I saw a documentary about fake psychic tumor operations. They use what I think is the same technique blane used in that heart trick.
Where he looks like he's sticking his hand in his chest, he's actually just bending his fingers, and he's practiced it enough so he does it in a motion that looks like it's penetrating. Combine that with a fake blood sac or two in his hand or shirt that he punctures and the fake heart, and there you go.
As for the "psychics", what they would do is people would come in with some health problem, anything. No matter what it was, the psychics would convince the patient it was due to a cancerous tumor in his chest, and would schedule "psychic surgury".
During the operation, the patient would be fully conscious, and family members would watch the operation from a side view, in a room a little bit ways away through some glass.
The patient would be laid down and forced to look at the ceiling and never allowed to actually see what was happening. The family, viewing from the side, has a limited view of the action... but enough to convince them it's legit.
The operator uses the same technique blane uses to look like he's pushing his hand inside himself, that I described above. To the patient, it FEELS like the person is reaching in. The operator holds a fake blood sac which he bursts, so when he "withdraws" his hand it's covered in "blood". And of course the spectators see all this.
Also in the operators hand are a couple small pieces of raw bacon. When he withdraws his hand, he hides the blood sac and drops the "blood" covered bacon (which they call the tumor) in a small bowl of water for the patient to take home as a souvineer.
He repeats this serveral times and then, when it's all over, he wipes up the fake blood, and the astonished patient can't find an incision or anything. He takes home his bacon/tumors and happily pays whatever fee the "psychics" request.
I saw this on the history channel or something. It was fun to watch how they did it.
Oh, and in HL2 there is supposedly an NPC in the Black Mesa East level who looks like Blane. You only see him for a couple seconds. If you noclip and follow him, he walks around a corner and then levitates off the ground.
It was in an article on hlfallout.com. They had a couple screenshots too, I'll have to see if I can find him.