Red Cross, blood banks battle

Tight supply fueling tug of war

By LAURA MECKLER AND LAURAN NEERGAARD Associated Press

Monday, June 24, 2002

Washington -- Of the 14 million pints of blood donated each year, just 250 come from teenagers at Shawnee Mission North High School outside Kansas City. But in the intensely competitive business of blood banking, that was plenty to fight over.

Students faced taking sides in a national battle: They could continue giving blood to the local Community Blood Center, which supplies nearby hospitals. Or they could donate to the American Red Cross, which had just begun collecting in Kansas City, part of a nationwide effort to increase its share of the blood market.

The Red Cross recruiter trumpeted T-shirts featuring the school name. Community Blood Center responded that the Red Cross would ship donations out of town.

Students chose to stay local. The Red Cross recruiter protested to the principal -- a tempest two years ago that annoyed student council adviser Cody Fothergill.

"I love it when high school students do selfless activities and this was one of them," Fothergill said. "It did throw us off guard a little bit."

Struggles over blood's supply and demand play out across the country. At the center sits an uneasy relationship between the American Red Cross and 75 independent blood banks that are locally run. For years, each side has collected about half the nation's blood supply.

Behind the cookies and juice and smiling volunteers that are the public face of donation, blood banking is big business. A single pint donated for free is divided into multiple products that sell for hundreds of dollars.

The stakes are high. Hospitals cannot function without blood donors, and experts fear they'll be turned off by increasingly public friction.

"Everywhere you turn there's turf wars, there's price battles, there's allegations of predatory behavior," said University of Pennsylvania bioethicist Arthur Caplan, former chairman of the government's blood oversight committee. "The country is in desperate need of a reassessment of its national blood policy."

Already potential donors are confused about when they're needed. A poll conducted for the Associated Press by ICR of Media, Pa., found the main reason people say they'd donate blood is to help after a disaster -- even though only blood disease-tested and on the shelf actually helps disaster victims.

Only 5% of those eligible donate annually. Periodic shortages led one in five hospitals to postpone elective surgery, an American Hospital Association survey last year found.

Tight supply creates tension throughout the system: in the quest for donors, in rising blood prices, in disputes over safety rules. It was on full display after Sept. 11, when Americans gave blood in unprecedented force but received conflicting messages about whether their donations were needed at once.

And it is transforming the industry. Faced with paying millions more each year, some hospitals have begun forcing competition on their own terms.

Asked about tension in the industry, Red Cross vice president Trudy Sullivan noted that blood donations increased last year. Nationwide, donations rose by 7% -- a quarter of them in the 10-week aftermath of Sept. 11, estimates the National Blood Data Resource Center.

She says the Red Cross is looking toward working more closely with its competitors: "There's tremendous potential for all of us in this industry to draw more people in without disruptions between us."

Free for all?

Blood is donated for free, but hospitals pay for every drop.

Prices vary considerably, partly because it costs more to do business in one city than another. But in general the Red Cross charges more: about $175 to $200 per bag of red cells, the typical transfusion, the organization says. Independent blood banks report charging an average $90 to $150.

Red Cross prices rose 26% from 2000 to 2001, twice as fast as the independents' prices, says a government report.

Some cash-strapped hospitals are responding by forcing new competition. Most striking may be New Hampshire's Dartmouth- Hitchcock Medical Center, now juggling three suppliers.

After the Red Cross doubled its price to $189 per bag last summer, Dartmouth hired the independent United Blood Services to provide half its supply -- at 30% less. Then Dartmouth began recruiting its own donors, collecting 10%; the Red Cross provides the rest.

It's scary to trust that a new supplier will be as reliable as the Red Cross, said James Malter of the University of Wisconsin Hospital. Still, he abandoned a 25-year Red Cross contract when presented with a $2 million-a-year increase.

What goes into prices?

Recruiters must find donors. Banks buy bags and needles. Safety tests to find HIV and other infections have pushed up costs for a decade. Blood must be separated into parts -- red cells, platelets and plasma.

Beyond that, the Red Cross and the two largest independent blood banks are under court order to fix federal safety violations.

To comply, the Red Cross upgraded laboratories and consolidated testing, plunging $300 million into debt. Still, the government is asking a federal judge to hold the Red Cross in contempt for failing to comply. The Red Cross vehemently denies the charges.

When hospitals complained about last summer's price jump, then- president Bernadine Healy said the Red Cross hadn't passed on increased safety-test costs for several years.

Another former top Red Cross official, Brian McDonough, has another explanation: In the mid-1990s, the Red Cross cut prices too low during an effort to increase its share of the market to 65%.

"There was a lot of pressure on us as CEOs to expand our markets - - expand, expand, expand," recalled Bob Carden, who ran the Red Cross' Mobile, Ala., region until 1997, when he took over the independent Virginia Blood Services.

The idea: Since blood processing centers have fixed costs, adding more customers would create a more efficient operation, said McDonough, who headed the Red Cross blood division until 1999. But recruiting more donors cost more money, and the strategy was abandoned, he said.

It left a bitter legacy among independents, who charge the Red Cross tried to lure away their donors.

"If you're a charitable organization, aren't you supposed to be focused on the charitable organization's mission and not bashing in your so-called competitor's brains?" asked Jerry Haarmann of Minneapolis-based Memorial Blood Centers. He tripled marketing expenditures to counter competition.

Some local blood banks invaded Red Cross territory, too.

After a decade of competition, the Miami-based Red Cross folded in 1998 and sold its assets to Community Blood Centers of South Florida. The Fort Lauderdale-based independent partly benefited from middle- class donors moving north from Miami, but it also aggressively lured Red Cross donors still in the city, said Charles Rouault, the group's president.

"We would go to all of their groups, and they went to all of our groups. Absolutely. That's what blood bank competition is," he said.

Now his blood bank is defending its turf from another independent, which unsuccessfully sued Miami's School Board last fall seeking rights to high-school blood drives run by Rouault's group.

Tragedy exposed rivalry

The tension burst public after Sept. 11, when a half-million Americans lined up to give blood even though it turns out little was actually needed.

The Red Cross aggressively encouraged donations, calling it insulting to discourage people who wanted to help.

The independents said it was irresponsible to collect blood that would go bad in 42 days -- and asked people to come back when the supply would need replenishing.

At an emergency meeting Sept. 14, federal health officials tried - - and failed -- to get both sides to deliver a common message.

Some blood often expires before it can be used, but this time tens of thousands of pints had to be discarded. Will that discourage people from donating again? Nearly three-fourths of Americans in the AP survey said no.

It wasn't the first time neutral parties tried to bridge the gulf. When competition for donors heated up in the late-1990s, a Harvard mediator helped competing blood bankers negotiate guidelines for fair competition. They tentatively agreed to avoid "acrimonious public disputing," but the guidelines weren't adopted.

Then there are safety disputes. The Red Cross set stricter standards than the government to guard against mad-cow disease, calling it a "cautious and conservative approach in the face of scientific uncertainty." Competitors resent any implication that their blood isn't as good, and the government said the Red Cross couldn't imply that.

Sometimes, the competition leaves a stalemate. In Charlottesville, Va., hospitals need about 24,000 pints of blood each year, just what residents donate.