Other blood banks also make hefty profits

The Central Blood Bank of Pittsburgh isn't the largest blood center in the country. Or even in Pennsylvania. The Red Cross blood center in Philadelphia collects about twice as much blood.

But when it comes to making money, few blood banks are in the same league as Pittsburgh.

For the fiscal year ended June 30, 1987, it posted an operating profit of $2.1 million - more than any other blood center in the country, according to an Inquirer study.

The Pittsburgh blood bank outperformed nearly the entire Fortune 500 when its profits were measured as a percentage of its revenues - with a margin of 11.9 percent. The median return on sales of all the Fortune 500 industries was just 4.6 percent that year.

Then there is the Gulf Coast Regional Blood Center in Houston.

It earned nearly $1.8 million on revenues of $15.5 million, according to a tax return filed in 1987 with the Internal Revenue Service. That was the third-highest profit earned that year by a blood bank, after Pittsburgh and Blood Systems Inc. of Scottsdale, Ariz., which operates blood banks throughout the Southwest and had a profit of $1.85 million.

As these examples show, the American Red Cross isn't the only organization that has earned substantial income from blood. In fact, by most standard business measurements, blood banks fare rather well.

The Inquirer reviewed 74 tax returns filed by 62 nonprofit blood banks for tax years 1986 and 1987, the most recent years for which returns were available. The survey included virtually every major non-Red Cross blood bank in the United States.

The findings:

* Twenty-four of the 62 nonprofit blood banks - 39 percent - posted profit

margins exceeding 10 percent of their revenues, better than those of many large corporations.

* Seven of those blood banks had profits greater than $1 million.

* The average profit earned by blood banks was more than a half million

dollars, with a low of $11,814 and a high of $2,117,267.

* Total profits were $27,086,414.

* More than two-thirds of the tax returns showed a profit earned. A total of 21 returns showed a loss for the year, with the average loss $231,766.

* One blood bank, the New York Blood Center, lost more than $1 million.

Nonprofit blood banks refer to their profits as "excesses over expenses," rather than profits. And officials are quick to point out that they use these

funds to buy equipment or build their financial reserves, not to pay shareholders.

"Since those profits don't go to stockholders, they have to go back into programs," said Gulf Coast's president, William T. Teague. "It has enabled us to buy new equipment . . . and hold down our service fee (the amount hospitals are billed for blood). We haven't raised our fees in six or seven years. "

Some of these profits also help pay executive salaries and perks, or are

put in savings accounts and investments, the blood banks' tax returns show.

For its fiscal year ended Dec. 30, 1986, Gulf Coast reported a net worth of $9.29 million. Nearly 63 percent of that amount - $5.84 million - was in savings accounts or temporary cash investments held by the blood bank.

Tax returns show that the top five officers of Gulf Coast earned a total of $713,358 in salaries and benefits for the year ended Dec. 31, 1986. Teague alone received $216,153 in salary and $25,059 in benefits.

"Obviously, I think the salaries are justified. These have not been at the expense of the patient," Teague said. "I think a lot of people see nonprofit entities as poorly run programs. We do not subscribe to that philosophy. We didn't come to town to be mediocre. "

Some administrators of nonprofit blood banks also enjoy perks that come with their jobs, including the use of cars, tax returns show.

Buried in the pages of items depreciated in 1986 by a blood bank in Jackson, Miss., for instance, is a $29,000 BMW sports sedan, purchased by the blood bank in July of that year.

Why did a blood bank need a BMW?

"My predecessor didn't particularly care to fly that much," said David Allen, director of Mississippi Blood Services Inc. "There are a number of meetings and conferences we need to, or are required to, attend. He felt he could travel to those, thereby justifying the expense. "

Allen said that between July and September 1986, the former administrator drove the BMW round-trip from Jackson to Chicago, to San Antonio and to San Francisco - the latter a 4,260-mile round-trip journey.

"The board decided after that period of time, that was an awful lot of traveling," Allen said.

In September 1986, the blood bank sold the BMW, replacing it with a $17,000 Oldsmobile Delta 88, which is used by any employee who needs it.

The three top executives of the Broward Community Blood Center in Lauderhill, Fla., get cars, ranging in price from $9,075 to $13,352, according to the blood bank's tax returns and interviews.

At Gulf Coast in Houston, Teague drives a $16,000 Ford Bronco II leased for him by the blood bank. Three of the center's other four top executives also get leased cars.

Salaries of some blood-bank administrators are equally generous. More than one-quarter of the administrators at 62 blood banks surveyed by The Inquirer earned $100,000 or more a year.

Dr. William C. Sherwood, director of the Red Cross' Penn-Jersey Regional Blood Services, made $135,105 in salary and benefits in fiscal year 1986, according to a tax return for that year. He declined to say what his current salary is.

Salaries aren't always linked to the performance or size of the blood bank. Dr. Aaron Kellner, recently retired president of the New York Blood Center, was paid $172,500 in fiscal 1987. That year, the blood center lost $1,046,203.

Dr. Peter A. Tomasulo, director of the Red Cross blood program in Miami, was paid $166,775 in salaries and benefits in 1987. His blood bank lost $530,523 that year.

At Pittsburgh's Central Blood Bank, president William H. Portman receives a $110,000 salary and a car allowance of $500 a month.

Asked about the amount of the car allowance, Portman replied: "I'm not complaining. I pay taxes on that. "

The Pittsburgh center, which serves 32 hospitals in two counties, may well be the wealthiest blood bank in the nation.

According to its tax return for the fiscal year ending June 30, 1987, it had a net worth of $17.7 million, of which $11.9 million was in savings and temporary cash investments. Portman said he was building financial reserves to build a foundation for blood research.

Portman said that in addition to selling blood to hospitals, the Pittsburgh blood bank has an active laboratory testing business and operates the transfusion services for three hospitals.

"Quite frankly, those services are profitable," Portman said.

According to its tax return, the blood bank rendered 147,975 laboratory and outpatient services in 1986, worth $3.89 million.

Portman said it makes sense for his blood bank to perform tests for the hospitals because it can handle a larger volume and save the hospitals money. And the blood bank diversifies its operation.

"I think it's finding those niches in the market that make sense," Portman said. "We have a lot of services that other blood centers don't offer."