Health Advances Create Tissue Trade

Like a gallon of gasoline, the price of a human leg is all about supply and demand.

And it's a seller's market.

"There's a lot of money to be made on corpses," said Joshua Slocum, executive director of the nonprofit Funeral Consumers Alliance.

Over the past two decades, the tissue industry has exploded into a billion-dollar business, creating a huge demand for ligaments, tendons, bones and other valuable body parts.

But there are simply not enough bodies as companies try to keep pace with an increasing number of procedures that use allografts, or cadaver tissue.

"We are growing quite fast," said James Forsell, president of the American Association of Tissue Banks and vice president of Tissue Banks International Inc. "We're growing because of the need."

The tissue trade is complicated by a long-standing law that forbids the buying and selling of body parts. The law, however, hasn't stopped people from doing just that every day.

Here's how it works. Companies charge fees or "reasonable payments associated with the removal, transportation, implantation, processing, preservation, quality control and storage of a human organ," according to the National Organ Transplant Act of 1984.

But these fees are illusory, argues Michele Goodwin, author of "Black Markets: The Supply and Demand of Body Parts."

"There's such a markup that they're really much more like a payment, not a nominal fee," she said. "We are talking about business operations that have strict pecuniary interests."

Money is being made hand (which goes for $350 to $850) over foot ($200 to $400 each), according to the new book "Body Brokers" by Annie Cheney.

Executives are earning generous salaries, and the companies for which they work are generating huge revenues thanks to advances in modern medicine that can transform tissue into a variety of implants such as a skin graft or bone chip.

But this is an industry unlike others, comprised of a hodgepodge of players, all of them angling to get tissue from the 20,000 people who donate their bodies a year.

On one side of the industry sits for-profit companies that process the tissue. On the other, competing nonprofits such as tissue banks that make up the backbone of the industry.

Tutogen Medical Inc., CryoLife Inc., LifeCell Corp., Regeneration Technologies Inc. and Osteotech Inc. are among a handful of for-profit companies that dominate the tissue landscape and are publicly traded.

The companies generated more than $363 million in revenues in 2005, and have vast tissue-bank networks that provide cadaver tissue to feed their booming businesses.

Revenues for LifeCell, for instance, grew 55 percent in 2005. And in the first financial quarter of 2006, earnings more than doubled for LifeCell, a New Jersey company that markets a popular product called AlloDerm for plastic reconstructive, general surgical and burn applications.

But these companies have to battle to keep pace with their rival nonprofits — the ones that claim an altruistic mission.

Four of the largest nonprofits, LifeLink Foundation Inc., LifeNet Inc., AlloSource and Musculoskeletal Transplant Foundation Inc., generated about $442 million in revenue in 2004, according to their latest tax returns available to the public.

Raj Denhoy, a medical device analyst with Piper Jaffray & Co., said there's very little difference between these highly competitive operations other than their tax structure.

"The companies are all run very similarly," Denhoy said. "It isn't as if the people in these companies aren't making a good living."

Tax forms show that Denhoy is right.

Two dozen employees at MTF, AlloSource and LifeNet made more than $5.4 million combined in 2004 — slightly more than the FDA tissue budget for last year.

The top seven MTF employees earned a combined total of $2.3 million in 2004, an average of $329,136 per year.

In 2004, Bruce W. Stroever, MTF's chief executive, earned more than $542,000 in total compensation — 13.5 percent more than the head of the nearly 10-times-larger American Red Cross.

Last year, the nationwide average compensation for a chief executive working at a health nonprofit was $157,487.

Stroever would not comment but Doug Wilson, LifeNet's senior vice president of marketing, defended the salaries of the people running the nonprofits.

"What we're doing here is a combination of art and science and we need talented leaders to run the organization," said Wilson, who earned nearly $210,000 in 2004.

Wilson added that LifeNet, located in Virginia Beach, Va., and the other companies provide important products to sick people, a necessary and vital service.

There's nothing underhanded or shady about the industry's major operators, Wilson said, and the majority of tissue banks and processors have stellar records.

"This isn't snake oil," Wilson said. "These are items doctors need."

Goodwin, who's also director of the Health Law Institute and the Center for the Study of Race and Bioethics at DePaul University College of Law, says marketplace dynamics have spurred a race to find suitable donors, and that can lead to trouble.

Last year, a New Jersey firm called Biomedical Tissue Services was accused of plundering corpses and selling the parts without donor permission.

BTS helped fill the tissue gap, providing more than 13,000 pieces of tissue to Blood and Tissue Center of Central Texas, LifeCell, Regeneration, Tutogen and a small operator called Lost Mountain Tissue Bank in Georgia.

"There is always a need for additional donors to meet demand and this was a potential source," said Marshall Cothran, chief executive of Central Texas in Austin, who said the majority of his business comes from blood services.

Cothran added that Central Texas stopped processing tissue last year. Now, his firm only recovers it.

"That's coincidental," he said. "That was a business decision. Our volumes were too small to justify the fixed costs."

BTS has cast a dark shadow over the tissue trade but Goodwin says the case isn't surprising. She believes there are many more instances of people illegally carving up bodies to fuel a booming trade.

It's supply and demand, she said.

"That is how this industry works," she said. "It's like needing coal to keep the furnaces going but nobody is asking where the coal is coming from."
By Adam Goldman and Seth Borenstein