I’ve long been fascinated by cost accounting in blood bank operations. We often talk about the cost of producing a red cell unit. But is this the right way to think about our costs? I do not think so.
I know of three manufacturing industries in the US where traditional cost accounting does not effectively capture the cost of products, because their manufacturing processes are somewhat “backwards.” Unlike the majority of manufacturing activities in other industries where multiple raw materials are combined to produce a single finished product, these three industries start with one raw material and produce multiple products. These industries include petroleum, dairy, and … blood. Please do not misunderstand this perspective as insensitive! In no way am I trying to equate raw material with the generous gift given by our caring donors. But as we tackle cost reduction strategies, understanding cost drivers in our process will help us make wise choices about how we manage our costs.
Understanding these costs is also important to assess how effectively our current healthcare reimbursement system covers our true costs of ensuring a safe and adequate blood supply. As with all healthcare organizations, reimbursement continues to decline. But in our case, reimbursement is “pegged” to some notion of product cost – really more a function of price reimbursement than cost recovery. As blood usage has declined so too has reimbursement. What about the cost of ensuring the availability of blood that was never transfused? Because funding is tied to usage, our reimbursement system does not recognize the value of ensuring blood is available.
So not only are we facing the same downward cost pressure as healthcare organizations, but we are also seeing a reduction tied to the good work we are doing in patient blood management. Yet, we must still ensure blood is available when needed. This is not a call to stop patient blood management; that is the right thing for us to do. Rather, we must offer solutions to repair the broken funding paradigm, while we continue improving transfusion medicine.
With the leadership of Chief Medical Officer Louis Katz, MD, and an excellent member-based task force, America’s Blood Centers is tackling the reimbursement issue through its “value of blood” initiative. The taskforce is asking tough questions about how to manage our funding dilemma, and bringing new outside perspectives to the issue. I am optimistic about the possible outcomes in terms of proposing alternative models to ensure a robust blood supply well into the future. As the task force progresses, we will schedule opportunities to engage ABC members and other stakeholders in a broader dialogue. I look forward to that exchange.
Dave Green, Board President; DGreen@bloodsystems.org