Blood Money at the Border - The Red Cross and a Local Blood Bank Fight Over Donors

Writing in our local Providence Journal, Felice Freyer reported on a story that becomes less bewildering when viewed in the context of how nominally not-for-profit health care organizations are now run. 

The Border Dispute

It seems that two such non-profits are having a border dispute:

Two local charities are fighting for your blood.

The Rhode Island Blood Center, long the sole blood-collection agency in the state, is objecting to incursions by the American Red Cross of Eastern Massachusetts, which recently started holding blood drives here.

A war of words has resulted, with the blood center accusing the Red Cross of a 'campaign of misinformation,' and the Red Cross calling the blood center 'hypocritical.' The Hospital Association of Rhode Island entered the fray with a letter to blood donors urging loyalty to the Rhode Island center.

The dispute might seem inconsequential to the typical blood donor, who is just trying to do a good deed and may not care or notice who collects the blood.

But the Rhode Island Blood Center argues that it matters a great deal. The competition, blood center officials say, is threatening a carefully calibrated system that ensures a steady, predictable supply of blood. The hospitals in Rhode Island all rely on the blood center for 100 percent of their blood supply.

The Red Cross says it just wants to give Rhode Islanders another way to support its mission. 'We are a humanitarian organization, a symbol of trust,' said spokeswoman Donna M. Morrissey.

The Red Cross’ Rhode Island chapter does not collect blood. A chapter based in Dedham, Mass., started collecting blood here last fall. Since then, the Red Cross has collected 138 units of blood in Rhode Island — a drop in the bucket compared with the 90,000 units of whole blood that the Rhode Island Blood Center collects each year.

High-Toned Missions

On its surface, the whole thing is bewildering. Here are two non-profit organizations ostensibly dedicated to providing worthwhile health services for people in need.

The American Red Cross' mission is to:

provide relief to victims of disaster and help people prevent, prepare for, and respond to emergencies.

The Rhode Island Blood Center's mission is:

to provide a safe, adequate and cost-effective blood supply for the patients and the hospitals we serve.

Why can't we all just get along? Why should these organizations be fighting, especially over what amounts to market share? Wouldn't they be able to better support their missions by cooperating? 

Where Does the Money Go?

I cannot give a definitive answer to those questions. However, there are some clues.

Let us look at the latest available (2008) US Internal Revenue Service form 990 from the Rhode Island Blood Center, and the latest available (2009) form 990 from the American National Red Cross, the parent of the eastern Massachusetts chapter.

The ProJo article stated that the RI Blood Center collected some 90,000 units of blood last year. The most recent form 990 for that organization revealed that the RIBC had $33,043,096 in program service revenue from sale of blood or blood components for its 2008 tax year. Assuming that its blood collections were the same then as the ProJo reported, that means it got $367 in revenue per unit of blood it supplied. Note further that program service revenue accounted for about 88% of its total $37,478,357 revenue in 2008, revenue sufficient to create a $558,169 surplus

So the sale of blood is lucrative. That may come as a big surprise to blood donors, who are unpaid, (and do not even get a tax-deduction for a charitable donation in the US).

Now of course it may not be cheap to collect, test, store and distribute blood, that is, the core functions of the RIBC. But note further that in 2008, it was also lucrative to be an executive for RIBC. That year, Lawrence F Smith, the CEO, got $430,650 in total compensation; Scott J Asadorian, the COO, got $331,736, and Carolyn T Young, the CMO, got $273,052. Six other managers got more than $100,000. That seems to be very good pay for managers of a relatively small, regional non-profit whose revenues depend on voluntary donations of bodily fluids.

There are parallels with the American Red Cross, parent organization of the local Massachusetts chapter. It got a whopping $2,219,161,636 in program service revenue from "biomedical products & services" in 2009, which was about two-thirds of its total revenue of $3,587,775,430, and which generated a $233,597,985 surplus.

Being an executive of the American Red Cross was much more lucrative. In 2009, then CEO Gail McGovern received over a million in total compensation, $1,032,022 to be exact. Its President for Biomedical Services got $850,489. Its Executive VP for Biomedical Services got $596,309. Twelve other executives got more than $250,000. Of those, ten got more than $350,000.

Summary

This is all too reminiscent of a dispute we noted briefly here, which involved threatened litigation by the large Susan G Komen For the Cure foundation against other charities that dared to use the word "cure" in their own campaigns to fight cancer.

The current example does seem a bit more tawdry because the organizations in question depend for their revenue and to support their executives' posh pay on voluntary donations, not just of money, but of blood.  (And it is not the first example we have found that raises questions about non-profit blood banks, look here.)

We have gone on at great length about how health care organizations have been infected by the prevailing "greed is good" culture of US (and world) businesses. Some of the worst examples have come from for-profit companies, but nominally non-profit companies (NGOs, outside of the US) have become part of the epidemic. Instead of cooperating to do good works, some have taking to fighting over market share. We have shown numerous examples in which the leaders of health care non-profits got incentives unrelated to the degree they uphold their institutions' high-toned missions, (here is a recent example) and seem happy to do what it takes to keep their compensation high.

So, once more with feeling.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

What Is to Be Done?

Based on our ever enlarging file of cases on compensation of the top hired managers of non-profit health care organizations, let me make some concrete suggestions, based on my humble opinion.

A step forward would be to make the finances and compensation arrangements of health care non-profit organizations at least as transparent as those of large public for-profit organizations. So my big idea is:

Non-profit health care organizations above a reasonable threshold size should provide prompt, public, annual reports analogous and very similar to the reports required by the US Securities and Exchange Commission of public, for-profit companies.

These reports should include, at a minimum, a summary of financial and operational status, an audited financial report, an explanation and accounting for any for-profit subsidiaries and any interlocking non-profit organizations, the compensation given to the CEO and some minimum number of the top-paid officers and employees, a detailed explanation and rationale for the pay of these individuals, and a listing of other affiliations and all conflicts of interest affecting them.

If the need to supply such information causes non-profit health care organizations' hired executives and boards of trustees some cognitive dissonance, that would be a good thing.