Clinical Researcher—January 2021 (Volume 35, Issue 1)

THE LEGAL LANDSCAPE

Robert King

 

There are dozens of issues that can slow clinical trial negotiations. Among the worst offenders are “risk allocation” clauses. These clauses define who is financially responsible when something goes wrong.

In Clinical Trial Agreements (CTAs), the main risk allocation clauses are the “indemnification” and “subject injury” clauses. Damages under an indemnification clause are potentially larger, but less likely to occur. Payments under subject injury clauses are made immediately, while indemnification liability will happen years later, since it only occurs following litigation.

A sponsor’s initial CTA offer will always include an indemnification clause, but only rarely include subject injury protection.

Here are how the clauses might play out in the “real world,” and an explanation of why institutions need to ask for subject injury protection.

The Intricacies of Indemnification

A subject is administered medication onsite, then, while driving home he passes out. His car crosses into oncoming traffic, hitting another car carrying a family. Two people are killed and another paralyzed. There is significant property damage.

The outcome would probably look like this:

• Multiple plaintiffs and defendants.
• Numerous legal theories and categories of damage might be claimed (e.g., property damage, medical malpractice, products liability, loss of earnings, mental anguish, medical expenses, pain and suffering).
• The damages could be massive.

The case(s) could be tied up in court for years and, depending upon the allocation of blame and who actually paid out damages, the indemnification clause might be relevant. Small claims, for example a case involving only a $10,000 medical bill, will not generate indemnification claims because the plaintiff’s counsel would be unlikely to take on the case. The work required just doesn’t justify the potential payout.

Sponsors offer indemnification protection because the market requires it; indemnification payments are unlikely; when they do pay, the payment is years later (minimizing political repercussions); and any damages may be covered by insurance.

When developing a strategy for indemnification clauses, an institution should start by considering the following issues:

• In most instances, an institution can refuse to indemnify a sponsor, but it may take some hard negotiating, so the risk of damages should be weighed against the potential delay in reaching agreement.
• A sponsor’s indemnification obligations should be reduced to the extent that any of the indemnified entities contributed to the damages. In plain English, it should not matter if it was the institution or the institution’s contractor whose misconduct contributed to the judgment. An indemnification clause that threatens reduced payments for misconduct, including contractor misconduct, will incentivize the institution to supervise its entire team carefully.
• Many states ban public institutions from accepting indemnification obligations. When an institution says it cannot indemnify, the underlying statute should be examined. Frequently, the institution will fail to mention that it does not quite fit the standard for entities covered by such a ban. Institutions do not expect to get caught on this issue, and when they are caught, they tend to fumble about and then claim that indemnification is against their “policy.” This is a vastly different conversation because “policy” is legalese for “I don’t want to do something, but I can.” In this scenario, one can expect that it will be difficult, but not impossible, to get internal approval from the institution. The issue shifts from a non-starter to how much effort is the sponsor willing to expend to get indemnification protection.
• Indemnification clauses will often include a hard notice requirement. If there is a hard deadline, an institution should always include language to the effect that, if the deadline is missed, the indemnification obligation will only be reduced by the extent that missing the deadline prejudiced the indemnifying party’s ability to defend the case.

Remember, an indemnification claim can be for a great deal of money. Given the opportunity, like a slightly missed deadline, the opposing counsel will be looking for any argument that will avoid payment being made. By forcing them to show actual prejudice, dodging payment is made more difficult.

Subject Injury

Subject injury payments are more likely than indemnification payments, but they tend to be for less and occur earlier than indemnification payments.

Sponsors are not legally required to pay for a subject’s medical care arising from adverse events. If a subject requires treatment, he or she is financially liable. Further, if the subject cannot afford medical care, then the medical provider is at risk of non-payment. By adding a subject injury clause, the sponsor assumes this risk; no litigation is required, and the institution simply issues an invoice.

Few sponsor templates include a subject injury clause. Sponsors often claim the clauses are unnecessary since indemnification clauses provide adequate protection. However, this ignores the long payment lag, the need for litigation, and the fact that small claims are unlikely under an indemnification clause.

The real reason that sponsors do not offer subject injury protection is practical and political. Sponsors want two things—data as quickly as is feasible and budget certainty. No one enjoys having to explain away cost overruns.

Think about a $10,000 claim. It is probably too small for litigation, so indemnification is irrelevant. However, that same claim would be paid out under a subject injury clause. Given the greater likelihood for many claims, the subject injury clause undermines the sponsor’s financial certainty, and it puts the current clinical team in the position of having to explain cost overruns.

Institutions must insist that a subject injury clause be included in the CTA. Once a subject injury clause is included, the discussion will turn to how the proper payment amount will be calculated.

How much patients are charged for care varies wildly depending on the subject’s insurance. Two years ago, I was admitted to a suburban Philadelphia hospital for four days. Because of a clerical error, I was listed as uninsured and was billed $78,000. Luckily, I had Blue Cross, so my bill was immediately reduced to $16,000, which was their “negotiated rate.” Once submitted, Blue Cross paid out all but $4,500.

Was I happy? Of course not, but I was a heck of lot happier than if I had owed $78,000.

If I had been a trial subject who had an adverse event, which amount owed would be appropriate? A sponsor that is going to offer a subject injury clause must consider the following issues:

• Should the institution be required to submit an insurance claim prior to asking for sponsor payment?
• What is the impact if the subject had Medicare or Medicaid?
• How does the sponsor accepting financial responsibility impact its reporting requirements?
• What are the penalties for failure to comply with reporting regulations?

An institution will want the payment to be what is “customary,” since it can then charge more for an uninsured subject (e.g., $78,000). On the other hand, a sponsor will want the rate for any reimbursement to be “reasonable,” as this allows it to “bargain” with greater leverage.

In Summary

Any institution conducting sponsored research with human subjects that fails to obtain a subject injury clause in a CTA is at significant financial risk. Once the sponsor includes the clause, the institution should obtain the most detail feasible, because any ambiguity increases the likelihood of the sponsor delaying or reducing payment.

Robert King (Robert.King@tpclinical.com) is an attorney with more than 20 years of healthcare experience and founder of TakePoint Clinical, a firm whose credo is that “Medical Research is Too Important to Wait on Endless Negotiations.” A white paper offering step-by-step instructions on how to speed clinical negotiations is available for download at the firm’s website.