73 Pages Posted: 22 Jun 2006
This article examines the legal regime the regulates human tissue transplantation and the billion dollar industry that exists to recover and process such tissues (e.g., bone, skin, and heart valves) for therapeutic implantation into living persons. This industry is driven by an uneasy combination of selflessness and self-interest. It obtains its basic inputs from altruistic individuals who donate cadaveric tissue to nonprofit organizations known as tissue banks. These entities then transfer raw tissue to entities that process it into implantable material called allografts. Many of these processors are for-profit businesses that earn significant revenues from their activities.
Some people are troubled by the fact that for-profit firms can enrich their owners by processing donated tissue and distributing allografts. This article argues that in theory, there is nothing improper or illegal about this activity. The National Organ Transplant Act of 1984 (NOTA) - the statutory charter of the United States's transplantation system - bans the sale of body parts for use in transplantation. At the same time, NOTA permits "reasonable payments" associated with the recovery, processing, storage, transportation, and distribution of tissues and allografts. In economic terms, the article explains, reasonable payments enable an intermediary to recoup its actual expenses and earn "normal" profits - that is, the returns it would have earned had it invested in a comparably risky venture. When intermediaries earn no more than normal profits, they are rewarded for adding value to tissue, but are not paid for the tissue itself.
In practice, NOTA is flawed in design and execution. Although NOTA prohibits the transfer of donated tissue for valuable consideration, it does not - indeed cannot - erase the economic value of cadaveric tissue. This value arises from the willingness and ability of some people to pay for allografts. Because the markets for donated tissue and allografts are imperfectly competitive (e.g., some processors have greater access to raw tissues) some intermediaries can capture the tissue's value for themselves, instead of passing this value on to the allografts ultimate recipients. This result is inevitable because public authorities do not enforce NOTA. Moreover, NOTA's economic premises are undercut insofar as intellectual property law lets processors to earn monopolistic rents from patented technology.
The most pressing normative question for the tissue industry is not whether cadaveric tissue should be sold, but who should capture its value. The Article considers several possibilities: (a) NOTA should be enforced (e.g., through rate regulation and price controls) to ensure that intermediaries earn no more than normal profits and that recipients capture the tissue's value; (b) NOTA should be revoked, thereby permitting a free market in tissue and allografts and enabling the suppliers of raw tissue to capture its value; (c) NOTA should be amended to permit nonprofit tissue banks to sell donated tissue to for-profit processors, and then apply the monetized value of donated tissue to charitable ends; and (d) the status quo should be preserved, which incentivizes intermediaries to maximize the social value of donated tissue. Charity law (i.e., the law of nonprofit and tax-exempt charitable organizations) favors the third option, but this may not yield the greatest good for the greatest number.
Keywords: tissue, transplantation, National Organ Transplant Act, NOTA, private benefit doctrine
JEL Classification: L3, L31, L33, I11, I18, I1
Suggested Citation: Suggested Citation
Katz, Robert A., The Re-Gift of Life: Can Charity Law Prevent For-Profit Firms from Exploiting Donated Tissue and Nonprofit Tissue Banks?. DePaul Law Review, Vol. 55, No. 3, pp. 943-1015, 2006. Available at SSRN: https://ssrn.com/abstract=892065