Sunday, April 18, 2010

April, the cruelest month (Musings on transfusion costs)

This month's blog is slightly different than most - a potpourri of loosely related tidbits on transfusion-related costs. It's April and money matters seem apt. The blog discusses 3 recent news items and ends with why April is the cruelest month. The blog's title comes from The Waste Land, a poem by T.S. Eliot.

#1. Tidbits on Biotech Profits

Immucor, a US-based company that sells instruments for testing donated blood and pretransfusion patients, recently released financial results for its fiscal 2010 third quarter.

The buzz among laboratorians has always been that companies that sell instrumentation make their money on reagents, not instruments (which occasionally are supplied free of charge).

Immucor's latest financial results are instructive:

  • Overall gross margin* = 69.2%
  • Traditional reagents: $510,000 revenue (gross margin* = 77.4%)
  • Capture** reagents: $18,080,000 revenue (gross margin = 80.2%)
  • Instruments*: $10,277,000 revenue (gross margin = 12.2%)
* Gross margin is short for gross profit margin
Gross Profit Margin Percentage = (Revenue - Cost of Sales)/Revenue
** The automated instruments use Capture solid phase technology

Example: If a company sells a computer for $1000 (revenue) and the cost of sales (materials, labor, shipping costs, etc.) is $200, then the gross profit margin = 800/1000 = 80%. For more, see
Immucor's margins are higher than many others in the biotech supply industry.
Tidbit #1 musings

Using Immucor's data (sample size=1), the long held lab buzz about where instrumentation companies make their profit appears correct. And a gross profit margin of ~80% is high compared to many companies in this general business sector. No doubt managers consider ways to leverage this tidbit to their advantage when negotiating instrumentation contracts.

Should we care that a supplier's profit margin is high? How does it impact transfusion costs?

#2. Tidbits on Cost of IVIG
Canada has a high per capita rate of IVIG use, in 2008 more than twice as high as the UK, and marginally higher than even the USA.

Other Canadian-related tidbits from this editorial include
  • CBS supplies IVIG to hospitals free of charge. In fiscal year April 2008 to March 2009, the total cost of IVIG use in Canada was $244.2 million.
  • This cost represented ~18.9% of CBS's entire budget (budget for all blood component and plasma protein products, human-derived and recombinant).
  • An IVIG dose of 1 g/kg for a 75-kg person costs ~$5000.
  • Without a formal system of accountability for IVIG use in most hospitals, mechanisms to ensure optimal and appropriate IVIG use are important to develop.
And that's what CBS in collaboration with NAC has been doing since 2004:
For interest, I looked up the gross profit margin of one of the major IVIG players in Canada, Talecris Biotherapeutics. For the 4 quarters ending Dec. 2009 Talecris's gross profit margin averaged ~41%. Of course, IVIG is but one of their major products.
Tidbit #2 musings
Because CBS is publicly funded, IVIG costs Canadian taxpayers $200 - $300 million/year. No matter where we live and regardless of who pays, both as citizens and as health professionals, we all have a vested interest in seeing that the cost of such products is warranted in terms of clinical outcomes.
3. Tidbits on TM-related Economics Research
An editorial* in the April Transfusion discusses a paper ** that investigates the cost of red cell transfusion in surgical patients in 4 hospitals (2 in the USA, 1 each in Austria and Switzerland).

* Custer B. The cost of blood: did you pay too much or did you get a good deal? (editorial) Transfusion 2010 Apr; 50(4): 742-4.
Shander A, Hofmann A, Ozawa S, Theusinger OM, Gombotz H, Spahn DR. Activity-based costs of blood transfusion in surgical patients at four hospitals. Transfusion 2010;50:753-65.
The research was funded by SABM, made possible by grants from suppliers of various brands of synthetic erythropoietin. Weirdly, a company called Masimo, not listed as funding the study, put out a press release on its outcomes:
In his Transfusion editorial Custer makes the following key points (summarized):
  • Although the basic purpose of health economic research is to link money spent to outcomes to help select expenditures that have the greatest benefit for individuals and/or society, there is no consensus on whether studies should try to answer questions that maximize benefit for individuals or society as a whole.
  • Patient outcomes are critical to whether blood safety and transfusion are worth the cost.
  • If outcomes for similar patients are better at hospitals that use more blood or have the highest transfusion costs, then the premise that transfusion costs are too high is invalid.
This last one got me thinking. According to the author's logic (taken to its logical conclusion), if a transfusion alternative like erythropoietin or autologous red cell salvage costs more than transfusing donated human red cells, but has improved patient outcomes (shorter hospital stays,etc.), then a premise that its increased cost compared to allogeneic transfusion is too high is invalid. Unfortunately, health economics research is more complicated and difficult to evaluate, as the author goes to great lengths to explain.
Regarding the study by Shandler and colleagues, Custer concludes:
  • "Does a cost between $500 and $1200 per RBC unit transfused represent a good use of resources? Once again there is no single answer."
Tidbit #3 musings
As noted in an earlier blog (Dr. Strangeblood or how I learned to start worrying and hate the numbers), which also involved a paper by Custer*:
  • One of the main challenges with [cost effective analyses) is, as the computer nerds say, GIGO, Garbage in, garbage out....
* Custer B, Hoch JS. Cost-effectiveness analysis: what it really means for transfusion medicine decision making. Transfus Med Rev 2009 Jan;23(1):112.
Which is not to say that cost-analysis researchers input garbage. It's just to realize that, depending on the study design and inputs, you can claim almost any outcome you want. Unfortunately, when critically analysed, study results may not mean much.
As shown, the potpourri of tidbits all deal with money, a relevant topic for April when income tax is due, at least in Canada and the USA:
  • Immucor's gross profit margin on instrument reagents is 80%. Should we care and how can we best use this factoid?
  • Canada has a high per capita rate of transfusing IVIG, a costly plasma derivative, motivating CBS and NAC to produced evidence-based guidelines for its use. This we should care about.
  • The cost of transfusion has been under-estimated but what does it really mean?
As usual, I think we can all benefit by getting back to sufficient costing basics to allow us to assess these economic studies effectively.
April - The cruellest month
On 11 April 1969 the Beatles single "Get Back" was released, and an alternative version became the closing track of Let It Be (1970), released just after Paul McCartney announced he was leaving the band 40 years ago.
As T.S. Eliot wrote in his poem The Waste Land:
April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain.
Addendum: I'm still curious why Masimo would pay for a press release for a study that it did not fund. If you know the connection, please write.

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