SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): December 11, 2000
HEMACARE CORPORATION
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(Exact name of registrant as specified in its chapter)
California
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(State or other jurisdiction of incorporation)
0-15223 95-3280412
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Commission File Number (IRS Employer Identification No.)
4954 Van Nuys Boulevard, Sherman Oaks, California 91403
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818)986-3883
<PAGE>
Item 5. Other Events
The Company announced today that it filed suit against the
American Red Cross Blood Services Division for unfair competition and
restraint of trade business practices. A copy of the press
release is attached as Exhibit 99.1 and a copy of the Company's
press information package is attached as Exhibit 99.2
Exhibits
99.1 Press release of December 11, 2000
99.2 HemaCare\Coral Litigation Against American Red Cross
Information Package
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: December 12, 2000
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HemaCare Corporation
By /s/ David E. Fractor
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David E. Fractor
Chief Financial Officer
<PAGE>
Exhibit 99.1
[LOGO]
HEMACARE CORPORATION
NEWS RELEASE
FROM: Elisa Keys, SVP-Media Relations
David Sachs, Media Relations
Pamela Roderick, Editorial
Porter, LeVay & Rose, Inc.
(212) 564-4700
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COMPANY CONTACTS: Alan C. Darlington, Chairman William Nicely, CEO Dana Belisle, COO
(818) 986-3883 (818) 986-3883 (207) 883-4888
[email protected] [email protected] [email protected]
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FOR IMMEDIATE RELEASE
HEMACARE FILES SUIT AGAINST AMERICAN RED CROSS BLOOD SERVICES UNIT;
CHARGES UNFAIR COMPETITION, RESTRAINT OF TRADE
SHERMAN OAKS, CA, Dec. 11, 2000 -- HemaCare Corporation (OTC BB:
HEMA) and its subsidiary, Coral Blood Services, Inc., have filed
suit in U.S. District Court, Central District of California,
contending that the American Red Cross has illegally used its
dominant position in the blood industry to increase its market
share and eliminate or prevent competition in the blood industry.
HemaCare and Coral provide blood products and services to
hospitals in eleven states. The lawsuit seeks damages and
injunctive relief.
The Red Cross Biomedical Services Division receives in
excess of $1.3 billion annually from sales of blood products and
services to hospitals. This division is operated as a business
and is managed separately from other Red Cross activities in
disaster relief and social services. The Red Cross states that
its prices are set at levels designed to recover its costs.
However, HemaCare contends that Red Cross pricing strategies
differ sharply in different parts of the U.S. In areas where the
Red Cross has competition, prices are set below cost to gain
market share and drive competitors out of business. In areas
where the Red Cross is the only source of blood, prices are set
at high levels and the Red Cross uses exclusive or bundled
arrangements to prevent competition. Red Cross profits from
these monopoly areas finance the losses incurred in markets
targeted for expansion.
HemaCare also charges the Red Cross with threatening
hospitals with disruptions of available blood supplies if they
contract with HemaCare or suppliers other than the Red Cross.
The Red Cross has supply/pricing arrangements with hospitals that
require the Red Cross to be the sole external supplier of blood
products to the hospital or else pay super-premium prices for the
blood they do get from the Red Cross.
-more-
<PAGE>
While the blood industry is highly regulated by the FDA in
matters related to the safety and quality of blood supplies, the
industry's pricing and other business practices are completely
unregulated. HemaCare contends that the Red Cross has abused
this situation, and its special position in society, to the
detriment of hospitals, other blood centers and, ultimately, the
adequacy of the blood supply.
HemaCare also alleges that the Red Cross has interfered with
HemaCare's efforts to hold blood drives and recruit donors, has
falsely disparaged the nature and quality of HemaCare's products
and has allocated blood supplies in times of severe shortages to
prevent sales of blood products by HemaCare.
HemaCare has a 22-year track record as a respected supplier
of safe blood products and services that save lives. What the
company seeks through the lawsuit is to be allowed to compete
fairly with the Red Cross and others on the basis of service,
cost, safety and efficiency. Essentially, HemaCare wants the
court to provide a level playing field for participants in the
blood industry.
Hemacare's Blood Management Programs are partnering
arrangements with hospitals that help them increase local blood
supplies, address complex regulatory requirements and reduce
overall costs related to blood. Red Cross business arrangements
unfairly prevent hospitals from taking advantage of these
opportunities, limiting local blood supplies and raising costs.
Those arrangements are designed to assure that the Red Cross is
the only source of blood that a hospital can use.
-more-
<PAGE>
About HemaCare Corporation and Coral Blood Services
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HemaCare, founded in 1979, is an FDA-licensed provider of
blood products and services and is the only for-profit company
with significant blood-supply operations in the U.S. HemaCare
and its subsidiary, Coral Blood Services, Inc., are accredited by
the American Association of Blood Banks and provide blood and
related services more cost-effectively than the Red Cross.
HemaCare and Coral supply blood products and services to
hospitals in California, Connecticut, Massachusetts, Maine, New
Hampshire, New Jersey, New York, North Carolina, Pennsylvania,
Rhode Island and Tennessee. The company's customized blood-
management programs give hospitals and medical centers high-
quality, cost-effective solutions to their blood-related needs.
HemaCare also offers therapeutic procedures involving the
removal or exchange of various blood components through
therapeutic apheresis (TA) and stem-cell collection. HemaCare
provides TA services to patients in outsourced hospital clinical
departments and on a mobile basis.
#####
<PAGE>
Exhibit 99.2
HemaCare\Coral Litigation Against American Red Cross Information Package
BACKGROUND
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HemaCare is a publicly traded company engaged in providing blood
products and related services to hospitals in 11 states
throughout the US. Founded in 1978, HemaCare is the only for-
profit company with significant blood supply operations in the
US. The Company has an exemplary quality and regulatory record.
The Company is licensed by the FDA and accredited by the American
Association of Blood Banks.
HemaCare's suit contends that the Red Cross Biomedical Services
Division has engaged in several illegal and unfair practices to
eliminate or prevent competition in the blood industry and
bolster its own monopoly position or expand its markets. The
Biomedical Services Division of the Red Cross is operated as a
separate national business unit of the Red Cross and is managed
separately from Red Cross charitable activities in disaster
relief and other areas.
Contrary to common belief, donated blood is not given to
hospitals and patients for free. Rather most blood is collected
by blood centers and sold to hospitals at prices set to recover
the costs of collection, testing and distribution. Annually, the
Red Cross generates more than $1.3 billion in revenues from such
sales.
HemaCare and its subsidiary, Coral Blood Services, provide blood
and related services to hospitals more cost effectively than the
Red Cross and its inefficient monopoly. Additionally, the
expertise that HemaCare and Coral have in regulatory matters
offers hospitals a solution to complex regulatory issues related
to blood. Finally, hospitals that contract with HemaCare and
Coral have access to an expanded local supply of blood products
collected in their own communities. Such local supplies are
extremely important in times of shortage.
While the blood industry is heavily regulated as to practices
concerning blood safety and quality, the industry's pricing
practices are completely unregulated. The Red Cross has unfairly
taken advantage of this situation.
The Red Cross states that its prices are set at levels to recover
its costs. On an overall nationwide basis, that is true.
However, its prices and business practices in selected areas of
the nation are designed to eliminate competition and increase its
market share in the blood industry.
In general these illegal pricing practices of the Red Cross have
been successful. Independent blood centers across the nation
have sustained massive losses as a result of Red Cross activities
and many of them have either failed financially or been absorbed
by the Red Cross. Red Cross market share in the blood industry
is thus increasing.
Essentially HemaCare and Coral seek a level playing field in the
blood products and service business that will allow them to
compete with the Red Cross' blood services unit fairly on the
basis of quality, service and price and provide hospitals with a
choice of alternative providers.
SPECIFICS OF HEMACARE'S LAWSUIT
-------------------------------
The anticompetitive actions of the Red Cross Biomedical Services
Division harm HemaCare, other blood centers, hospitals, patients
and, ultimately, the adequacy of the U.S. blood supply. These
practices include:
1. Using bundled pricing and other types of exclusive dealing
arrangements that prohibit hospitals from doing business
with HemaCare. These arrangements subject hospitals to
economic penalties if they purchase portions of their blood
supply and service needs from HemaCare or other blood
suppliers at lower prices than the Red Cross charges. Such
arrangements constitute an abuse of the Red Cross' dominant
position as a blood supplier and force hospitals, patients
and consumers to incur higher costs for blood products and
services.
2. Selectively offering hospitals illegal, below cost prices
for blood products to eliminate competition by driving
competitors out of business. The Red Cross uses these below
cost arrangements in areas of the US that have traditionally
had multiple blood suppliers, such as California.
Additionally, such tactics are used selectively to prevent
the entry of legitimate competition in markets where the Red
Cross is the only blood supplier.
The Red Cross intentionally loses money in these selected
situations. However, it either captures market share from
competitors or forces such competitors to match these prices
and incur operating losses. The Red Cross finances its
losses in these situations with profits from areas where it
has a monopoly. Smaller blood centers, with limited
resources compared to the Red Cross, are driven from the
market by such illegal tactics.
3. Threatening hospitals with disruptions in available blood
supplies if they contract with HemaCare or make other
arrangements to obtain blood products.
4. Interfering with HemaCare's efforts to hold blood drives and
recruit blood donors.
5. Allocating blood supplies, in times of severe shortages, to
prevent sales of blood products by HemaCare rather than on
the legitimate needs of hospitals and patients in these
areas.
6. Falsely disparaging the quality and safety of HemaCare's
blood products.
HemaCare's suit seeks compensation for the economic damages it
has sustained (estimated in excess of $25 million); penalties
trebling those damages as provided by antitrust law; and, more
importantly, court orders that prohibit the Red Cross from
further use of these illegal business practices. Such remedies
will permit hospitals to contract with HemaCare, or others, for
cost effective delivery of blood products and services without
fear of retaliation by the Red Cross.
Why HemaCare Filed Suit
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Restraints On The Growth Of The Company Through Blood Management
Programs
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HemaCare and its subsidiary, Coral Blood Services, provide blood
products and related services to hospitals in the form of "Blood
Management Programs" or BMPs. Under BMP arrangements HemaCare
operates a blood collection program in the name of the hospital.
These programs increase the hospitals' local blood supply and
help hospitals address the complex regulatory requirements
related to blood.
When these BMP programs are successful the client hospitals
reduce their reliance on the Red Cross for blood supplies.
Further the BMP programs usually result in the hospitals paying
lower prices for the products that HemaCare provides than they do
for products purchased from the Red Cross.
The Company contends that the Red Cross views such programs as a
loss of sales and as price competition. Accordingly, the Red
Cross has implemented supply \ pricing arrangements with
hospitals that provide that the Red Cross must be the sole
external supplier of blood products to the hospital or require
the hospital to pay premium prices for the blood they do get from
the Red Cross. Additionally, the Red Cross has advised hospitals
that blood supplies currently provided by the Red Cross would be
interrupted if the hospitals attempted to sponsor an alternative
supplier.
Because of the exclusivity related penalty provisions of the Red
Cross arrangements with hospitals, many hospitals that would like
to contract with HemaCare or Coral for a BMP are economically and
practically prohibited from doing so. Such provisions have
prevented HemaCare and Coral from expanding the scope of their
business operations in many parts of the US.
Lost Profits And Losses Due To Red Cross Illegal Pricing
Practices
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Southern California
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HemaCare is a very cost efficient provider of blood platelets
and, as such, can earn profits by providing platelets to
hospitals at prices lower than the Red Cross generally charges
for them.
In Southern California (where the Red Cross is constrained from
using bundled pricing arrangements as a result of previous
litigation with HemaCare) the Red Cross has resorted to selling
its platelet products at prices far below its costs and far below
prices charged in other parts of the US. This tactic has caused
the Red Cross to lose money in Southern California but is
designed to obtain HemaCare customers and force HemaCare out of
business. Once HemaCare is out of the market the Red Cross will
be capable of selling its platelets at any price it sets.
As a result of these Red Cross actions, HemaCare has suffered
significant lost profits in Southern California on platelet
sales.
The Red Cross' illegal business practices in California have not
only damaged HemaCare. Throughout California, independent blood
centers have incurred operating losses for several years because
price increases necessary to recover increased costs have been
met by a lower bid from the Red Cross and the loss of hospital
customers. In San Diego and in several other cities in
California, the Red Cross tactics have caused so large a loss
that the blood centers agree to be absorbed by the Red Cross to
prevent bankruptcy.
The Red Cross finances its losses in California with profits from
markets where it has a monopoly and sets blood prices at any
levels it desires.
Other Areas of US
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In other areas of the US the Red Cross has selectively offered
hospitals large discounts on blood products to prevent HemaCare
and Coral from obtaining business. Such discounts result in the
Red Cross selling its products below its actual average or
variable costs.
In most such situations the Red Cross has prevented HemaCare from
obtaining business. In instances where HemaCare and Coral have
obtained contracts, the prices the Red Cross charges those
hospitals (for products that HemaCare and Coral are not routinely
able to provide) are set at super premium levels to inflict
economic damage on HemaCare and its customers.
In Massachusetts and New Hampshire, Coral offers mobile
therapeutic apheresis services to hospitals at prices lower than
the Red Cross charges for such services. (These services consist
of a highly trained nurse using specialized equipment and
treating patients for blood related disorders on the hospital's
premises.) The Red Cross has offered hospitals discounts on
blood products purchased by those hospitals if they also use the
Red Cross for therapeutic apheresis services. This has resulted
in the loss of customers to Coral even though its prices for
services are lower than those charged by the Red Cross.
UNFAIR PRACTICES OTHER THAN PRICING
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Allocation of Blood Inventories for Competitive Purposes
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New England
Despite bundled price arrangements with the Red Cross, hospitals
can and do purchase blood products from Coral in Maine when the
Red Cross cannot supply them. This has been the case several
times in the last few months when the entire US has suffered a
severe blood shortage.
Red Cross representatives learned that this was occurring at a
recent local industry educational meeting for blood industry
professionals. Subsequent to that meeting, Red Cross blood
shortages in Maine were eliminated while they continued in other
parts of New England and throughout the US. This indicates that
the Red Cross reallocated its blood inventories to Maine.
As a result of this reallocation of blood inventories, Coral
could not sell its blood products to hospitals in Maine (at any
price) and was forced to discard such products as they became
outdated and unusable.
Such actions caused Coral to incur losses on these products.
However, and more importantly, such actions indicate that the Red
Cross places competitive considerations ahead of patient need in
allocating scarce blood supplies.
Southern California
Single donor platelets are in short supply throughout the US and,
as is true in all major urban areas for all blood products, it is
difficult to recruit an adequate number of donors willing to
spend the extended period of time donating platelets involves.
In order to compete with HemaCare on platelet availability (as
well as price), the Red Cross has diverted large numbers of
platelets from other markets in the US to Southern California.
Such inventory allocations, designed to limit the market for
HemaCare products, aggravate the shortages of single donor
platelets in other areas of the US and again demonstrate that the
Red Cross places competitive considerations ahead of patient need
when allocating scare blood supplies.
Interference with Volunteer Donor Recruiting Activities
HemaCare and Coral rely heavily on business and community
organizations to assist in mobile blood drives designed to
recruit blood donors. Red Cross representatives have written
letters, held private meetings and otherwise attempted to
prevent, cooperation between such organizations and HemaCare and
Coral.
Red Cross representatives have implied that the activities of
Coral and HemaCare are immoral (because they sell blood and are
for profit) or imply that the Red Cross is the only official
organization that is, or should be, allowed to collect blood.
Such actions have resulted in several organizations canceling
blood drives with HemaCare and Coral. Further, since the Red
Cross has not necessarily held blood drives that replace the
abandoned HemaCare and Coral drives, they serve to reduce the
overall blood supply.
Disparagement of HemaCare and Coral Products and the Los Angeles
Single Donor Platelet Program
----------------------------------------------------------------
HemaCare operates a unique and highly successful program to
collect single donor platelets in Sherman Oaks, California.
Single donor platelets, while medically preferred, are in
constant short supply in the US. This program has been operated
under special provisions of California law for more than 20 years
and has resulted in Southern California hospitals having access
to adequate supplies of products that are usually in short supply
throughout the US.
This program pays donors between $50 and $75 dollars to commit
the time to donate single donor platelets, a process that takes a
donor between three and four hours. The program is highly
successful in that a small group of about 600 carefully screened
and selected individuals become committed, repeat donors and
contribute more than 12,000 single donor platelets annually.
(Unlike whole blood, platelets can safely be donated as often as
24 times a year.)
HemaCare's paid donor program is completely safe and is licensed
by the FDA and by California state authorities. Further, the
program is accredited by the American Association of Blood Banks.
In more than 20 years of operation this program has produced more
than 120,000 products without a single instance of HIV or
hepatitis transmission. Other large-scale, platelet donor
programs that pay platelet donors are operated by the Mayo Clinic
and the University of Iowa. These programs, like HemaCare's,
have excellent safety records and result in adequate supplies of
higher quality blood products available for patients.
The Red Cross has knowingly and falsely told hospitals throughout
the nation that (1) all HemaCare and Coral produced blood
products are obtained from paid donors; and (2) that blood
products from paid donors are unsafe.
