Bad blood separates Red Cross and FDA

While many Americans think of the Red Cross as a volunteer disaster relief agency, its biggest activity is collecting, processing and selling blood. The organization spends five times as much on its blood business as it does on disaster relief, and revenue from blood sales to hospitals has tripled in the past decade.

In essence, the Red Cross is attempting to operate the equivalent of a highly sophisticated, $1.5 billion-a-year pharmaceutical company under the umbrella of its nonprofit parent, former Red Cross executives said. If the organization’s blood business were a free-standing company, it would be the size of DuPont Pharmaceuticals before it was acquired in October by Bristol-Myers Squibb Co.

With 36 regional centers, nine testing laboratories and 16,000 employees, the blood program’s size and complexity pose significant management challenges as the Red Cross faces growing pressures from regulators and the public for a risk-free blood supply. One measure of those challenges is that the Red Cross recently appointed new management for blood services — its fourth management turnover this decade.

Frederick Kyle, a former pharmaceutical executive who headed the Red Cross blood program in the early 1990s, said the culture required to run a highly regulated health-care business such as collecting and processing blood is far different from the social-services culture that pervades the Red Cross.

"To be successful, Red Cross must organize itself to clearly separate blood from social services to allow the blood program to staff and organize itself like a pharmaceutical company that can focus single-mindedly on its mission," Kyle said.

Jeffrey McCullough, a physician who preceded Kyle, said the Red Cross’s national network of blood centers makes it difficult to adopt a pure business model. "Red Cross has already had a decade of effort to emulate pharmaceutical manufacturing corporations and this does not seem to have had a huge impact," McCullough said.

The vacillation over the blood program’s direction extends from the 50-person Red Cross board to its hands-on managers, other former executives said. As a result, the mission suffers. "One time it’s treated like a competitive, for-profit business. Another time, like a charity," one said. "At one point, some of the executives even began referring to it as ‘the company,’ as if it were Merck or General Motors."

Red Cross executives invoked almost precisely that language last year when the FDA moved to levy fines, complaining that regulators were treating it like a large pharmaceutical company, not a charity.

Problems in the Red Cross blood program surfaced in the 1980s, before a test for detecting the AIDS virus was developed. For years, the blood program was overshadowed by disaster relief and accounted for less than one-quarter of the organization’s spending. But by 1985, the situation had reversed, with the Red Cross collecting nearly $500 million a year from blood sales — 60 percent of its revenue. The fees cover the cost of collecting, testing and distributing blood to 3,000 hospitals nationwide.

At the time, the blood program was highly decentralized, with more than 50 centers, each with its own director. There were 28 separate computer systems. A donor who tested HIV-positive at one center could appear at another, which would not have a record of the test.

In 1988 the FDA found that the St. Louis Red Cross blood center had misplaced thousands of records, ignored safe testing procedures and was storing safe blood plasma alongside plasma that had tested positive for hepatitis or the AIDS virus.

That year, the Red Cross agreed to evaluate its computer systems, establish rules for tracking dangerous donors and develop training programs.

By the early 1990s, it was clear the agreement had not worked. FDA inspections continued to turn up numerous safety violations, including the release of blood products that had tested positive for viruses. The FDA threatened to revoke the licenses of three Red Cross centers.

In May 1991, the Red Cross announced a plan to spend more than $100 million on "a complete transformation" of the blood program. Elizabeth Dole, who was then president of the Red Cross, said the organization would develop a single computer system for all its blood centers, centralize its testing laboratories and require all workers to undergo extensive retraining. Since then, the Red Cross has invested $280 million in its blood program, much of it in response to FDA demands.

But the transformation plan was "deeply flawed" and intended to buy the Red Cross time with regulators and the public, said an executive who was involved. The plan called for shutting down each blood center as employees were trained. "Yet somehow Red Cross expected to collect the same amount of blood. We dropped that idea and redid the whole plan."

A few years later, the Red Cross hired a consulting firm that recommended a different approach: centralizing control at national headquarters.

The Red Cross subsequently consolidated testing for viruses at nine laboratories, built a new computer system and added employees in an effort to meet federal safety standards.

It wasn’t enough to satisfy the FDA. The May 1993 consent decree required the Red Cross to undertake top-to-bottom improvements, or face being held in contempt of court. Since then, the FDA says, it has spent more than 30,000 hours inspecting Red Cross centers.

Nearly nine years later, the FDA and Red Cross disagree sharply on the extent of the Red Cross progress. The organization says the FDA hasn’t found safety violations at its new testing laboratories and notes that FDA citations have fallen from an average of 15 per site in 1994 to four per site in 2000. Infection risk from a transfusion has dropped "one thousand fold," it says.

But in court filings, government attorneys characterize Red Cross claims as telling only part of the story.

At an Aug. 14, 2000, meeting with FDA officials, Bernadine Healy, who was Red Cross president at the time, said she had uncovered "both a willfulness and a lack of urgency on the part of some ARC (American Red Cross) staff in not responding to FDA, and that there were widespread infrastructure, quality and auditor problems at ARC," according to an FDA summary of the meeting.

The FDA moved last fall to amend the consent decree to include penalties of as much as $15,000 a day for each violation. Red Cross lawyers calculated that the fines could cost the organization as much as $15 million a year.

The fines would only add to the financial burden the consent decree has imposed on the Red Cross, the organization’s lawyers argued in court filings. They said the Red Cross has cooperated in trying to resolve its problems, which have attracted critical publicity. Extra penalties "would needlessly divert resources from its efforts to improve Blood Services and substantially compromise the goal of a safe and available blood supply," the lawyers said.

FDA officials contended that after more than a decade of trying to coax the Red Cross into compliance, fines were necessary to get the organization’s attention.

"After 15 years of noncompliance and distribution by ARC of many units of unsuitable product, the public is entitled to more than another round of assurance by ARC that it will continue to make progress," the FDA said last year.

In August, Penn ordered the two parties to take their dispute over fines to mediation. The hearing on Friday is expected to include a review of their progress so far.