Ed Dolan's Econ Blog

From Chronic Shortage to Looming Surplus: The Economics of the Blood Market

A market for blood? Many Americans, used to being rewarded for a donation with a warm feeling of public service rather than cold cash, might see the idea as offensive. “I would guess 99 percent of people don’t know that blood is sold,” says Ben Bowman, CEO of General Blood, a national blood brokerage firm, talking to WPTV of West Palm Beach, Florida.

Yes, there is a blood market, a big one with a turnover of $3 billion per year by some accounts, and it is entering a period of turmoil.


Just a few years ago, people thought an aging population, in need of more hip replacements and heart bypasses, would mean an endlessly rising demand for blood. In recent years, though, doctors have come to realize that transfusions, life-saving though they can be, have a downside. The cost of unnecessary transfusions is one consideration, but the risk of transmitting disease is the real negative.

As anesthesiologist, Josh Martini remarked to Minnesota Public Radio, “I was told in medical school, ‘don’t bother giving one unit, you should just give two if you’re going to give any.'” Now, he says, the mantra is changing to “why give two, when one will do?”

New advances in medicine make near-bloodless surgery a real possibility. In St. Paul’s Regions Hospital, the number of joint replacement patients receiving a transfusion has fallen from 20 percent to 5 percent. The New York Times gives another example, reporting that the Society of Thoracic Surgeons has changed the guidelines for transfusions after coronary artery bypass grafts. Previously, many physicians automatically ordered a transfusion after surgery. Now they do so only if the patient’s hemoglobin count falls to 7 grams per deciliter of blood. The new guidelines consider that a safe level even though it is only half the normal count of 12 to 16.

New technologies could reduce the need for blood even further, by cutting down on the 20 percent or so of blood that is wasted because it has passed its six-week shelf life—a level some researchers consider already too long. A company called New Health Sciences is developing a method of removing oxygen from stored blood, significantly extending the shelf life. Another technique known as “glycerization,” has been use to extend the shelf life up to ten years by freezing it at -80 degrees Celsius after adding glycerol.

Collectively, these advances have chipped away steadily at the demand for blood. The American Red Cross, the biggest player in the market with a 40 percent share, reports that total transfusions have fallen from 15 million units to 11 million units over a five-year period.


What about the supply side? Campaigns for voluntary donations continue unabated, based on themes of public service rather than economics. In contrast, public health experts would like to see paid donations decrease as total demand falls. It is not just that blood from paid donors is more expensive. More importantly, it has long been considered less safe than that from volunteers. The World Health Organization has urged all countries to switch to 100 percent volunteer donations by 2020.

Even as paid donations decline, there are prospects for expanding the supply of volunteer donations. One possible change concerns donations from gay men. In industry jargon, any man who has had sex with another man is classified “MSM.” Since early in the AIDS epidemic, the Food and Drug Administration has completely banned MSM donors.

Some people, like Rich Meyers, a Los Angeles-based LGBT advocate, regard the ban as a civil rights issue. Writing in the Huffington Post, he argues that “it’s one’s behavior that puts one at risk, and that relationship between behavior and risk applies regardless of one’s sexual orientation. Straight, gay or bisexual, if you engage in risky sexual behavior with a partner of unknown HIV status or HIV-positive status, you’re at risk. If you don’t, sexual orientation is irrelevant.” In his view, modern testing methods, unavailable in the 1980s, and better screening of donors based on behavior, would be adequate to protect the blood supply.

Others see the MSM ban as simply a matter of economics. A 2010 study by Naomi Goldberg and William Gates for the Williams Institute notes that both the American Red Cross and the American Association of Blood Banks consider the current FDA ban to be “medically and scientifically unwarranted.” Lifting the ban, their study says, would potentially increase donation by almost 220,000 pints, a more than trivial 1.4 percent.

Another idea that could potentially stretch the blood supply is the “walking blood bank” used in front-line military units. In that technique, donors are tested and screened in advance, then put on call to give blood when needed. Applied to civilian life, pre-screened volunteers could agree to respond quickly to a tweet or text message requesting a donation. In addition to adding a walking reservoir of blood to the traditional supply kept in cold storage, this approach could improve inventory management, reduce waste, and improve the average freshness of blood used for transfusions.


Not surprisingly, the decrease in demand, together with a steady supply, has begun to put downward pressure on prices. Like many medical markets, the one for blood is neither centralized nor transparent. Blood is not quoted on any organized exchange, and prices vary widely from one place to another. For example, General Blood’s Bowman says that blood that goes for $200 a unit in West Palm Beach costs $600 in Seattle.

Other suppliers are unwilling to give even such approximate numbers. WPTV’s reporter asked a spokesperson for One Blood, Florida’s largest not-for-profit supplier, to verify Bowman’s numbers. The answer was, “Uh, that’s confidential. Because of the competitive nature of our business, we can’t report on that particular part.”

Still, there are clear indications that prices are eroding. Consider, for example, a recent item that appeared in the Indianapolis Business Journal. According to this report, the Indianapolis Blood Center, a 62-year-old supplier of blood from volunteer donors, learned in August that it was about to lose its largest customer, Indiana University Health, and two others. Together, the three accounted for a third of its $61 million annual revenue. The customers were switching to cheaper blood from the Red Cross.

IBC learned of the impending move in advance. In the hope of avoiding an outright price war, it offered IU Health a price of $180 per unit, down from the $220 it had charged the previous year. That was not enough—IU Health switched anyway. The Red Cross has not made its terms public, but a spokesperson for IU Health said that both price and service were considerations in the switch.

A recent report from Thompson Reuters provides another indication of pervasive downward price pressures. The report concerns the financial performance of Haemonetics Corp., a Massachusets-based company that is the leading provider of services and equipment to blood collection centers and hospitals. The company’s stock is currently trading nearly 25 percent below its 2013 peak. According to Thompson Reuters, its business “was hit hard by slumping demand and falling prices for blood components, which happened much more quickly than expected.” Rather than banking on a recovery of blood prices, the company is pursuing an aggressive strategy to lower costs, for example, by introducing new software and equipment for managing plasma donations. It also plans to expand its operations in developing countries, where demand is still growing.

A good news/good news story?

Those who follow developments in medical economics are used to good news/bad news stories, as in, “The good news is that growth of healthcare expenditures is slowing; the bad news is that expenditures are down because we are still struggling to recover from the recession.” In contrast, the blood market story seems to be good news/good news. Medical advances are both lowering the cost of transfusions and making them safer. Is this too good to be true? I’m sure that you, my readers, will tell me what I am missing.



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