Management Analysis

This management analysis outlines Canadian Blood Services’ financial results and operational changes for the year ended March 31, 2017. It should be read in conjunction with Canadian Blood Services’ audited consolidated financial statements and accompanying notes for the year ended March 31, 2017, which have been prepared in accordance with Canadian accounting standards for not-for-profit organizations. The information in this report is current to June 22, 2017, unless otherwise indicated.

Readers are cautioned that this financial report includes forward-looking information and statements. By their nature, forward-looking statements require management to make assumptions and are subject to important known and unknown risks and uncertainties that may cause actual results to differ materially from those disclosed. While we consider our assumptions to be reasonable and appropriate based on current information, actual results may vary from those predicted in the forward-looking information or statements.

Corporate overview

Canadian patients depend on Canadian Blood Services to manage a safe, secure and cost-effective blood system. We bring quality to every aspect of our work — from collecting, testing and manufacturing blood, blood products and stem cells to knowledge creation and dissemination to conducting groundbreaking research. Our fresh blood products include red blood cells, platelets and plasma.

Canadian Blood Services is also the sole procurer, contract manufacturer and distributor of plasma protein products in Canada (excluding Quebec). These products are used to treat patients with diseases such as hemophilia and immune disorders. We manage a formulary of approximately 45 brands of plasma protein products from Canadian and international suppliers, as well as products available under the Health Canada Special Access Program. To support the manufacturing of plasma-derived products, we collect plasma from Canadian donors and purchase plasma from a U.S. blood operator that collects it from volunteer, unpaid donors. This plasma is shipped to commercial fractionators and is processed into products such as immune globulin (Ig) and albumin. Plasma-derived products not manufactured from this plasma are purchased from suppliers using plasma donated by paid donors.

Our role also includes providing the following unique services to Canadians:

  • Operating an integrated Stem Cell program, which includes Canadian Blood Services’ Cord Blood Bank and stem cell manufacturing; a robust national registry of adult donors, through the OneMatch Stem Cell and Marrow Network; and human leukocyte antigen (HLA) typing services, through the HLA laboratory.
  • Developing leading national practices, and undertaking professional education, public awareness and system performance activities for organ and tissue donation and transplantation.
  • Managing national patient registries for organ donation and transplantation.
  • Providing diagnostic laboratory testing services in some provinces.
  • Conducting leading-edge research and advancing practice in transfusion and transplantation medicine nationally and internationally.

Governance

Canadian Blood Services operates within the larger health-care system of transfusion and transplantation medicine. We supply blood and plasma protein products and services across all provincial and territorial jurisdictions excluding Quebec, with the exception of the organ registries in which Quebec does participate. We were created in 1998 and operate under a memorandum of understanding between the federal, provincial and territorial ministers of health. We function as an independent, not-for-profit biologics organization that operates at arm’s length from government. Governance at Canadian Blood Services is guided by the principles of accountability, safety, engagement and transparency.

Members

The provincial and territorial ministers of health provide the majority of the funding for Canadian Blood Services and are the organization’s corporate members. The ministers have the authority to appoint the organization’s board of directors and approve Canadian Blood Services’ three-year corporate plan subject to annual budget approval. The CEO, who reports to the board of directors, oversees nine vice-presidents and our internal auditor.

Working with our executive management team, the Provincial and Territorial Blood Liaison Committee provides advice and support to the provincial and territorial deputy ministers and ministers of health on issues affecting the blood system. The committee comprises a representative from each funding province and territory, and a lead province is designated every two years. The lead province for the two years ended March 31, 2017, was Manitoba. Effective April 1, 2017, Saskatchewan has taken over as the lead province.

Board of directors and committees

Elected by the provincial and territorial ministers of health, the board of directors comprises 13 members, including:

  • a chair of the board
  • four regional nominees
  • six nominees from the medical, scientific, technical, business and public health sectors
  • two nominees with relevant consumer experience

The board meets at least six times per year; two of those meetings are open to the public.

Board compensation

Canadian Blood Services’ bylaws provide that directors be remunerated for attendance and participation at meetings of the board of directors and committees as set by the members. The chair receives an annual retainer, other directors receive meeting honorariums and all directors are reimbursed for their travel expenses. Directors are also entitled to per diems when they are required to conduct business on behalf of the board.

The table below shows the structure of honorariums paid to the directors of the board. These rates have remained unchanged since they were established in 1998.

Board of directors’ retainer and honorariums

Annual retainer for the chair $15,000 per annum
Meeting honorarium $750 per diem
Meeting preparation honorarium Two days for chair @ $750 per day
1.5 days for committee chairs @ $750 per day
One day for directors @ $750 per day
Travel to meetings Up to two days (depending on origin and destination) per meeting @ $500 per day
Days on business honorarium $750 per diem (for events such as meetings on behalf of Canadian Blood Services)
Travel expenses Travel costs and per diems follow board travel policy

Executive management team compensation

Canadian Blood Services is founded on the principles of safety, openness and transparency — traits deeply rooted in our culture. The manner in which we compensate executives reflects these principles. As such, Canadian Blood Services has a comprehensive and rigorous executive performance management and compensation program, following best-practice principles in corporate governance.

Each year, the performance of members of the executive management team, including the CEO, is measured through the use of executive performance agreements. These agreements contain goals linked directly to achieving collective corporate performance goals, as well as specific and measurable individual goals. Performance against these goals is used to derive the specific calculations for either merit increases or performance awards.

The CEO’s performance is overseen by the Talent Management Committee of the board and validated by the full board of directors. Every two years, the Talent Management Committee commissions an independent study to gather comparative compensation data for the CEO and conducts a detailed review of the CEO’s performance against objectives. Every third year, the committee independently commissions outside expertise to lead a 360° performance review of the CEO. The committee’s review is validated by the full board, which ultimately decides whether to make any compensation adjustments.

Members of the executive management team are reviewed through a similar process. The CEO meets with all of the executive management team members, and reviews their performance based on the corporate performance indicators contained in their respective performance agreement. The CEO’s recommendations for compensation adjustments are presented to the Talent Management Committee of the board for approval and subsequent validation by the full board.

Components of the compensation program

The compensation program for executives comprises several elements, referred to as “total compensation.” Total compensation includes:

  • base salary
  • annual pay at risk
  • pension plan
  • benefits and perquisites

Canadian Blood Services aims to align our total compensation for executives with the market median for comparator groups.

Compensation also includes:

  • A $10,000 annual vehicle allowance, with the exception of the chief executive officer, who receives an annual allowance of $18,000.
  • Vacation entitlement: Year 1 – four weeks; Year 2 – five weeks; Year 3 – six weeks.
  • Severance terms: First year – 12 months; >1 year – 18 months.
  • Standard benefits package: Executive benefit package covering health, dental, life insurance, long-term disability, defined-benefit pension and health-care spending account.

ANALYSIS OF FINANCIAL RESULTS – FINANCIAL POSITION

* Before 2016–2017, cash amounts received from members in advance were included in total deferred and thus excluded from unreserved operating cash. Beginning in 2016–2017, cash amounts received from members in advance were not included in total deferred and thus are included in unreserved operating cash.

Canadian Blood Services’ liquidity is largely influenced by the timing of funds received from the provinces and territories, the volume of inventory held, foreign exchange fluctuations, increase in demand, the amount of deferred contributions and the number of large capital-intensive projects, such as those included in the National Facilities Redevelopment Program (NFRP). Running a national system, we are also exposed to varying payment terms on balances owed to and owed by Canadian Blood Services in each jurisdiction. The cash position has been steadily declining year over year from $180.4 million at March 31, 2014, to $103.4 million at March 31, 2017. The higher costs of plasma protein products, and the weakness of the Canadian dollar compared to the U.S. dollar, increased the provinces and territories’ receivables over the last few years (with a slight improvement in 2016–2017) and consequently reduced the cash position. During the current year, we experienced continued delays in the receipt of provincial funding, which strained our cash position and required that we access our line of credit and incur interest charges to support our operations.

The March 31, 2017, cash balance had declined from the prior year reflecting higher inventory balances and a shift in the timing of account payable payments, offset by lower members’ receivables and the receipt of members’ contributions relating to Phase IIa of the NFRP. Although the Province of Ontario’s receivable balance was down to $54.7 million at March 31, 2017, compared to $64.9 million at March 31, 2016, the balance remains high. Payments totalling $22.2 million were received through May 2017 from the Province of Ontario, bringing the balance owing to $32.5 million. We are working with Ontario officials to address the delayed payments and develop a solution to address this issue going forward.

After removing internally reserved cash balances for deferrals and non-pension post-employment/retirement benefit liabilities, the unreserved cash balance at March 31, 2017, amounted to -$3.1 million or approximately -1 day of cash on hand. While this is a slight improvement over the March 31, 2016, unreserved cash balance of -$10.9 million or approximately -4 days of cash on hand, cash continues to be an issue. In 2016–2017, we maintained a $24 million balance on our line of credit and incurred interest costs of $0.4 million. To mitigate our financial risks, we negotiated an increase in our available line of credit from $50 million to $100 million.

As of March 31, 2017, net working capital improved to $163 million from $131 million at March 31, 2016. Accounts receivable at March 31, 2017, decreased by $11 million primarily due to reductions in the balances owed by the provinces and territories. As previously discussed, the Province of Ontario’s balance improved from $64.9 million at March 31, 2016, to $54.7 million at March 31, 2017. Despite the improvement, receivables of this magnitude contribute to our weakening cash position.

Accounts payable at March 31, 2017, decreased by $22 million mainly due to the timing of payments at year-end.

Inventory at March 31, 2017, increased by $21 million. This increase was largely due to the continued growth of the plasma protein product inventory, which accounts for 82 per cent of the value of our inventory. Ig inventory consisted of higher levels of more expensive products and lower levels of the Ig product produced from plasma collected by Canadian Blood Services relative to March 31, 2016. Furthermore, we are carrying higher levels of factor VIII (FVIII) products as purchases were made to take advantage of significant volume discounts. The current forecast expects inventory levels to be normalized by the end of the second quarter of 2017–2018.

Captive insurance program – Investments and provision for future claims

Canadian Blood Services has two wholly owned captive insurance corporations: CBS Insurance Company Limited (CBSI) and Canadian Blood Services Captive Insurance Company. These captive insurance companies collectively provide Canadian Blood Services with comprehensive blood risk insurance covering losses up to $1 billion. CBSI also provides coverage to Canadian Blood Services for transit risks, consequential loss to blood inventory, certain contingent risks in the event of an emergency event related to the safety of the blood supply, and beginning in April 2017, cyber damage and expense.

Canadian Blood Services, through CBSI, engages an arm’s-length risk management consulting and catastrophe risk modelling expert, IRGM GLOBAL Risk Management Consultants Limited (IRGM GLOBAL), to conduct and update sophisticated and comprehensive exposure modelling in consultation with a Blue Ribbon Medical Panel (comprising foremost blood, blood disease, infectious disease, transfusion research, organ and tissue transplantation and health economics experts) and a Blue Ribbon Legal Panel (comprising foremost products liability, class action and blood system legal experts and an economic expert in the valuation of personal injury claims).

Between 1998 and 2003, provincial and territorial governments contributed $190 million toward the development of the captive programs. These funds have grown over the years, culminating in an investment balance of $441.4 million at March 31, 2017. The investments have increased by $27.7 million over the prior year, which is attributed to a return of 6.8 per cent on investments. Net investment income for the captive insurance corporations for 2016-2017 was $11.9 million compared to $14.2 million for 2015–2016, and unrealized gains were $17.0 million for 2016–2017 compared to a loss of $5.3 million for 2015–2016.

CBSI tracks premium net assets, which refers to the asset balance remaining after the deduction of reserves for blood risk liability policy, contingent risk indemnification policy, stock throughput policy, regulatory reserve and the market volatility reserve. At March 31, 2017, the premium net assets amounted to $86.9 million (March 31, 2016 – $66.4 million). The amount has gradually grown over the past years as the asset base continues to grow and there have been limited claims.

Canadian Blood Services records a reserve for the estimated future catastrophic and normal blood liability exposure for CBSI. At March 31, 2017, the provision for future claims was $250.0 million (March 31, 2016 – $250.0 million). This estimate is determined by an independent actuarial firm.

Capital assets

In recent years, we have been investing heavily in core infrastructure. Approved in 2008, the National Facilities Redevelopment Program (NFRP) is a comprehensive, strategic initiative to upgrade our facility infrastructure and operational resources to better meet the current and future needs of our business, customers and patients. The plan has been split into phases.

NFRP Phase I

The first phase of our redevelopment program was a $126 million investment in our production and distribution facilities in our South-Central Ontario and Atlantic regions. Construction of the new purpose-built production and testing facility in Brampton was substantially complete at year-end, and most operations were relocated from the outdated facilities in downtown Toronto to the new facility in May 2017. By the end of 2017-2018, all testing operations from downtown Toronto will be located at Brampton. As one-half of a two-site donor testing model, the new testing facility is vital to the overall safety and security of the national blood supply. Total spending related to the donor testing facility to March 31, 2017, amounted to $16.5 million, of which $8.2 million was incurred during 2016–2017. Building costs of $7.1 million were capitalized during 2016–2017.

NFRP Phase IIa

In 2011, Canadian Blood Services transitioned from an inefficient three-site donor testing model to a consolidated two-site model (Brampton and Calgary). The limitations of the current Calgary facility exposes Canadian Blood Services to risk in dealing with new and emerging threats. The Calgary facility has insufficient and inappropriate space for existing and new production and testing requirements and is also located in a flood plain. Canadian Blood Services felt the impact of this risk when the facility’s operations were disrupted in the 2013 Calgary flooding.

Phase IIa of the program includes construction of a new production facility in Calgary to house a testing laboratory; consolidation of blood production from Edmonton, Calgary and Regina; leasing new spaces; and selling existing buildings in Saskatoon and Regina.

The new Calgary facility is needed to provide long-term sustainability for redundant testing services between Calgary and Toronto. Funding for the project, to a maximum estimated project cost of $138.1 million, was approved at the October 2015 Annual General Meeting. During 2016–2017, capital expenditures included the purchase of land for NFRP Phase IIa in the amount of $8.9 million. Construction began in May 2017 and is currently in process.

Also as part of Phase IIa of the program, construction of two new clinics was completed in 2016–2017. This includes the Eau Claire Market site located in Calgary, which was completed in March 2017, and the construction of the Saskatoon site, which was completed in July 2016. The 2016–2017 capital expenditures associated with these sites amount to approximately $2.6 million.

Employee future benefits

Canadian Blood Services sponsors two defined benefit plans — one for employees and the other for executive employees. Canadian Blood Services also maintains a defined contribution pension plan and provides other retirement and post-employment benefits to eligible employees. The employee future benefits financial position is summarized below:

Canadian Blood Services’ independent actuary determines each plan’s net position for accounting purposes as at March 31 of each year. The net position fluctuates annually due to a combination of variables, including the discount rate, inflation rate, the expected average rate of salary increases, expected average remaining life expectancies, returns on plan assets and contributions. The decrease in the net liability by $12.2 million is due to decreases in the inflation and compensation rates reflecting the most recent actuarial valuation for accounting purposes.

Our independent actuary reviews the defined benefit pension plans’ funded position to inform the board of trustees responsible for the governance of the pension plans of exactly how these plans are doing. The actuarial funding valuation is performed every three years; however, for the defined benefit plan for employees, if the solvency ratio of assets to liabilities falls below 85%, an annual valuation could be required. Funding valuations for the defined benefit pension plan for employees and the pension plan for executives were completed as at Dec. 31, 2013 and Jan. 1, 2017, respectively. The valuations revealed that the pension plans were funded at 98 per cent and 99 per cent on a going concern basis, and 87 per cent and 83 per cent on a solvency basis. The Dec. 31, 2016 funding valuation for the defined benefit pension plan for employees is in progress.

Forward currency contracts

Canadian Blood Services enters into forward currency contracts to mitigate foreign exchange exposure on a substantial portion of our U.S. dollar purchases of plasma protein products. In December 2015, Canadian Blood Services entered into forward currency contracts with a notional value of US$350 million at an average exchange rate of 1.37. These contracts were recorded on the balance sheet at March 31, 2016, at fair value of $25.0 million, which represented the difference between the $1.37 and the spot rate of $1.33. During 2016–2017, those contracts matured and a loss of $20.9 million was realized. As all of these contracts matured during the year, no balance remains on the statement of financial position.

In November 2016, Canadian Blood Services entered into new forward currency contracts with a notional value of US$387 million at an average exchange rate of $1.34 to mitigate the foreign exchange risk on our purchases of plasma protein products in U.S. dollars. The contracts have been segregated into two tranches as follows:

  1. Canadian Blood Services designated US$270.9 million or 70 per cent of forecasted purchases of plasma protein products as being in a hedging relationship with the equivalent amount of forward currency contracts maturing at the same time. We have elected to apply hedge accounting to these forward currency contracts, and as such, these forward currency contracts are not recognized on the consolidated statement of financial position at year-end. A gain or loss will, however, be recognized in the consolidated statement of operations when realized. The fair value of these contracts at March 31, 2017, amounted to a liability of $3.8 million.
  2. The remaining U.S. dollar forward currency contracts were not designated as hedges of anticipated transactions and, accordingly, hedge accounting is not being applied. At March 31, 2017, the fair value of these forward currency contracts amounted to a liability of $1.6 million, which is recorded in the consolidated statement of financial position. The decrease from the $25.0 million liability in the prior year to $1.6 million in 2016–2017 reflects a smaller differential between the average contracts rate at the rate at year-end and the application of hedge accounting on 70 per cent of the contracts outstanding.

ANALYSIS OF FINANCIAL RESULTS – OPERATIONS

Total consolidated costs

Plasma protein products represent our largest cost, at 55 per cent of our 2016–2017 operating budget. Key variables impacting these costs are product utilization, product mix, the per-unit cost of the products and foreign exchange. Staff costs incurred to deliver our products and services are our second largest cost. Our remaining costs are for general and administrative expenses, depreciation, and medical supplies, which include supplies such as blood bags used in collections. A detailed discussion of the expenses by product line will follow.

In 2016–2017, our board recommended to corporate members to approve the use of $3.2 million of savings–achieved over the budgeted funding realized through efficiencies–to help offset the cost of plasma protein products to members. These savings were returned to corporate members. When combined with the $12.7 million from the last three years, Canadian Blood Services has provided $15.9 million to offset the increased utilization and costs of plasma protein products.

The change in cumulative fair value of foreign currency contracts of $23.4 million reflects the $25.0 million reversal of unrealized loss on the forward contracts outstanding at March 31, 2016, which matured in 2016–2017 net of an unrealized loss of $1.6 million on the forward contracts, not designated as hedges, outstanding at March 31, 2017.

The change in the fair value of investments measured at fair value of $17.0 million represents the increase in the unrealized gains on the investments held in the captive insurance programs during 2016–2017.

Productivity and efficiency journey

We continue our productivity and efficiency journey, which has focused on bending the cost curve since 2008, through process improvement, lean methods, consolidation, organizational redesign, technology and successful procurement practices. The focus of this efficiency journey is reducing the cost of the fresh blood program as well as the plasma protein program through procurement savings. This section discusses the productivity and efficiency journey as it relates to the fresh blood program. Savings to date have generated surpluses that have been used to offset increases in the utilization of plasma protein products and incremental costs. Our national health-care product and service delivery model ensures cost effectiveness and contributes to benefit the overall national health services delivery model. When comparing the actual results in the current year compared to the prior year, approximately $9.9 million of cost savings and cost avoidance efficiencies were achieved through various improvements, including implementation of the Automated Supply Chain (ASC) project, a movement to focus resources on sites with higher productivity and higher bed turn, negotiations with vendors in attaining Microsoft charitable status and improved telecom rates, improvements in the large-volume platelet split resulting in lower medical supply costs, and reductions in full-time equivalent (FTE) positions and discretionary spending.

The effectiveness of our productivity and cost management gains are demonstrated using the cost per unit (CPU) shipped and labour hours per unit (LHU), macro-level productivity metrics. CPU is the ratio of total expenses to shipments of all fresh blood products. The CPU links the inputs and outputs of the activities associated with fresh blood products. The inputs are staff costs, costs for medical supplies, general and administrative expenses and the amortization of capital assets. The outputs are the shipments of fresh blood products. LHU is the ratio of total labour hours to collections of all fresh blood products. This ratio is an integrated measure of our performance for the supply chain and support services. The supply chain comprises our costs incurred in demand planning, recruitment, collection, testing, manufacturing and distribution. Collections include the collections of all equivalent units and are categorized into three groups: whole blood collections, platelet collections and plasma collections.

The productivity gains achieved since 2010–2011 have resulted in a cumulative CPU increase of only $7 per unit (2.1 per cent) over the last six years compared to the estimated increase of $34 per unit (10 per cent), had the cost per unit shipped tracked to general inflationary increases. Similarly, LHU has steadily improved in recent years, except for a slight increase in 2015–2016 reflecting a lower level of collections. This demonstrates our ongoing commitment to deliver a cost–effective national health–care system.

Core fresh blood products cost per unit compared to inflation Using 2010–2011 as base

Labour hours per unit

In support of our objective to achieve $100 million in efficiencies, using 2012–2013 as a baseline, Canadian Blood Services is leveraging extensive benchmarking and operational process-sharing with leading international blood operators to support productivity planning and realization measurement. To date we have achieved $38 million of productivity efficiencies from initiatives including automating the supply chain and digitizing donor booking, renegotiating blood bag and platelet pack pricing and increasing the number of large-volume platelet collections amongst other organizational redesigns. To achieve the remaining $62 million in efficiencies, we have identified specific initiatives to generate a further $35 million in efficiencies and are actively pursuing an additional $27 million in efficiencies that will increase productivity and drive costs down. However, investment is required to drive further efficiencies, and the investment source has not yet been identified.

By delivering on major efficiency projects in the integrated supply chain, we reduced our CPU from $350 in 2015–2016 to $348 in 2016–2017. Although productivity efficiencies were achieved, decrease in demand was a key factor in not meeting our target of $346.

We met our target of $6.42 for LHU in 2016–2017, which represents a significant improvement over the LHU of 2015–2016 of $6.78. This was achieved primarily due to collection efficiencies realized with the implementation of the ASC project and efficiencies in donor relations.

To plan and measure progress, Canadian Blood Services has focused on four key productivity measures that span the donor recruitment and supply chain functions, which consume approximately 60 per cent of the budget for fresh blood products. These measures are:

Across each of these measures, Canadian Blood Services has shown annual increases in productivity. This progress is demonstrated in the following chart:

Fresh blood products

Canadian Blood Services manufactures and delivers fresh blood products derived from whole blood and apheresis collections. The activities required to supply these products include demand planning, recruitment, collection, testing, manufacturing and distribution, and support activities.

Total member contributions for fresh blood products,
excluding NFRP In millions of dollars

Our past productivity results demonstrate our commitment to bending the cost curve, and we have been able to deliver a flat or declining fresh blood products budget over the last seven years. Funding notably declined from a high of $466.9 million in 2012–2013 to $447.4 million in 2016–2017, and is budgeted to decrease to $418.4 after the plasma for fractionation price transfer in 2017–2018. The 2017–2018 funding includes a price transfer for plasma for fractionation of $26.4 million from fresh blood products to plasma protein products. This transfer represents certain costs of collecting plasma shipped for fractionation, including recovered plasma, source plasma and cryosupernatant plasma. These costs have historically remained under fresh blood products. If this transfer had not incurred, funding would have decreased to $444.8 million — a decrease of 0.7 per cent.

Demand for red blood cells, platelets and plasma and the associated number of whole blood collections have the greatest influence on activities associated with fresh blood products. The main factors affecting costs are labour and materials needed to recruit donors and collect, produce, test and ship each unit of product. Staff costs and medical supplies account for 74 percent of the costs of fresh blood products. Additional expenses, such as fuel, utilities, information technology, facilities and support functions, also influence these costs.

Costs: Fresh blood products

The costs of fresh blood products increased by $2.2 million from the prior year due to increased staff costs of $6.8 million, partially offset by decreases in medical supplies, depreciation and amortization, and general and administrative expenses totalling $4.9 million.

The increase in staff costs reflects a $10.3 million reversal of a termination benefits accrual during 2015–2016. The reversal in 2015–2016 was necessary as these costs were not incurred as anticipated due to voluntary attrition, reassignments and project delays. There were no significant reversals of termination benefits accruals during 2016–2017. The reversal of the $10.3 million accrual lowered staff costs in 2015–2016 by $10.3 million. If the reversal had not occurred, the 2016–2017 staff costs would have been $3.5 million lower than the 2015–2016 staff costs. These savings were achieved in the integrated supply chain due to the restructuring of the donor relations recruitment function and fewer labour hours required in the collection process due to the full implementation of the ASC project. The total number of full-time equivalent positions decreased by approximately 160, which reflects attrition, vacancies and additional cost savings and avoidance measures taken as part of the productivity journey.

General and administrative expenses decreased primarily from lower ASC costs as the project was fully implemented during 2016–2017. In the previous fiscal year, higher professional fees and equipment costs were incurred. These costs were partially offset by incremental advertising costs incurred to add 12,000 whole blood units to rebuild inventory before the implementation of the ASC project.

Demand and collections: Fresh blood products

Although demand for red blood cell units has decreased by 0.7 per cent during 2016–2017, collections of whole blood units increased by 0.2 per cent. The inventory of red blood cell units has been below optimal levels recently. The additional collections will help mitigate the risk of a shortage. This trend is expected to continue into 2017–2018.

Based on current modelling, the demand for red blood cells is forecasted to decrease in 2017–2018 and then plateau.

Whole blood collections, red blood cell shipments and discard rate

Uncertainty in demand has made forecasting more challenging as we try to accurately project collection and shipment needs for future years. Uncertainty in demand forecasting impedes us from meeting our financial and efficiency targets, such as CPU and LHU, and could mean that we have insufficient inventory. We need to book blood donation events and schedule staff months in advance, and it is difficult to change our plan once the demand targets are established.

With a continued focus on reducing the discard rate, we reduced this rate by 0.5 per cent relative to 2015–2016. This decrease results in fewer collections needed to meet demand. Although discard rates will never be zero — some products must be discarded during the supply chain process due to a variety of factors — continuing to lower discard rates remains a priority. Our discard management efforts include metrics development, performance reporting and management discussions focused on the largest contributors to discards, including low-weight and underweight collections and red cell expiry.

Platelets

Platelet shipments include platelets collected through apheresis procedures and those derived from whole blood collections using the pooled production method. Demand for platelets increased by 3.2 per cent compared to 2015–2016, returning to the levels of 2011–2012. With the continued expansion of cardiac and oncology services, demand for platelets is expected to increase in the coming years.

Platelets derived from apheresis are often preferred to treat sensitized patients. These platelet doses are sourced from a single donor, which enables more precise matching and avoids exposure to multiple donors. Platelets derived from apheresis, however, are much more expensive to collect than those manufactured through pooled production.

Through platelet apheresis technology, we can collect a single dose or, if the donor qualifies, a large-volume platelet (LVP) dose. An LVP dose is twice the volume of a single collection, which means that increasing the proportion of LVP collections reduces the required number of donations. The LVP split rate for this year increased from 73 to 82 per cent, which increased productivity.

Moving forward, the increases in demand are expected to be offset by anticipated reductions in platelet discard rates both at Canadian Blood Services and the hospitals we serve. We continue to work toward reducing the discard rate. Discards are costly to the health-care system, are not respectful of the donor’s gift, and have historically caused an over-reliance on more costly apheresis collection. Product discard rates are currently at high levels. The short shelf life of platelets is the primary cause, and management is committed to finding an effective solution.

Introduced during 2016––2017, our platelet program is a multi-year efficiency effort targeting costs pertaining to platelet provision and inventory management. The platelet program will include a variety of initiatives, from the introduction of extended shelf life platelets from five to seven days, to improvements in testing, production — including shifting from apheresis to buffy coat platelets — distribution and redistribution. The plan includes shifting the proportion of platelet doses increasingly toward pooled, buffy coat platelets, reducing the need to collect platelets by apheresis. All of these initiatives are expected to significantly decrease our discard rates.

Plasma protein products

Plasma can be manufactured from whole blood or apheresis collections. It can either be transfused, used to make platelets derived from pooled production or diverted to our commercial fractionators for further manufacturing into what is often referred to as plasma protein products. While many products do come from human plasma to treat various conditions, we also carry alternative recombinant product versions of these same drugs. These are manufactured using genetically engineered cell lines to get the equivalent proteins for treatments.

The two major plasma protein product lines are immune globulin (Ig) which is used to treat patients with primary and secondary immunodeficiency states, autoimmune diseases, neurological diseases, hematological diseases and infections, and FVIII, which is used to treat and prevent bleeding in patients with either an acquired or congenital FVIII deficiency.

Plasma for fractionation collection plan

In January 2017, Canadian Blood Services presented federal, provincial and territorial ministers of health with a plan for securing a sufficient supply of Canadian plasma to manufacture Ig for patients in Canada. Although Canada is self-sufficient in plasma used for transfusion, we only collect enough plasma for fractionation to meet about 15 per cent of the demand for Ig. We meet the remainder of our Ig needs by purchasing finished drugs from international pharmaceutical companies (largely from the U.S.).

The following graph shows our Canadian-sourced plasma for fractionation shipments in recent years.

Canadian plasma shipments for fractionation by source

Cost breakdown of the plasma protein products program In thousands of dollars

The cost of the plasma protein products program represents approximately57 per cent of Canadian Blood Services’ operating budget. The drivers that influence the cost include:

  • product utilization
  • product mix
  • contractual product unit price
  • prevailing exchange rate between the Canadian and U.S. dollars (approximately 70 per cent of all products are purchased in U.S. dollars)
  • program administration and distribution costs

Patterns in product demand vary substantially and this variability adds significant pressure to funding these products. Savings obtained through favourable price renegotiations have been offset by increases in utilization and increases in foreign exchange rates.

Growth in utilization, product mix shifts to more expensive products and foreign exchange losses are the main contributors to the increase in program costs.

Product utilization

Demand for plasma protein products has grown consistently for many years in Canada. The following chart shows the relative growth in utilization by health systems, using fiscal year 2009–2010 as the base year. Over this period, utilization of Ig has increased by 165 per cent, and utilization of recombinant factor VIII (rFVIII) has increased by 145 per cent. Together, Ig and rFVIII consume more than 60 per cent of the budget for plasma protein products. Utilization of C1 Berinert esterase inhibitor, a newer product, has increased by almost 1,000 per cent — 31.4 per cent in the current year — and the associated costs now consume close to 10 per cent of the plasma protein products budget. It is clear from this trending that utilization continues to increase at unsustainable levels and is an ongoing material contributor to increases in the overall budget.

In 2016–2017, the cost of the plasma protein products program increased by $85.1 million. This increase was primarily due to the increases in Ig, C1 esterase and rFVIIa utilization, as well as an unexpected uptake in the extended half-life coagulation factor products, which were newly listed on the formulary in 2016–2017. Increased issues of a more expensive Ig product over a less expensive product have also increased costs.

Contractual product unit price

Canadian Blood Services practises value-based procurement. This approach has been a cornerstone of our productivity journey and is in lockstep with recent research by the Conference Board of Canada stating that “value-based procurement is a major policy initiative that is garnering attention domestically and around the world. Procurement can be one of the most powerful resources available to hospitals and other health care venues for management of their limited resources. Through strategic implementation and best practices, value-based procurement can improve quality, safety and outcomes without driving up costs.”

Our portfolio of plasma protein products is managed through public tendering and bulk purchasing. This approach allows Canadian Blood Services to leverage our pan-Canadian buying power to help create a competitive market and ultimately achieve the best price for our members with products available for distribution nationally. Our expertise in transfusion medicine and contact with stakeholder groups enables us to determine which new products might be best for Canadian patients and when to procure them to optimize overall costs to the program and ensure security of supply.

In recent years, by successfully managing the procurement process, and where a competitive market exists, Canadian Blood Services has diversified product offerings while obtaining favourable pricing. The success of our procurement process has and will continue to save the health-care system millions of dollars. Historically, these cost savings had kept the cost of plasma protein products stable despite increasing utilization; however, over the past few years, increased utilization has outpaced these cost savings, resulting in significant increases in program costs.

The chart below demonstrates how we have managed to reduce and avoid costs as a result of successful procurement processes, excluding the impact of foreign exchange.

Despite the weakening Canadian dollar in recent years, we have held prices to, or at levels below, those paid in 2009–2010 on a relative basis for two of our major products. This is demonstrated in the chart below.

After the successes highlighted, Canadian Blood Services has in 2017–2018 again gone to the market, through a competitive procurement process, for all of our categories of plasma protein products and fractionation services. This procurement process is expected to be completed in the fall of 2017.

Foreign exchange

We purchase most of our plasma protein products in U.S. dollars, and therefore are subject to fluctuations in the foreign exchange rate. We have a formal foreign currency policy in place to mitigate, to the extent possible, exposure to fluctuations in foreign exchange rates. To execute this policy, we enter into forward currency contracts, and when necessary, we purchase U.S. dollars at the spot rate. During the last contract negotiations for FVIII and IX products, we fixed our contracts in Canadian dollars instead of U.S. dollars, eliminating foreign exchange risk.

Exchange rates have been very volatile in recent years, dipping to a low of 1.25 and reaching a high of 1.36 during 2016–2017. We entered into foreign currency hedges in 2015–2016 at the rate of 1.37 for the fiscal year 2016–2017. Actual rates during the year were 1.31, which resulted in a foreign currency loss of $20.7 million.

Stem cells

Canadian Blood Services’ Stem Cell program delivers biological products and key clinical services to enable stem cell transplantation for Canadian and international patients. Specifically, the program provides a fully integrated stem cell offering, which includes:

  • Canadian Blood Services’ Cord Blood Bank and stem cell manufacturing.
  • A robust national registry of adult donors, through the OneMatch Stem Cell and Marrow Network (OneMatch).
  • Human leukocyte antigen (HLA) typing services, through the HLA laboratory.

Through OneMatch, Canadian Blood Services coordinates the search for stem cells on behalf of all Canadian patients (except those in Quebec) who require stem cell transplants from unrelated donors. We manage all logistics related to collection and ensure stem cell products are transported to Canadian and international registries. Stem cells may be sourced from bone marrow, from peripheral blood of healthy adults or from umbilical cord blood. All three products are used in transplants for Canadian patients.

Services provided through OneMatch include:

Coordination of searches on behalf of Canadian patients requiring an unrelated stem cell donor/cord blood unit
Support to Canadian transplant centres in the search for the optimal donor/cord blood unit
Assessment of medical eligibility of Canadian adult donors
Coordination of the collection and transport of stem cell products
HLA typing services, including the initial screening testing, as well as any follow-up and verification testing necessary

As with fresh blood products, demand for stem cell products is volatile and uncertain. But in the case of stem cells, the uncertainty is more focused on rate of growth in demand and the source of products, be it from cord blood, peripheral blood or bone marrow. We work closely with transplant centres and physicians to better understand trends and changes in practice and to ensure we are recruiting the right donors to optimize the likelihood of finding matches for patients.

At the end of the 2016–2017 fiscal year, the OneMatch registry had grown to nearly 410,000 registrants. The registry continues to benefit from changes made to the recruitment criteria in July 2013. Specifically, by restricting the upper age threshold for new registrants to join the registry to 35 years of age, the registry has become “younger,” with 40 per cent of registrants now under the age of 36. In 2016–2017, Canadian Blood Services facilitated over 317 stem cell transplants in Canada from unrelated donors through OneMatch.

During 2016–2017, we shipped four cord blood units to three Canadian recipients and one international recipient. Two more cord blood units were distributed after to year end. Canadian Blood Services’ Cord Blood Bank is one of the highest quality banks in the world, and reflects the ethnically diverse background of our population.

The total costs of the Stem Cell program remained comparable to the prior year. Despite a year-over-year increase in the number of international donor–Canadian patient searches of 535, we were able to keep costs stable due to savings in the cost per search.

Diagnostic services

Canadian Blood Services provides diagnostic services for patients and hospitals across Western Canada and in some parts of Ontario. Services include prenatal testing, patient reference red blood cell serology (antibody investigations), human platelet antigen (HPA) testing and pre-transfusion and compatibility testing.

Program costs for diagnostic services have increased slightly. This increase reflects the higher number of red cell serology tests, which has increased by 2.6 per cent or 11,355 tests, and the higher number of platelet immunology tests, which has increased by 21.5 per cent or 472 tests.

Organs and tissues

Canadian Blood Services promotes leading practices and is actively involved in raising awareness and education levels regarding organ and tissue donation and transplantation. We maintain patient registries and help save and improve lives by working closely with the organ and tissue donation and transplantation community.

Since the launch of the Kidney Paired Donation program in 2008, 500 kidney transplants have taken place. Collaboration between the provinces, as well as technology, leveraged through the Canadian Transplant Registry, is increasing access to kidney transplantations for Canadians. In addition, we facilitated 320 transplants between April 2016 and year-end for highly sensitized patients as part of the Highly Sensitized Patient Kidney program.

The organs and tissues program also includes the National Organ Waitlist, a real-time, online national listing of patients waiting for a heart, lung, liver, pancreas, small bowel and multi-organ transplants. As of Dec. 31, 2015 (latest figure available), there were 4,631 people on organ transplant wait-lists across Canada.

FUNDRAISING

This past year, Canadian Blood Services laid the foundation for enhanced programs that will see an incremental increase in revenue over the next five years. In line with our enterprise-wide shift to digital, we acquired and installed fundraising modules that will ease the ability for financial donors to give online and to engage in peer-to-peer fundraising through third-party events. The modules also enable e-solicitation and ensure a more robust stewardship program through strategic electronic mailings to financial donors.

We also saw a newly forged multi-year financial partnership with Toyota and its dealers that will engage the dealer network to increase awareness of the constant need for blood and blood products. The financial gift will also be used to help improve efficiencies.

Total cash donations received for the year ending March 31, 2017, were $1.5 million compared to $2.8 million in 2015–2016. This decrease reflects the completion of a large number of pledges to the Campaign For All Canadians.

Canadian Blood Services appreciates the support from financial donors that in part helps to fund programs and initiatives in four focus areas: blood, stem cells (including the cord blood bank), organs and tissues, and research and innovation.

ENTERPRISE RISK MANAGEMENT PROGRAM

Canadian Blood Services continues to mature its Enterprise Risk Management program by advancing our understanding and management of enterprise risk. We have effectively integrated the program within our strategic planning process and continue to enhance our integration points with our other strategy management, performance reporting and execution processes. We continue to report to the board of directors with clear, concise and actionable information on key risks. The program also now provides oversight for the business continuity management program. These changes, along with our existing processes, will allow us to proactively manage risk and business disruptions to improve performance and achieve corporate objectives.

RISK-BASED DECISION-MAKING FRAMEWORK FOR BLOOD SAFETY

The Alliance of Blood Operators’ Risk-Based Decision-Making Framework (RBDM) for blood safety was developed with leadership from Canadian Blood Services’ Centre for Innovation. Designed to help blood operators optimize their decision-making on blood safety, the framework has been used to make many decisions around various aspects of blood collection, including donor eligibility, risk mitigation and testing protocols.

Canadian Blood Services has applied the framework in the development of a proactive approach to the emerging risk of babesia in Canada, as well as to the questions of proportionality of current measures to reduce the risk of cytomegalovirus (CMV) and the risk tolerability of a narrower testing strategy. The RBDM framework also characterized anticipated risks to the security of the plasma supply needed to manufacture Ig for Canadian patients, and to evaluate available risk management options according to many factors, including cost and health outcomes. The framework was also used in the subsequent development of Canadian Blood Services’ business plan to ensure a secure plasma supply for Ig.

Other blood operators are using the RBDM framework to make decisions regarding human T-lymphotropic virus (HTLV) testing, pathogen inactivation, donor deferral requirements, donor iron and Zika testing. While blood operators have been the most frequent users of the framework, policy-making and regulatory bodies have also shown interest and support for the RBDM approach. The U.S. Food and Drug Administration and the World Health Organization have each requested presentations on RBDM.

While the full impact of the introduction of the framework in the blood sector is yet unknown, it is currently enabling blood operators and others to develop proportional risk responses through a transparent, consistent approach.