Amphiphilic biopolymers such as hydrophobically modified chitosan (hmC) have been shown to convert liquid blood into elastic gels. This interesting property could make hmC useful as a hemostatic agent in treating severe bleeding. The mechanism for blood gelling by hmC is believed to involve polymer-cell self-assembly, i.e., insertion of hydrophobic side chains from the polymer into the lipid bilayers of blood cells, thereby creating a network of cells bridged by hmC. Here, we probe the above mechanism by studying dilute mixtures of blood cells and hmC in situ using optical microscopy. Our results show that the presence of hydrophobic side chains on hmC induces significant clustering of blood cells. The extent of clustering is quantified from the images in terms of the area occupied by the 10 largest clusters. Clustering increases as the fraction of hydrophobic side chains increases; conversely, clustering is negligible in the case of the parent chitosan that lacks hydrophobes. Moreover, the longer the hydrophobic side chains, the greater the clustering (i.e., C-12 > C-10 > C-8 > C-6). Clustering is negligible at low hmC concentrations but becomes substantial above a certain threshold. Finally, clustering due to hmC can be reversed by adding the supramolecule alpha-cyclodextrin, which is known to capture hydrophobes in its binding pocket. Overall, the results from this work are broadly consistent with the earlier mechanism, albeit with a few modifications.