Hydrophobically modified (hm) derivatives of biopolymers such as chitosan have been shown to convert liquid blood into an elastic gel. This interesting material property could make hm-chitosan (hmC) useful as a hemostatic agent in treating severe bleeding. In this work, we attempted to probe the mechanism of action of hmC by studies on mixtures of blood cells and hmC using optical microscopy. Our results show that the presence of hydrophobic tails on hmC induces significant clustering of blood cells. We show that clustering increases as the fraction of hydrophobic tails on hmC increases, length of the hydrophobic tails increases, and as concentration of hmC increases. Finally, clustering due to hmC could be reversed by the addition of the supramolecule a-cyclodextrin, which is known to capture hydrophobes in its binding pocket. The results from this work support the earlier mechanism, with a few important modifications.