The big business of blood

The advertisements beckon: "Just one pint of your healthy blood can save up to three lives." "An hour of your time can mean a lifetime for someone else." "If you're looking for a sign, this is it! There's a CRITICAL NEED for blood and platelets."

The pleas make blood shortages out to be a constant crisis, made even worse during the COVID-19 pandemic. Blood and its derivatives—namely red blood cells, platelets and plasma—indeed are essential to modern medicine. And hospital consolidations and cost-cutting measures have largely left the jobs of collecting, processing and distributing the precious resource to not-for-profit blood centers.

In an oft-overlooked and little-known industry, blood centers have become major businesses that depend on a steady stream of product—collected from altruistic donors—that is later sold to hospitals for hundreds of dollars per unit.

One player in particular stands out for the way it has turned blood into big business, by snapping up blood centers across the country, launching alternative revenue streams and doling out six-figure bonuses to its executives: the New York Blood Center, which provides as much as 90% of the city's supply.

The nonprofit has spent the past decade building an empire that now spans five blood centers serving 17 states, a genomics lab, a research institute and a number of clinical-services programs that collectively employ roughly 2,000 workers. Its annual revenue surged 24% in the most recently reported fiscal year, to nearly $500 million.

The federal government has defined blood as an economic commodity subject to U.S. trade laws, and blood industry executives say a corporation-style playbook is well suited for managing the valuable product.

It's a booming business, according to interviews with a dozen industry experts, including current and former executives and employees of blood centers in New York and elsewhere, as well as a review of hundreds of pages of nonprofit tax filings. Prices are rising, and a frenzy of mergers and acquisitions is creating hospital behemoths with huge market share and even greater supply needs. Meanwhile, hospital-based blood banks are growing scarcer, and the pandemic is accelerating demand.

Expensive and complex

Transfusing blood is a complex, expensive and time-consuming process that's possible only because of scientific advances in the 19th and 20th centuries related to blood typing and storage.

New York City's rich academic medical ecosystem was particularly fertile ground for the burgeoning field. It was at Mount Sinai Hospital where a doctor first used blood types to match donations to recipients. At New York–Presbyterian, where doctors experimented with storing blood rather than immediately transfusing it, a new industry model was born.

The Blood Transfusion Betterment Association of New York City, founded in 1929 with funding from John Rockefeller Jr., pioneered a professional donor-vetting process to tame what was then a fly-by-night industry.

Blood centers, which are regulated by the U.S. Food and Drug Administration and local health departments, "manufacture" the blood they collect and test it for infectious diseases and possible contaminants. The lofty expense is financed largely by the fees that hospitals pay them for transfusable blood.

The New York Blood Center uses a 75,000-square-foot laboratory in Long Island City that it leases for a little less than $2 million per year. (It has a similar facility in Westbury on Long Island.) By 2009, two years after the center moved in, the built-out space in Long Island City and its equipment were valued at more than $50 million, according to tax filings. More than 200 employees are based there.

Every aspect of the manufacturing process is deliberate and subject to some form of regulation or testing, even the cardboard boxes used to transport blood—which cost $25 to $30 apiece. The process can take days.

The blood center spent more than $256 million on processing in fiscal 2020, when it reported nearly $269 million in revenue, according to tax filings. Every year in the past decade, the center reported a surplus in its blood-services division, which collects, processes and sells blood products to hospitals.

The center spends that surplus on other expenses including research ($22 million in fiscal 2020) and salaries and benefits ($178 million). In fiscal 2020 the blood center paid its chief executive, Dr. Christopher Hillyer, more than $1.8 million, including benefits and a $600,000 bonus. That's more than twice what the Red Cross's CEO made in its most recently reported fiscal year.

Chief Financial Officer Jay Mohr declined to disclose the blood center's budget thresholds for triggering bonuses, but a 2009 tax filing states Hillyer's compensation was set using an "initial contract exception," meaning compensation surveys and data used to set other executives' pay were not used for Hillyer's contract.

Hillyer is not the only highly paid executive at the center; nine others were paid north of $400,000 in fiscal 2020, a year in which there were three different CFOs on the payroll. Mohr joined just after that, in the summer of 2020.

Bad blood

The New York Blood Center's monopoly is a remnant of a longstanding turf war and decades of mutual animosity between the American Red Cross and the American Association of Blood Banks, a national membership organization.

The Red Cross formed the country's first blood-center network during World War II to support Allied troops but closed its centers after the war ended. Independent blood centers started popping up to fill the vacuum. The Red Cross soon declared plans to not only re-enter blood banking but to become the nation's "total" supplier. It started in communities where local blood banks had not yet put down roots, but the independents preempted any encroachment on their territory by forming their association in 1947. Eventually the country was roughly evenly divided between Red Cross turf and the independents, which prevailed in New York.

"It was as if two fundamentalist churches were competing—each energetically proselytizing and each proclaiming its righteousness over the other," journalist Douglas Starr wrote in the 1998 book Blood: An Epic History of Medicine and Commerce.

By the 1950s, New York City had more than 150 blood centers—and the result was as chaotic as it sounds. Untrained profiteers formed their own blood blanks to exploit rising demand driven by new medical advances that consumed tons of it. To get blood, they solicited paid donations from a largely down-and-out crowd at higher risk of infectious diseases. At least 42% of the city's supply came from paid donors by the decade's latter half, compared with a national average of 10%.

Dr. Aaron Kellner, a reformer, launched a $9.2 million campaign in 1963 to remedy the city's "deplorable" blood-procurement conditions. He opened what would become the New York Blood Center on the Upper East Side the following year.

As the blood center built a reputation for medical expertise and a focus on research, the Red Cross could not gain a foothold in the city. Still, the air of competition lingered. The blood center used to test blood itself, but it shut down its screening lab in 1997, after federal prosecutors filed criminal charges over improper testing procedures. It initially outsourced testing to the Red Cross, sending samples to Boston and Philadelphia, but switched to a company in Arizona to avoid giving business to its fiercest competitor, said Donna Strauss, the center's vice president of laboratories. It now conducts testing at the Rhode Island Blood Center, which it acquired in 2017.

The organization's only challenger these days is Metro Blood Service, a nonprofit in Yonkers with 27 employees that nonetheless does tens of millions of dollars in business with major hospitals, including Mount Sinai. It essentially operates as an intermediary, buying excess blood products from centers in other parts of the country and selling them to hospitals in the city.

Metro President Larry Kelleher declined to be interviewed, and the nonprofit does not appear to have a website, but publicly available tax filings shed some light on the enterprise. Its revenue more than doubled to $12.3 million in fiscal 2019, the most recent year for which records were available, while expenses decreased. It ended up with a $6.5 million surplus.

Hospital consolidations have all but ensured monopolies in the blood-banking industry. Large health systems need more blood, so they turn to large blood centers that can offer them a reliable supply.

The New York Blood Center has responded with a recent acquisition spree, stretching from Rhode Island to Kansas.

Don Berglund, who was CEO of Innovative Blood Resources in Minneapolis-Saint Paul when the blood center acquired it in 2017, said the deal "really turned the tide for some big customers that we hadn't been serving that we do now."

The consolidation coincides with hospitals closing their own blood banks and donor rooms. Hospitals cite the high costs to process blood and the difficulty of attracting enough donations to meet their demands.

"It's not cost-effective to have a hospital-based blood bank," said Dr. Jeffrey Jhang, director of the blood bank and transfusion services at Mount Sinai Health System. "We're not going to be able to do it cheaper than the blood centers."

Representatives from national blood-industry groups say hospital consolidation and the corresponding increase in bargaining power have stabilized or driven down prices for blood products. Jhang said that is not Mount Sinai's experience, however. Its blood costs have been increasing about 3% per year, he said, a matter of at least hundreds of thousands of dollars.

The New York Blood Center benefits from the relationship between size and bargaining power; it is city hospitals' only option if they need lots of blood quickly.

Courting controversy

The blood center's expansion aspirations now extend vertically—in the form of a $750 million proposal with Boston-based developer Longfellow to turn its Upper East Side research facility into a 16-story life sciences hub. The blood center would occupy about a third of the tower, and Longfellow, in exchange for paying for construction costs, would lease the remaining space to academic and startup companies in the life sciences.

If their rezoning application prevails, it will be despite vehement opposition from neighbors and local elected officials, including City Councilman Ben Kallos, who has derided it as a ruse to "print money."

"I've never seen a project like this that is being this hostile to the elected officials," Kallos told Crain's in May.

The center has spent roughly $1 million since 2019 to develop and promote the proposal, city lobbying records show.

The center's ambitions to squeeze more from its site are decades old, former employees said. Richard Bonomo, a former center researcher who patented a process to deactivate viruses in plasma, recalled a "brief flirtation" in the 1980s with selling the building's air rights to bring in additional revenue. Norman Selby, who was chief operating officer at the time, said it was no more than talk, but he said executives considered Center East an underutilized piece of valuable real estate and posed many ideas on how to better use the space or add to it.

Selby, who was brought over from McKinsey in the late 1980s to lead a financial turnaround at the center, said the nonprofit had to be financially self-sufficient to cover its high fixed costs, especially because little of its revenue comes from monetary donations.

"We had to make money," Selby said.

The center has long chased alternative revenue streams. Royalties from its researchers' inventions, like the one Bonomo helped conceive, used to bring in millions in revenue each year. Starting in 2018, that revenue stream dwindled; Mohr, the CFO, attributed the drop to patents expiring. Another of its creations, a software platform for managing blood center operations, spawned the Boss Solutions Group, a consulting and IT spinout, which it sold in 2010 for an undisclosed sum.

The center also invests surplus cash in private-equity funds—which has proved lucrative. The center's endowment now stands at $380 million. Recent acquisitions helped push its annual revenue from $391 million in fiscal 2019 to $483.5 million the following year.

Mohr said he is prioritizing an expansion of the licensing department to commercialize researchers' discoveries, a division he said had been deprioritized during the past decade. He also is projecting massive growth in the center's cell-therapy business.

And the blood center is continuing to push into new markets. Last week it opened a new donor center in Connecticut.

This story was first published by our sister publication, Crain's New York Business.