Part 4: Supplying cost-effective blood products and services on time

New Zealand Blood Service: Managing the safety and supply of blood products.

In this Part, we set out our findings about how well the Blood Service:

Our overall finding

The Blood Service supplies blood products and services in a cost-effective and timely way that meets New Zealand's needs.

Keeping operations cost-effective

The Blood Service has kept its cost increases in recent years below those of the wider health sector. It uses efficient negotiating methods to achieve national consistency of product pricing, and manages its finances effectively.

DHBs pay a fee for each service they receive from the Blood Service. Most of the Blood Service's revenue comes from these fees ($100.4 million in 2010/11), with no direct government funding. Each year, the Blood Service negotiates and agrees any cost increases with DHBs using a single main contact – a lead DHB chief executive. Using a single main DHB contact is an efficient way for the Blood Service to negotiate pricing of products with all DHBs and to ensure national consistency. The Blood Service's chief executive and the lead DHB chief executive communicate directly.

Formal policies define how the Blood Service manages finances and sets prices. A Financial Guidelines Policy guides how the Blood Service manages its financial operations. This includes expecting that the Blood Service will manage its financial affairs in line with financial best practice, as is appropriate for an efficient, well-managed manufacturer. The policy provides for the Blood Service to provide rebates to DHBs when there are any financial surpluses above its foreseeable financial need. This provision has been used twice in recent years, with rebates of $2.4 million for 2008/09 and $2.0 million for 2009/10. A Pricing Guidelines Policy states transparently to DHBs how the prices for products will be set.

In its policies and performance reporting, the Blood Service emphasises minimising cost increases to the health sector, and keeping them within the sector's cost increases. In recent years, the Blood Service has achieved this. Its 2010/11 annual report stated that (after rebates to DHBs) the Blood Service passed on to the health sector a 7.61% compound increase in costs during the five financial years to 2011/12.8 This compared favourably with a 13.61% compound increase during the same period in the overall health sector's contribution to cost pressures, as measured by a Contribution to Cost Pressures index.9 This indicates that the Blood Service provides blood products cost-effectively without compromising safety or supply.

The Blood Service has effectively managed input costs and overheads. As Figure 2 shows, during the past five years, the six major Blood Service input cost categories have shown a slight decrease as a percentage of costs to revenue. By keeping production and other overhead cost increases low, the Blood Service can deliver value for money in providing blood products to DHBs. Price increases in 2011/12 were set at 0.65%, below the rate of inflation. Meanwhile, demand for blood products has increased slightly.

Figure 2
New Zealand Blood Service input costs as a percentage of revenue, 2006/07–2010/11

Actual for financial year
Identified costs to revenue 2006/07
Indirect overheads to revenue 28.3 28.2 28.5 28.8 28.7
Production consumables to revenue 24.9 23.0 22.9 21.6 22.4
Production labour to revenue 19.3 20.0 19.8 19.9 20.4
Other production costs to revenue 1.8 2.0 1.9 1.7 1.9
Depreciation costs to revenue 5.0 4.0 3.4 3.2 3.1
Financing/capital charge costs to revenue 2.1 2.2 2.7 2.1 2.6
81.4 79.4 79.2 77.3 79.1

Source: New Zealand Blood Service Chief Financial Officer (December 2011).

The cost of making blood products has increased only slightly during the last four years. The cumulative increase of 9.6% can be attributed to complying with improved safety processes and adopting new proven technologies.

Forecasting demand and managing the supply of blood products

The Blood Service forecasts, plans collection of blood, and monitors inventory and demand appropriately to effectively meet demand for blood products. It wastes little product.

Forecasting demand

The Blood Service must ensure that the supply of blood and blood products meets the needs of DHBs, while aiming to minimise the amount of donated blood that is discarded because it has not been used by its expiry date.

To manage supply, the Blood Service must:

  • accurately forecast demand for blood products;
  • plan how to collect donations to meet forecast demand; and
  • constantly monitor demand for blood products against stock inventory and forecasts, and use this information, as required, to:
    • redistribute stocks of blood products;
    • adjust how much of different blood products it makes; and
    • revise national and regional collection targets for collecting blood.

Senior Blood Service staff forecast demand. The forecasting is critical for the Blood Service's operations. Staff frequently and regularly analyse suitable information sources to help forecast demand for blood products. This work includes:

  • collaborating with DHBs to get their forecasts of product demand (and providing them with monthly product usage reports to help them understand demand and plan their budgets);
  • carefully reviewing sales and product demand statistics for each blood product to identify trends and patterns;
  • considering events, such as medical trials in hospitals, that are likely to change the usual demand for blood products; and
  • analysing international and long-term trends in the use of different blood products.

Monitoring and adjusting stocks of blood products

The Blood Service monitors stock levels effectively. Actual use is usually close to what the Blood Service forecasts, although changes in what medical staff prescribe can significantly affect demand for some of the lesser-used blood products.

The Blood Service continuously and closely monitors its stock of blood products and changes in demand. This helps to set collection targets, control inventory, and forecast.

Every day, the Blood Service monitors stocks of blood products nationally, regionally, and locally. If available stocks fall to certain levels, the Blood Service assesses what it must do. When it has to, the Blood Service redistributes stock to meet demand, or to reduce the amount of product expiring.

The Blood Service makes plans for collecting each blood component based on forecast demand. These plans determine how many whole blood, and plasma and platelet apheresis donations the Blood Service must collect, and tightly link collecting and processing to demand. We found that the Blood Service tightly monitors stocks of blood components that have the shortest shelf life – red blood cells (35 days) and platelets (five days). As a result, the Blood Service can adjust collection plans when demand for a product changes.

The Ministry of Health has received no reports of the Blood Service being unable to supply its main products or services. This means that the Blood Service effectively meets demand for blood and blood products. Maintaining supply is reported as a performance measure in the Blood Service's SOI and annual report.

Minimising the expiry and discarding of blood products

The Blood Service knows how important it is to minimise, where possible, the discarding of expired blood components and processed blood products. Underpinning this, the Blood Service recognises that donors have voluntarily given blood components that it should value and respect.

Blood banks manage stocks of blood products to maximise shelf life. The blood banks supply red blood cells for routine orders on a first in, first out basis to properly rotate stock. The Blood Service aims to supply red blood cells that are less than 15 days old to fill routine orders. In 2010/11, 93% of the red blood cells that the Blood Service distributed were less than 15 days old.

The Blood Service sensibly uses a returns scheme to reduce the amount of blood products expiring. This allows hospitals to return products that are near expiry to the Blood Service so that it can redistribute them to larger hospitals, where they are more likely to be used before they expire. The Blood Service has controls in place to work with DHBs to avoid over-ordering.

In practice, discarding some blood donations and products through expiry is unavoidable. Hospitals, especially in smaller and more remote regions, need to keep stocks of red blood cells and platelets above their usual usage volumes in case of major unexpected medical events. However, less than 10% of fresh blood products are wasted.

The Blood Service allows some expired blood components or products to be used non-therapeutically (for example, in education or medical research). This is a good way to reduce wastage of expired blood products. The Blood Service's Medical Director formally assesses all requests for expired blood products to ensure that those products will be used ethically, reasonably, and not for profit.

Delivering blood products to hospitals

The Blood Service has effective systems and processes to ensure accurate and timely delivery of blood products to hospitals.

The Blood Service prioritises orders and has different ways to deliver, depending on how urgently DHBs need the products. In many ways, this is similar to how postal and courier companies dispatch and deliver products effectively.

The Blood Service rigorously maintains a controlled environment for all blood products that it transports to hospitals. To ensure the safety of products, all product delivery containers have devices to monitor temperatures. This results in tight quality and safety control when storing and transporting blood products.

The incidence of failures to deliver products is low. Each year, the Blood Service dispatches about 40,000 consignments. In 2010/11, the Blood Service recorded only 49 handling and transport incidents. Of these, only 12 were directly related to failures to deliver products.

Monitoring, reporting, and managing performance

The Blood Service monitors and reports appropriately and in a relevant way so that it and stakeholders can keep track of its performance.

Reporting public accountability

The Blood Service monitors the performance measures that are in its SOI and reports on them every year. This helps stakeholders and the public assess how well the Blood Service manages the safety and security of blood products. In general, the Blood Service meets the performance measures that it sets. These measures include:

  • reporting revenue against budget;
  • retaining enough donors to meet demand for blood products;
  • counting the number of donations compared with the target number of donations;
  • measuring the quantity of fresh blood components produced compared with the target;
  • testing all donations before issue;
  • showing productive relations with DHBs by agreeing pricing of products and services;
  • not having to report to the Ministry of Health any cases of being unable to supply important blood products or services; and
  • complying with regulations by:
    • maintaining certification with Medsafe licences at required sites; and
    • ensuring that all of its diagnostic laboratories have ongoing IANZ accreditation.

As noted in paragraph 2.9, in its SOI for 2011-2014, the Blood Service has introduced useful new performance measures to report how well it targets Māori and younger people as potential donors. The Blood Service also uses survey results about donors' satisfaction to improve its services (see paragraph 2.20).

Other reporting to stakeholders

As well as public accountability reporting, the Blood Service reports to important stakeholders on how well it is managing. These reports include:

  • quarterly performance reports to the Ministry of Health – these monitor performance against the same performance measures used in the SOI, and help the Ministry to monitor the Blood Service's performance regularly; and
  • monthly reports about each blood bank, which include information about how the blood bank uses blood products – this includes the age of red blood cells that the blood banks receive, the volume of expired red blood cells, the volume of red blood cells that are returned, and how quickly the Blood Service provides quantities for routine and urgent orders.

8: The figure includes 2011/12 because negotiation and setting of cost increases for products and services occur at the start of the financial year.

9: Each year, the Treasury sets the Contribution to Cost Pressures index, an annual inflation allowance made to Vote Health.

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