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Blood bank business changing as health care costs increase

SONOMA COUNTY – Updated 2:45 p.m. Monday – Officials with St. Joseph Health System-Sonoma County said today they are continuing to collect prices and other information from potential blood suppliers and that the final selection was pending.

Earlier reports said the decision on whether to continue purchasing blood from longtime supplier Blood Bank of the Redwoods or opt for a lower-cost provider could come as early as today.

That St. Joseph would consider ending a 60-year relationship with the local blood bank is symbolic of change taking place across the nation’s blood products industry as health care providers and consumers become more and more sensitive to prices.

As with other community blood banks, Blood Bank of the Redwoods was developed in response to the community’s need for a reliable supply of blood in close proximity. And some are concerned Sonoma County would not have the blood it needed quickly in the event of a disaster if Blood Bank of the Redwoods were put in danger by losing 25 percent of its revenue stream.

Blood Bank officials said the organization is also important to the community for other reasons. When it was created in 1948, Sonoma County donors used the bank to form a partnership with hospitals, guaranteeing their donations would be used for local patients.

“No matter who collects the blood, the donors will donate and the providers will use the blood. But the other part that we have is a trust between the community that their donations will be used for their patients,” said Cathy Bryan, president and chief executive officer of Blood Bank of the Redwoods.

And for years, hospitals have expressed their commitment to that relationship over the price of the product by re-signing a contract without question, though Redwood’s prices are in the mid-range.

But for other communities, this partnership has transformed into a more business-like relationship as the cost of providing blood escalated and health care organizations’ budgets became increasingly tight.

“In the 1990s, when managed care became the touchstone of health care and public hospitals started becoming more and more financially strained, it became difficult for us to be competitive independently,” said Richard Harveston, director of hospital services for San Francisco-based Blood Centers of the Pacific, formerly Irwin Memorial Blood Centers.

Established in 1941, Irwin was the first nonprofit community blood bank in the United States. After a request for proposal from Sutter Health in 1997, the group consolidated with Peninsula Blood Bank to form Blood Centers of the Pacific. Then in the following year, it was acquired by the nation’s second-largest blood collection organization in the United States, Blood Systems Inc., though it maintains its own community board of directors.

“Ironically, it was when hospitals submitted requests for proposals that we realized we didn’t have the economy of scale to have the traction we needed to be successful in the changing health care environment,” Mr. Harveston said.

“With a larger laboratory and more units to test at once, the cost per unit went down.”

The group now has collection centers all over the Bay Area, including San Mateo, Marin, Napa, Mendocino, Solano, Contra Costa, Lake and Shasta counties, among others. Mr. Harveston said the number of independent blood banks has dwindled, but some have found ways to control costs despite escalating manufacturing costs.

Blood Bank of the Redwoods spokesman Kent Corley said the Sonoma County bank maintains its efficiency and costs in several ways. Because of a partnership with three neighboring community banks, the group has the group purchasing power of a 250,000-unit blood bank, but more importantly, he said its proximity allows it to carefully monitor the demand and production.

Also, Blood Bank of the Redwoods and its three partners are some of the state’s only self-sustained suppliers, meaning they collect enough donations to fill all of their customers’ needs. Almost every other bank in the region shares or purchases blood from other organizations to meet demand.

“It is very unusual for any business to control prices in the way we do,” Ms. Bryan said. Though Blood Bank of the Redwoods does much of its work in-house, it also sends some of the more costly FDA-required tests out and plans to increase outsourcing in the future to control costs.

The group increases the price of products only enough to keep the budget margin between 3 percent and 6 percent, which usually means an average increase of 2 percent or 3 percent per year. Profit is used for capital equipment averaging $500,000 a year. Increases result primarily from payroll, with the average escalation for licensed health care providers rising 10 percent to 20 percent in some fields.

Currently, Blood Bank of the Redwoods is the provider for seven hospitals in the region, including Sutter Lakeside Hospital & Center for Health, Sonoma Valley Hospital, Palm Drive Hospital, Healdsburg District Hospital, Kaiser Permanente, Mendocino Coast District Hospital and Sutter Medical Center of Santa Rosa. All have re-signed with Blood Bank of the Redwoods without requesting outside bids, as had St. Joseph until the recent announcement.

If the organization does choose another provider, Blood Bank of the Redwoods will be forced to restructure its business and personnel, but officials said they will continue to operate.

St. Joseph Health System – Sonoma County operates Santa Rosa Memorial and Petaluma Valley hospitals. Spokeswoman Katy Hillenmeyer said the decision on Blood Bank of the Redwoods was made in an effort to lower prices to customers.

“Whenever there are increases in blood prices, those are passed directly onto the patients, and we have a responsibility to make the cost of care as low as possible in places where that can be done safely,” she said. “Our goal is not to make people compete for business or to compromise [Blood Bank of Redwoods] in any way, and our preference would be to stay with Blood Bank of the Redwoods.”

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