Calif. lawsuit charges American Red Cross with unfair business practices

Blood products company with services in 11 states say the organization is trying to drive out competitors.

By Tanya Albert, amednews staff. Feb. 19, 2001.

A publicly traded blood supply company filed a lawsuit against the American Red Cross in December 2000 accusing the national organization of illegally trying to keep competition out of certain markets and of trying to eliminate competition where it already exists.

HemaCare Corp. and its subsidiary, Coral Blood Services, claim that the American Red Cross selectively offered hospitals below-cost prices for blood products, interfered with blood drives and threatened to disrupt blood supplies if a hospital made other arrangements to receive blood, according to the lawsuit filed in U.S. District Court in the Central District of California.

Case at a glance

While declining to comment, the American Red Cross denied the allegations in a written statement.

"We believe the American Red Cross has done nothing inappropriately regarding HemaCare's claims to unfair business practices, and we were surprised by this lawsuit," the statement said. "We have been in full compliance with the law, and we will vigorously defend this lawsuit."

Alan C. Darlington, executive chair of Sherman Oaks, Calif.-based HemaCare, called the lawsuit an effort to level the playing field in the blood supply industry. "The Red Cross's anti-competitive activities have a negative effect, hurting the nation's blood needs," he said.

About 12.6 million units of whole blood are donated in the United States each year, says the American Assn. of Blood Banks. On any given day, about 32,000 units of red blood cells are needed for people involved in car crashes, cancer patients and others.

HemaCare is a publicly traded company founded in 1978 and is the only for-profit company with significant blood-supply operations, according to company documents. It operates in California, Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island and Tennessee.

Based on its experience in those markets, HemaCare is claiming that the Red Cross Biomedical Services Division sets its prices so that it can recover its costs on a nationwide level. But in individual markets, HemaCare alleges, the pricing is designed to eliminate competition.

Specifically, HemaCare's lawsuit says the organization:

Used "bundled pricing" and other exclusive deal arrangements to prohibit hospitals from doing business with HemaCare. The arrangements included economic penalties for the hospitals if they purchased portions of their blood supply and service needs from HemaCare or other suppliers at lower prices than what the Red Cross offered.
Selectively offered hospitals illegal, below-cost prices for blood products to drive away competitors. The arrangements were made in areas that traditionally have multiple blood suppliers, including California.
Threatened to disrupt available blood supplies to hospitals if they contracted with other blood providers.
Falsely disparaged the quality and safety of HemaCare's blood products.
Interfered with HemaCare's attempts to hold blood drives and recruit donors.
Allocated blood supplies to prevent HemaCare from selling blood products rather than allocating them on the legitimate needs of hospitals and patients, even in times of severe shortages.

The American Red Cross says it didn't jeopardize patient safety.

"The American Red Cross is passionately committed to the safety of our donors, our patients and the public we serve," the organization said in its statement.

HemaCare seeks economic damages that it estimates exceed $25 million and court orders that prohibit the Red Cross from using certain business practices.

ADDITIONAL INFORMATION:

Case at a glance

HemaCare v. American Red Cross

Venue: U.S. District Court, Central District of California
At issue: HemaCare Corporation and its subsidiary, Coral Blood Services, accuse the American Red Cross blood services unit of using illegal practices to eliminate or prevent competition in the blood industry, including putting competition ahead of patient needs. The American Red Cross denies the allegations.
Potential impact: HemaCare says if they win it will restore competition and improve how companies meet the nation's blood needs.