The American Red Cross is initiating a comprehensive restructuring of its embattled $2 billion biomedical services division with a renewed focus on its core business of supplying nearly half the nation's blood supply.
It apparently marks a major reorganization for the Red Cross. Though consumers perhaps best know the nation's largest charity for its disaster relief services, the biomedical services business, which lost money in 2003, is the lifeblood of the organization.
"It's too soon to tell, but a well-focused, well-organized Red Cross that focuses on the needs of its hospitals would be a formidable force in blood banking, especially in areas where there is competition. It sounds like they are really trying to do the job they need to do," said James MacPherson, chief executive officer of America's Blood Centers, the umbrella organization for the independent blood centers that provide about 55% of the nation's blood supply. "The Red Cross can be very bureaucratic and very poor in decision-making, and that's part of the restructuring."
As part of the overhaul announced last month, the Red Cross unloaded its tissue services business, transferring the assets to the nation's largest tissue bank, the Musculoskeletal Transplant Foundation. Financial terms of the deal, which is expected to close by the end of January 2005, were not disclosed. Foundation officials said in a news release that the acquisition will expand its tissue services in 12 states and will add the Red Cross' cardiovascular and skin-processing facility in Costa Mesa, Calif., and its donor-management center in Eagan, Minn.
In March, the Food and Drug Administration sent a warning letter to the Red Cross, citing it for safety failures at its Costa Mesa facil-ity. Transferring the assets of that business "had nothing to do with the warning letter," said Ryland Dodge, a Red Cross spokesman.
American Red Cross Tissue Services has recovered tissue from more than 2,000 donors annually, distributing approximately 100,000 tissue grafts to patients in the U.S. The foundation recovers bones, tendons and ligaments from more than 5,500 donors annually and projects that it will provide tissue grafts to an estimated 235,000 patients this year.
Besides transferring tissue services, the restructuring of the Red Cross' biomedical services, which should be completed by next spring, will trim its national testing laboratories from nine to five and close four area offices. Red Cross officials cannot yet say how many positions may be eliminated from the approximately 17,000 positions in biomedical services as a result, but they expect there will be some cuts, Dodge said. Meanwhile, many of the 200 employees who work in tissue services will be shifting to similar jobs with the foundation and other such organizations, he said.
Biomedical services represents the lion's share of revenue for the Red Cross: In the year ended June 30, 2003, it accounted for about two-thirds of the Red Cross' $3 billion in total operating revenue, according to the charity's audited financial statements. The $2.02 billion in revenue from biomedical services fell short of the $2.03 billion in operating expenses. As a result, the Red Cross lost $336 million in net assets from operations that year. The previous year the charity posted a $546 million net gain on $4.1 billion in operating revenue.
The FDA and Red Cross were engaged in a bruising battle over the safety of its blood supply until April 2003 when the Red Cross signed an amended consent decree. The nation's largest charity agreed, under the threat of stiff penalties, to comply with strict regulations on how it manages its biomedical services operations. The charity has recorded a liability of $4 million, representing its estimate of potential penalties incurred through June 30, 2000, according to the Red Cross' audited financial statements.
The restructuring also aims to spark a "cultural change from an inward focus to a more customer service focus," Dodge said. The Red Cross wants to "increase blood collections ... to build our internal management team from within and to reinforce our brand," he said.