What are external costs (pass-through costs) in clinical and observational studies?
External costs, referred to as pass-through costs, constitute an important component of the budget of clinical and observational studies and are crucial for the financial transparency of a project. The term refers to expenses that do not represent the direct remuneration of the contract research organization (CRO), but rather costs incurred on behalf of the study and subsequently re-invoiced to the sponsor at their actual value.
In practice, pass-through costs are expenses that “pass through” the CRO without the application of a standard operational service margin. In this context, the CRO acts as a coordinator or intermediary, arranging specific services or making payments to third parties such as investigational sites, laboratories, or regulatory authorities. This enables the sponsor to centrally manage the study’s finances without the need to enter into and administer multiple separate contracts.
Pass-through costs typically include investigator site fees related to study visits and procedures, costs of laboratory and diagnostic tests performed by external providers, regulatory and administrative fees, as well as expenses related to investigational product logistics, document translations, or data archiving. Although these costs are often substantial, they remain outside the CRO’s direct operational control and are closely dependent on the actual course of the study.
A key characteristic of pass-through costs is the method of settlement. Unlike CRO service fees, which are usually planned on a fixed-fee basis or linked to milestones, external costs are generally reimbursed based on actual expenses incurred. This means that the sponsor receives financial reports reflecting the real costs incurred during a given period, often accompanied by documentation confirming their amounts. This approach increases transparency but at the same time requires ongoing budget monitoring and expenditure forecasting.
From a study management perspective, it is important to clearly distinguish between CRO service costs and pass-through costs already at the budgeting and contract negotiation stage. Clearly defining which expenses will be treated as external costs helps avoid misunderstandings during study execution and allows the sponsor to maintain better control over the cost structure. In well-designed financial models, these costs are reported separately and discussed in the context of study progress.
In summary, pass-through costs are external costs of a clinical or observational study that are incurred or coordinated by the CRO on behalf of the sponsor but do not form part of the CRO’s remuneration. Proper planning, monitoring, and reporting of these costs are essential to ensure financial transparency, budget control, and a strong, partnership-based relationship between the sponsor and the research organization.
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