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Blood and money: pay gap could derail blood safety

December 2002
Anne Paxton

Hospital billing and Medicare reimbursement for blood products and services lag so far behind the actual costs of ensuring a safe, adequate blood supply that they threaten to hobble future development and adoption of safety measures, the Advanced Medical Technology Association (AdvaMed) declared Oct. 15.

"We have been concerned that blood reimbursement policy is really affecting blood safety and patient care," said Paul Ness, MD, director of transfusion medicine at Johns Hopkins University, at a press conference to release a report commissioned by AdvaMed on this issue.

Prepared by the Lewin Group, the report, "Ensuring blood safety and availability in the U.S.: technological advances, costs, and challenges to payment," concludes that flaws in reimbursement—especially in Medicare’s prospective payment system, the biggest payer for hospital inpatient care—threaten the development and deployment of new medical technologies. As it’s managed now, blood reimbursement places hospitals in a financial bind and could pose disincentives for companies to invest in innovations.

Low reimbursement isn’t unusual in itself, but blood reimbursement is especially handicapped by a startling fact: More than half of all hospitals don’t bill at all for blood products or administration. This means hospitals are telling Medicare they aren’t recording charges, yet Medicare is adjusting payment levels based on hospital charges, said Cliff Goodman, PhD, senior scientist with the Lewin Group and lead author of the report.

He termed this finding "disappointing and astounding." Coupled with routine undercharging for blood-related products, he said, "this obvious under-reporting compounds the problem of updating the prospective payment system that is intended to provide appropriate payment for services."

The report identified four major causes of improper billing: selecting the wrong reimbursement code when billing Medicare; failing to charge adequately for blood products; failing to submit blood-related charges on Medicare claims; and misunderstanding the rules for how much, or even if, hospitals are permitted to charge for blood products.

Under prospective payment, the Centers for Medicare and Medicaid Services uses hospital charge data as an input for recalibrating diagnosis-related groups, Dr. Goodman said. "But hospital charges generally reflect the cost of all kinds of products and services, plus a fair share of administrative costs. However, if you look at the markups for blood-related services," he said, "they are much lower than for other hospital products and services." In 1999, the national average hospital charge for blood-related costs was 73 percent, far less than half the average charge for medical supplies (182 percent) and for ancillary services (167 percent).

Across the United States, these markups vary widely, Dr. Goodman said. "In North Dakota, average hospital charges were actually 30 percent lower than cost, while in Pennsylvania, the average markup of 156 percent was still below the average markup for medical supplies."

The disproportionately low markup for blood represents a staggering shortfall, charge the authors of the report. In addition, the producer price indexes, which are used each year to adjust the hospital "market basket" of products and services used to represent overall changes in hospital costs in the prospective payment system, until recently placed blood in an inappropriate product category: industrial chemicals. That was changed as of Oct. 1 to blood and blood derivatives. "That sounds a lot better," Dr. Goodman said, "but it’s still questionable whether that index will track changes in costs associated with improved quality or shifts in type of blood products used."

Hospitals that do bill for blood are inconsistent in how they bill. "Eighty-one percent of hospital claims show no blood billing at all," Dr. Goodman noted. "That might be believable, except that it departs so much from the estimate of America’s Blood Centers that 30 percent of these claims ought to show blood billing."

The DRG system, he said, is inherently insensitive to changes in all component technologies—not just for blood—because it is subject to a two-year lag time and depends on the quality of the hospital charge data reported to CMS. "There is much new technology [to improve blood safety] that has evolved rapidly, but we’re always going to be behind and off the mark because of these built-in lag times."

Despite the blood supply’s overall safety, blood products can still be contaminated with known or new viruses, bacteria, and parasites. There is an incomplete and evolving array of technologies to screen for or inactivate these threats—but they risk foundering on the poorly constructed reimbursement program. "We continue to demand a virtually risk-free blood supply. But these technologies are not free," Dr. Goodman noted.

The more than 30 significant blood products, processes, tests, and systems in the pipeline can increase the safety, quality, and quantity of the blood supply and help blood centers improve their operational efficiencies. But the challenges for companies are the time to bring them to market and the money to do so, said David Perez, president of Gambro BCT, a Swedish company that specializes in the separation and handling of blood components.

"Even though nucleic acid testing had a fast-track approval process, it still took five and a quarter years from the time the project was initiated until it was available in the marketplace," Perez said. "Product development in the field of blood banking is extremely competitive, very costly, and very complex from a regulatory and reimbursement perspective."

Gambro BCT has developed a method of inactivating a variety of viruses, bacteria, and parasites, including West Nile virus, but, Perez asked, "If this technology is in the marketplace and approved, how will our reimbursement system address this new added cost? It is a huge issue because the existing reimbursement system does not necessarily capture the cost of all new technology."

Why do many hospitals not charge for blood?

"Some hospitals may believe, incorrectly, that because most blood is donated, they cannot charge more for the processing of a unit of blood than their blood suppliers charge," the Lewin report says. In the past, some blood supplier contract language may have been interpreted as prohibiting hospitals from marking up the cost of processing blood units. Many hospitals apparently avoided having to account for differences in contracts and simply chose not to mark up any blood furnished to patients.

But even though blood products account for less than one percent of total hospital costs, they can amount to millions of dollars for many hospitals, the report says. The greatest technology-related contribution to recent price increases for blood appears to be leukoreduction. An unpublished survey by the AABB found that in 2000, a unit of leukoreduced blood cost $131.89 to produce, compared with $99 for non-leukoreduced blood. Two large hospitals each reported paying an additional $600,000 annually for this safety technology. "To the extent that payment systems do not account for such additional costs to already financially strapped hospitals, an additional $600,000 in nonreimbursed or under-reimbursed costs is significant," the survey says.

Nucleic acid testing, currently charged at an artificially low rate because of NAT’s previous status as an investigational technology, will bring another significant increase in blood costs now that the FDA has approved it for marketing. Even larger increases may lie ahead. For example, the Lewin report says that one pathogen reduction technology, Inactine, could add as much as $150 to $200 to the cost of a unit of red cells, according to the manufacturer.

What should be done? The Lewin report calls for four main reforms:

  1. More accurate hospital coding and billing practices for blood, blood products, transfusions, and related services.
  2. Ongoing educational and training programs for hospital blood banking, coding, and financial staff.
  3. Periodic examination of existing coding systems to determine whether they should be modified to reflect changing technology.
  4. Consolidation and clarification of CMS’ inpatient billing procedures and allowable hospital charge practices for blood, blood products, and related procedures, including a more appropriate producer price index to reflect changes in blood costs.

AABB general counsel Theresa Wiegmann said that even when fairly reimbursed, blood will remain a bargain in comparison with many other therapies. "The lifesaving value of blood transfusions far outweighs their relatively small cost," she said. "AABB understands the billing process is very complex. We recognize the difficulty facing our hospital members and we are working to educate them." AABB will soon distribute a blood billing guide to hospitals across the country and will supplement the guide with online information in coming years.

"It is imperative that the public continue to be educated about the value of blood and the importance of maintaining an adequate supply through voluntary donation," Wiegmann said, noting that AABB is soliciting the federal government’s support for its multi-year project to reinforce this message. "We must all fight to ensure that the health care system fairly and finally pays for state-of-the-art blood and transfusion services. Only with fair payment can we guarantee patients will have the highest quality care."

Anne Paxton is a writer in Seattle. Lewin’s report on blood product reimbursement is available at