Did the new Blood Bank cost too much?

  • Thursday, November 3, 2016 10:08pm
  • News

Employees and the U.S. Food and Drug Administration aren’t the only ones with questions for the Blood Bank of Alaska.

Blood Bank of Alaska leadership is planning to meet with the Rasmuson Foundation in the next few weeks, according to foundation President Diane Kaplan. Reports in the Journal about employee complaints mainly centered on potential blood shortages caused by a recent export contract signed with a California blood bank to the FDA has the longtime Alaska grant maker troubled.

“I’ve read what others have read,” Kaplan said. “We do have concerns.”

The public is still awaiting the results of BBA’s internal investigation to its own complaints along with whatever results will come from an FDA investigation, on which the federal agency cannot comment.

Countering the claims of former and current employees, the Blood Bank of Alaska insists it isn’t exporting blood for any other reason than proper blood management.

“Blood Bank of Alaska has never collected blood specifically for export and never will,” wrote CEO Robert Scanlon in an opinion piece published on Oct. 27 in the Alaska Dispatch News. “Blood collection is determined by senior level, professional blood bankers here in Alaska who constantly monitor and modify collections based on need.”

Nearly all the hospitals and medical centers in the state get their blood from BBA, with the exceptions of a few Southeast Alaska hospitals that get their blood from Seattle.

BBA moved into its new 57,000 square foot, $45.7 million building early this year at the tail end of an underwhelming fundraising campaign and into an era of depressed state budgets, stagnating Alaska population and a decline in demand for blood products both in the Lower 48 and in Alaska.

The Blood Bank of Alaska had pushed for a new building since the mid-2000s. In 2008, the Legislature gave it the first appropriation of $66,100 for development.

By 2016, the state had forked over $33.2 million to the organization, including $17.8 million in fiscal year 2015 and $775,000 in fiscal year 2016.

The new building is double the floor plan size of the previous operations. The land and construction costs totaled approximately $800 per square foot, which according to Alaska real estate professionals is roughly twice the cost of similar Midtown buildings.

The Blood Bank of Alaska’s new building required an $8.5 million loan from the Alaska Industrial and Export Authority, or AIDEA, to complete construction after fundraising and state appropriations came up short.

The monthly repayment on the loan began when BBA moved into the new building in 2016. Around this time, BBA entered an export agreement with California blood center LifeStream for 100 units of blood per week. The original contract was for May through September and was recently extended through December.

Linda Soriano, the blood bank’s former grant writer who resigned after filing a complaint with the FDA, said BBA’s capital campaign had a “toxic cloud” hanging over it from the beginning.

Former Gov. Sean Parnell used his line item veto to reduce proposed capital budget appropriations for the BBA building by a total of $10.8 million over two of the five fiscal years it was funded.

The Rasmuson Foundation, the largest of Alaska grant writers, did not award the blood bank the $3 million requested in 2010. By the end of the capital campaign, Rasmuson agreed only to a $500,000 grant that BBA can’t request payment on until April 2017.

According to Kaplan, the foundation’s president, the project seemed too grand.

“We did give a grant, what is in reality a big grant for us,” she said of the $137,000 Rasmuson gave to BBA for new equipment and a van instead of building costs. “We did feel given the state environment that it was very ambitious in terms of its size. We really felt it was too much of a stretch for the organization.”

Kaplan explained that there is a limited amount of capital money to be had from private sources in Alaska. Aside from her foundation, the M.J. Murdock Charitable Trust and grants from federal programs like Indian Health Services and USDA grants, most of the private money has dried up.

Rasmuson therefore carefully vets its projects to ensure money is going where it’s most needed.

“We have had concerns about the scope of the project specifically because when we fund capital we really try to make sure whatever is being built is the right size and sustainable,” Kaplan said. “Capital projects, if they’re not done the right way, can have a very negative, if not fatal, effect on these organizations. They can get over-extended. They take on too much debt.”

Without the requested funding from the Rasmuson Foundation, the blood bank had to look elsewhere, eventually securing several million in grants and gifts from private donors and an $8.5 million loan from AIDEA.

The BBA board of directors chairman told the Journal in a previous interview that nobody had ever advised the board to halt construction. On the contrary, before all the funding could be completed, the State of Alaska told BBA to get to work.

“The State insisted the BBA begin using the funds allocated,” according to a June 25, 2015, memo from executive director John Springsteen to AIDEA board members.

In its loan application to AIDEA, the Blood Bank said it would establish a donor testing facility in the new building as a revenue generator. BBA currently has to ship samples of its blood to Minneapolis for testing, leaving a two-day testing lag from the time of initial donation. With an in-house facility, the bank could test its own blood as well as host other tests for hire.

“The donor-testing lab would open up new sources of revenue for BBA by potentially serving blood banks in Hawaii and the Pacific Rim countries,” according to a whitepaper presented by the Blood Bank of Alaska in 2016. “Testing services for one additional blood bank would create annual revenue in the amount of approximately $700,000-$1,000,000.”

The Blood Bank has not yet bought this equipment nor begun hiring staff for its management. Scanlon said the state donor testing facilities are in the works, and that they were not a deciding factor for any of the grants or loans BBA received.

“That was not the intent from the very beginning,” Scanlon said. “When we went to the Legislature we explained that to them. The building facilitates us having our own donor testing facility in house. We’ve already had discussions on that.

“We’ve also met with industry. We’ve pretty much decided on the first platform we will purchase in order to facilitate being an in-house testing facility. The effort kicks off in November. We’re very rapidly moving to bringing the donor testing and getting it up and running. From start to finish, anywhere from a year and half to two years to get that up and running.”

The national blood industry ran into problems in the middle of BBA’s pursuit of a new building.

Blood demand nationally and in Alaska appeared to be falling. The U.S. Department of Health and Human Services released a report in the summer of 2013 that found blood transfusions had dropped 8 percent since 2008.

In August 2014, the New York Times published an article detailing the industry’s troubles. Advanced surgical techniques and technical improvements have made blood transfusions less necessary, leading to a nationwide drop off in blood demand and a corresponding drop in blood prices at hospitals.

“Transfusions are down almost one-third over the last five years, to about 11 million units last year from about 15 million units, according to the American Red Cross, which has about 40 percent of the market,” reported the Times. “With ‘minimally invasive’ techniques like laparoscopic surgery and other shifts in medicine, demand for blood continues to drop despite population growth and a soaring number of people over 65, who have the most surgeries requiring blood.

“Blood bank revenue is falling, and the decline may reach $1.5 billion a year this year from a high of $5 billion in 2008.”

Scanlon wrote a response, published in the Alaska Dispatch News, saying that the blood banking industry’s Lower 48 troubles do not “accurately depict the situation in Alaska.”

Scanlon did not directly rebut the American Red Cross numbers with any Alaska specifics. He wrote that several types of surgeries still demand blood. What looks like a decline in demand is actually pent up demand from aging Baby Boomers waiting for surgery, he said.

“Blood is still needed, and that will not change,” Scanlon wrote. “In fact, in Alaska demand has increased for certain blood products.”

The alleged increased demand for blood products featured prominently in grant requests. In a grant request to the Rasmuson Foundation, BBA asserted that “BBA projects an increasing demand for blood products due to the expansion of transfusion medicine to include therapeutic applications that elevate the level of care available in-state, especially for patients with late-stage cancers.”

According to figures obtained from a former employee, BBA’s sales had in fact been on a steady decline over the last half-decade, matching the national trend documented by the American Red Cross.

BBA sales of red blood cells, the industry’s main product, peaked at 24,000 in 2008, but dipped to just more than 20,000 units in 2014, the year the new building broke ground. Sales of blood platelets peaked in 2010 with approximately 12,500 units and dropped to approximately 2,500 units by 2014.

Only sales for cryoprecipitated antihemophilic facto, or cryo, went up between 2008 and 2014. Cryo is a frozen plasma product used mainly to treat hemophilia and Von Willebrand disease rather than surgeries or traumas.

BBA is a 501(c)3 nonprofit. All tax exempt nonprofits must file a yearly Form 990 with the Internal Revenue Service.

According to its Form 990s, BBA’s financials match the drop in blood product sales. Revenue from blood product sales, blood services and bone marrow dropped from $11.4 million in 2011 to $10.6 million in 2014.

Blood product sales netted $11.2 million in 2011, but only $10.4 million in 2014.

The blood bank’s Form 990 for 2015 is still not available.

McDowell Group also factored Alaska’s population into the new building’s need.

“The population of Alaska is estimated to exceed 750,000 by the end of 2015, rising to 850,000 people during peak tourist season,” according to an analysis published in April 2014. “In the event of a disaster, the Blood Bank will be relied upon to treat trauma patients. With the expanded facility, blood will be stored longer and in greater quantities, enhancing their emergency preparedness.”

According to the Alaska Department of Labor and Workforce Development, Alaska’s population as of July 2015 was 737,625, the third year in a row of no growth.

Typical for state-funded construction projects, one of BBA’s selling points was construction jobs. McDowell Group estimated 133 workers earning $14 million in direct labor income in Alaska, and a total economic impact of $66 million from the construction of the new building.

The blood bank’s new building was designed by architectural firm Livingston Slone, managed by Cook Inlet Housing Authority, and built by contractor Neeser Construction.

Lobbyist Robert Evans has worked for both the Blood Bank of Alaska and Neeser Construction since 2010. Evans also worked in 2010 as a lobbyist for Cook Inlet Housing Authority.

Former blood bank employee and once-acting CEO Margaret Baker now works for Livingston Slone. Former BBA board chairman Bob Petersen, president of home construction company The Petersen Group, has partnered with Cook Inlet Housing Authority for various housing developments.

The blood bank is only the latest in a series of state-funded Neeser projects criticized for size and expense.

Neeser is one of the largest general contractors in the state and for the state. Since 2008, the company has received nearly $87 million in direct payments from the Legislature while managing hundreds of millions worth of projects such as the state crime lab and the Goose Creek prison.

The total doesn’t count payments from institutions the Legislature funded directly and in turn paid Neeser, like the Blood Bank of Alaska.

It also does not include federally funded projects like the $90.4 million contract it landed Aug. 19, 2016, in collaboration with Bering Straits Native Corp. for the Norton Sound Regional Hospital in Nome, or the Anchorage headquarters for the Bristol Bay Native Corp., where Blood Bank of Alaska’s current board of directors chairman Ryan York works as chief financial officer.

Neeser built much of Alaska’s state and federally funded educational, health, and Alaska Native infrastructure, including Central Peninsula Hospital specialty clinics building, University of Alaska Anchorage School of Engineering and Industry Building, Norton Sound Regional Hospital, the Department of Public Safety Alaska Scientific Crime Detection lab, Goose Creek Correctional Facility, among many others.

As a private business, BBA did not submit a request for proposal to open the project to a competitive bidding process to other contractors. In a grant application to the M.J. Murdock Charitable Trust, BBA emphasized that the Neeser contract could not be renegotiated.

“Is the pricing for the project items up-to-date and firm, or will re-bidding, especially for the electrical facility construction, if construction had not begun?” asked Murdock.

“Project pricing is firm,” BBA wrote in response. “In December 2013, BBA entered into an agreement with the general contractor, Neeser Construction, to construct the building, including the electrical facility, for a lump sum amount.”

Neeser began asking for subcontractor and supplier bids for the project December 2012, a year before the agreement, with a legal ad in the Anchorage Daily News.

BBA’s building apparent excessive cost is a trait shared in common with the Scientific Crime Detection Laboratory in Anchorage, an $87 million state-funded project completed by Neeser in 2012 with designs drawn up by Livingston Slone. The new lab is four times the size of the old one.

The 84,400-square-foot crime lab, built at roughly $1,000 per square foot, came at a time when advancing technology and declining crime rate required less testing, not more.

After criticism from media and in the Legislature went ignored about the new lab’s size, former lab director Chris Beheim published a lengthy critique of the design in 2010 in collaboration with the Alaska Policy Forum.

“We found that the Department of Public Safety did not consider lab sizing and design in light of rapidly emerging DNA analysis technologies that will render large portions of the new facility unnecessary in only a few years,” reads the critique summary. “We found the construction plans to be extravagant with nonessential architectural components adding substantial cost to the project.

“The decision to build the laboratory on an oversized 15.5-acre wetland-affected parcel appears to be a mistake. We found that there were more reasonably sized suitable building sites available near the existing laboratory that would not have required wetland mitigation. With this in mind, we believe the proposed laboratory is far larger and more expensive than what is needed to provide high quality forensic science support for Alaska’s limited population.”

In 2015, several former and current lab employees contacted Sen. Berta Gardner alleging that the new building went largely underused.

“People that contacted me said that we actually have fewer, not more resources for evidence testing, and that a lot testing of evidence is sent out of state for testing,” she said in a 2015 interview with KTVA.

A similar scenario surrounded the $240 million, 435,000 square foot Goose Creek Correctional Center in the Mat-Su Borough, another Neeser project.

The prison was opened in 2012 after criticism about its costs. Formerly, Alaska housed some of its prisoner population in Colorado. Cost estimates said the new prison, however, cost $30 per inmate per day more than the Colorado prison.

DJ Summers can be reached at daniel.summers@alaskajournal.com.

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