Download the MP3 audio version of this story here, or sign up for The Explainer’s free daily podcast on iTunes.
The American Red Cross will have to pay a $4.2 million fine for violating blood-safety laws, the Food and Drug Administration announced Friday. A spokesman for the nonprofit said that revenue from the sales of blood products will be used to pay the fine. Does the Red Cross really sell our blood?
Yes. All the centers that supply blood for transfusions—whether they’re part of the American Red Cross or not—sell their products to cover operating expenses. Local hospitals work out contracts with regional suppliers or their local Red Cross facility. In general, they’ll work with a single vendor, but they may shop around a bit to find the best prices. Regional suppliers provide about half the nation’s blood supply, and the Red Cross kicks in 45 percent. Hospitals generate the remaining 5 percent through their own blood drives.
All blood suppliers are nonprofits, and the prices they charge follow the cost of production. Personnel costs make up half the price hospitals pay “at the pump”—labor can be very expensive, since staffers must be brought on to recruit donors, collect their blood, and then process it and test it for contamination. The cost of the testing procedures themselves contributes about 25 percent to the final price of blood. Most of the rest goes to administrative overhead—rent payments for buildings that house the blood centers, for example. (Most blood banks also mark up a few percent extra so they can keep a little cash on hand.)
The exact price of a unit of blood varies from place to place. As a rule, coastal blood is more expensive than the stuff in the heartland. (California has the biggest tags.) That’s because the higher cost of living translates into higher labor costs, which get passed on to the hospitals. It’s also more expensive to rent office space and secure advertising time in large urban areas.
Blood centers in Middle America can harvest a lot more blood than they need since it’s so much cheaper for them to run their operations. (The centers in Iowa, for example, are able to collect from 12 percent of the population, compared to a national average of 3 percent.) That means they can ship off their surplus at premium rates to blood-starved cities like Los Angeles and New York City. The extra money they get from these sales further subsidizes the local prices. This effect can be dramatic: The same unit of red blood cells might cost $220 in Los Angeles but only $150 in Des Moines.
The system of blood distribution hasn’t always relied on volunteer donors. Until the 1970s, a major portion of the nation’s blood supply came from paid donors. But a government study found that volunteered blood was much less prone to hepatitis contamination. From then on, blood banks had to label their packages “paid” or “volunteer,” which had the effect of eliminating paid-donor blood from the national supply. (Pharmaceutical companies still purchase blood plasma from for-profit firms that hire paid donors. The nonprofits also sell off surplus plasma to the drug companies at market rate.)
Bonus Explainer: Will the Red Cross fine push up the cost of blood? No. The $4.2 million doesn’t amount to very much in terms of the organization’s operating budget, which amounts to several billion dollars for its blood service alone. Safety requirements from the FDA constitute the single biggest factor affecting blood prices over the longterm. If the government asks centers to test for, say, West Nile virus, the added cost of those tests pushes prices up across the board.
Got a question about today’s news? Ask the Explainer.
Explainer thanks Ryland Dodge of the American Red Cross and Jim MacPherson of America’s Blood Centers.
