In response to the question of how much annual revenue comes to Metro because of clinical trials, Ellen Bristol of the Metro communications staff said about $300,000 of its total community benefit for the fiscal year ended in June 2012 will come from support of clinical research.

Hospitals play “probably the larger role when it comes to true clinical research because that’s where the patient populations are really housed,” according to Bill Baer, executive director and CEO of VARI/ClinXus, a subsidiary of Van Andel Research Institute in Grand Rapids.

ClinXus was founded in 2006 to “leverage West Michigan to bring innovative research opportunities to the region,” according to Baer. All three hospital systems in Grand Rapids are involved with ClinXus, plus the Ferris State University College of Pharmacy, MSU and U-M med schools, and Bronson and Borgess hospitals in Kalamazoo.

“It’s either the universities or the large hospital systems that will have the majority of the trials,” said Baer.

Patients in West Michigan are described by Baer as “unique.”

“They want to participate in clinical trials. They are very steadfast, meaning they are not a transient population. People just seem to stay in Grand Rapids,” which makes it easier for researchers to stay in close contact with them.

“The research companies are much more willing to look at Michigan — and West Michigan — for those types of reasons. It’s just more efficient in the (clinical trials) execution phase,” he said.

However, Baer also emphasized that it’s not just hospitals where trials are done, adding that “it’s almost a 50-50 split” between hospitals and independent physicians’ offices, as to where ClinXus arranges clinical trials.

Independent doctors do a lot of the ambulatory work involving patients not confined to a hospital, he explained.

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