"It was a politically wise move," said Donna Nowakowski, senior director for quality management at the Illinois Hospital Association, which received a solicitation letter. "If they don't get the support of state associations, they'll have difficulty getting hospitals."
At deadline, no association has become a quality partner, and only one organization has signed up: Premier Health Alliance in Westchester, Ill.
Payers say no. As the JCAHOfastidiously drew out its four-year indicator project to eight years and running, the world changed. It went from one that trusted hospitals and physicians to internally combat poor-quality care to one that demanded accountability and proof that providers were doing a good job for the users of the system.
JCAHO leaders decided that in order for its accreditation process and internally designed indicator system to succeed, the two pieces also had to meet the external data demands of the public, business and payers.
The October 1993 AHA memorandum noted the change to the American public being the primary customer of the JCAHO, and, to meet customer needs, it plans to sell data to purchasers and employers.
While publicly endorsing hospitals as the primary customers of the JCAHO, AHA representatives on the JCAHO board have gone along with the shift.
Last May, JCAHO's board approved a plan to release hospital-specific accreditation data to the public (May 24, 1993, p. 4). When that occurs during the third quarter of this year, data will be limited to accreditation survey data. JCAHO executives have said the release policy will apply to indicator data, but no final decision by the JCAHO board has been made.
In 1991-two years before its board approved the release of accreditation data to outside interests-the JCAHO hired the Keckley Group, a Brentwood, Tenn.-based consulting firm, to conduct market research on the acceptability of its indicator monitoring system to purchasers and payers.
The results weren't favorable, according to Keckley's final report, obtained by MODERN HEALTHCARE.
Keckley sent surveys to 940 potential users of indicator data. The target audience included nearly 500 businesses and 200 managed-care plans across the country. Of the 940, some 175, or nearly 19%, didn't respond. Follow-up interviews found that the topic was too complicated to generate their interest.
The ones that responded said the indicator system was "too technical for practical application in most organizations," and more than one-third didn't know about the JCAHO.
Since then, the JCAHO has frantically tried to garner the support of the business sector, making presentations to business coalitions and overtures to select businesses.
In December, the JCAHO gave a presentation to a quality conference hosted by the Midwest Business Group on Health.
"They're very studious at the JCAHO," said James Mortimer, president of the Chicago-based business group, which represents 150 companies. "But it's not clear how they're going to transform what they have into useful information for payers."
The JCAHO also is working on a project with Schaumburg, Ill.-based Motorola in which the electronics giant sponsored a series of forums with Fortune 50 companies. "The objective of this activity is to better understand purchaser needs with respect to quality-of-care indicators and begin to formulate such measures in a collaborative fashion," Dr. O'Leary reported to his board last September.
The success of the collaboration is unclear. The first forum took place last June, but Margo Brown, a Motorola spokeswoman, said she was "not at liberty" to discuss the program.
Dr. O'Leary said the group had a series of meetings with a wrap-up conference in January in Phoenix. He said the JCAHO will be issuing a report on businesses' need for indicators on health plans and networks. The report "will serve to encourage*.*.*.*a broader-based collaborative effort among participants than we had," he said.
The business sector's concerns with the indicator system shouldn't be unexpected because the indicators were designed to be used by medical professionals to improve care, said a former JCAHO employee who worked on indicator development. They weren't designed to satisfy the needs of purchasers and payers, the employee said.
Acceptance of the indicator system by the business sector is a key plank in the JCAHO's marketing strategy. It's telling hospitals that one way to satisfy the needs of the data-hungry business sec-38
tor is to sign up for the program.
"Your hospital's early participation in the IMSystem can translate into recognition from all of your publics-your community, purchasers, the media and others-that you are among the organizations leading the way into a new era of measuring performance and using the information to improve your services," Dr. O'Leary said in a Jan. 31 solicitation letter to hospitals.
Donors close wallets. Another possible measure of the quality of the JCAHO's indicator project is the ability to attract outside funding. The JCAHO is a 501(c)(3) organization under the federal tax code, which makes it a tax-exempt public charity eligible to receive tax-deductible donations.
MODERN HEALTHCARE contacted five philanthropic organizations that donated about $1.1 million to the Agenda for Change program from 1987 to 1990. None of the philanthropies would reveal whether the JCAHO approached them for any more, but they said they've not kicked in a penny since.
The donors include the Robert Wood Johnson Foundation, the John A. Hartford Foundation, the Prudential Foundation, Johnson & Johnson and the American Cancer Society.
In 1991, the JCAHO sought a grant from the federal Agency for Health Care Policy and Research. Co-researchers included health services experts from Duke University, Harvard University and Northwestern University. They wanted $2 million to study the link between indicators and outcomes.
The agency rejected the proposal, and the JCAHO and Northwestern submitted a scaled back plan for possible funding. It also was rejected.
Dr. O'Leary said the proposal received a high rating from the agency that usually warrants a "slam dunk" for funding. He attributed the rejection to the agency being strapped for cash. An AHCPR spokesman wouldn't comment on why the grant was denied.
Board's role. The JCAHO has done a poor job soliciting outside funding because it's been unable to transform its board into a traditional governing board of a public charity, said Jack Coale, who served as the JCAHO's corporate relations director from June 1986 through November 1989.
Mr. Coale assumed the fund-raising responsibilities of the JCAHO in 1988, and he commissioned a feasibility study of what the JCAHO needed to do to raise money for the Agenda for Change effort. The study said the JCAHO would need $20 million in outside funding, suggesting JCAHO board members either donate the money or take on the responsibility of soliciting the money from others.
But the transformation to a fund-raising board from a special-interest board didn't take root, Mr. Coale said, and the responsibility of raising money was delegated to the staff.
"They've settled into a low-key grant-pursuit mode, which is a different animal," he said. "That means the burden of funding falls on the hospitals."
In a 1989 "white paper" on the JCAHO, the AHA anticipated that the JCAHO would have trouble financing the project through donations and operating revenues. "The hospital field in the aggregate has the capacity to contribute to the financing of the development work of the Joint Commission, and the question is, should it?" the report said. The AHA said that, in order for hospitals to foot the bill, the JCAHO would have to convince them of the system's merits.
Hospitals bankroll project. MODERN HEALTHCARE obtained a copy of a "case statement" for the JCAHO's clinical indicator project. Case statements are descriptions of research projects in search of outside funding.
The 1993 case statement said the JCAHO needs $77 million more to finance the program through 1996. That's in addition to the $15 million spent on the project from 1986 to 1993. Some $33 million would come from the JCAHO, $24 million would come from indicator fees and $20 million would come from donations.
To date, the JCAHO has raised about $4 million of the $20 million.
The inability to raise outside money resulted in the JCAHO charging a special 6% assessment on accredited hospitals specifically to fund the clinical indicator research and development process. The surcharge, approved by the JCAHO board in September 1992, applied to survey fees charged in 1993, 1994 and 1995. The 6% surcharge increased survey fees, which range widely, by an average of $1,100.
The assessment was supported by the committee of commissioners of the AHA's board of trustees in August 1992. The committee is composed of hospital executives who represent the AHA on the JCAHO board.
In a confidential report, the six-member committee recognized the onus it was about to place on hospitals: "The commissioners emphasized that the manner in which this approach is presented to hospitals will be as important as the decision to make the one-time special assessment."
The AHA itself donates just $140,000 to the JCAHO annually, AHA tax records show.
Committee members either didn't return calls or declined comment.
Achieving a windfall. With the blessing of the AHA, Dr. O'Leary broke the news in a passionate Nov. 10, 1992, letter to accredited hospitals. He said it was in their best interest to supply the funding to keep the project on track.
"We must either deliver now or excuse ourselves from the evaluation arena for a long time to come," he wrote.
In the letter and past correspondence with hospitals, the JCAHO said indicator monitoring fees, which are over and above the special assessment, would be set just high enough to cover costs.
In the letter, Dr. O'Leary said the fees to be charged to hospitals using the indicator monitoring system "have not yet been firmly established." And in a June 1993 report, the JCAHO told hospitals that indicator fees would be priced "as reasonably as possible
because the Joint Commission is a not-for-profit organization."
But nine months before the report and two months before the letter, not only were the fees established, but the JCAHO used them to make extensive financial projections showing how 40
profitable the JCAHO would become after it began requiring hospitals to use the indicator monitoring system.
In a Sept. 14, 1992, budget document obtained by MODERN HEALTHCARE, Dr. O'Leary informed the JCAHO board that indicator monitoring fees charged to hospitals would generate $4 million in revenues for the JCAHO in 1994, the first year of voluntary use of the indicator system. By 1997, a year after the system was to be mandated as part of accreditation, indicator fees would generate $25.5 million in revenues.
The figures are based on an initial monitoring fee of $2,000 per volunteer hospital this year. The fee would rise 50% to $3,000 per volunteer hospital next year. The fee would jump another 17% to $3,500 per hospital in 1996, when hospitals had to use the system.
The fees would give the JCAHO a $21.5 million profit on total revenues of about $136.5 million by 1997.
"If all of our projections were to play out, we would have too much in the way of revenues," Dr. O'Leary acknowledged. "The obvious answer to that is to reduce survey fees."
A JCAHO spokeswoman confirmed that the JCAHO has never lowered its hospital survey fees.
Hints of the motives behind the indicator project also can be found in the 1991 Keckley survey, which asked purchasers and payers how much they'd be willing to pay for hospital data.
"Most payers do not know what they would expect to pay for IMS. Perceived prices for a complete set of hospital-specific indicators range from $250 to $9,000, depending on the elements of the program," Keckley said.
Keckley also issued a warning to the JCAHO about selling indicator data to outside interests. Selling the data would taint the JCAHO's commitment to the field and jeopardize its 501(c)(3) tax status, according to Keckley.
Keckley's recommendation aside, the JCAHO board tentatively agreed in January to go ahead with plans to sell hospital data to external users.
"There was agreement that such sales should be viewed as an important source of new revenue that would be used to offset future survey fees," said a summary of the board proceedings.
As for indicator monitoring fees, they're a "little revenue source now and next year, but it could get to be bigger in 1996," Dr. O'Leary said. "If that number were to go as high as it could, then I'm going to be way over my fund balance target."
Dr. O'Leary said the JCAHO's fund balance target, or financial reserve, is 33% of its annual expenditures.
"The board doesn't want to go above that," Dr. O'Leary said.
Since Dr. O'Leary took over in 1986, the JCAHO's operations have mushroomed. The JCAHO projected a $4.9 million profit last year on total revenues of about $86 million. In 1986, the JCAHO earned $756,558 on total revenues of about $28.4 million.
The JCAHO's financial growth under Dr. O'Leary has helped it to finance a new $23 million office complex, which opened in April 1990 in Oakbrook Terrace, an exclusive Chicago suburb. It also is paying about $3.8 million in cash to add a three-story addition to the complex as well as expanding its parking garage. Construction began late last year.
And, the number of full-time equivalent employees in the JCAHO's central office, excluding field surveyors, is projected to grow nearly 11% this year to 603.
Currently, 29 FTEs at the JCAHO are devoted to the IMSystem, 18 in the department of indicator measurement and 11 in the information systems department. The number of IMSystem employees is budgeted to increase to 37 by 1998.
Some higher costs. The JCAHO also is spending money selling its system to hospitals and potential users.
In July 1992, the JCAHO hired Hill & Knowlton, the international public relations firm, to develop and implement a communications plan for the JCAHO and its Agenda for Change. A source said the Joint Commission paid the firm a $20,000 monthly retainer.
After a year, the JCAHO jumped ship to a competing international PR firm, Burson-Marsteller, in August 1993. The source said the JCAHO is paying the firm about $100,000 a month for services. A JCAHO spokeswoman said the payment to Burson-Marstellar is less than $100,000.
The perceived inability of the JCAHO's staff to sell the Agenda for Change has led to high turnover in the communications and marketing ranks.
For example, two months before the JCAHO hired Burson-Marsteller, it reassigned Nancie Noie, the JCAHO's vice president for marketing and external relations, to senior director of government and professional relations. She resigned in January after John Laing took over her old job. Mr. Laing, a public-policy specialist with Burson-Marsteller, oversaw the firm's JCAHO account.
And, since Mr. Coale left in 1989, the JCAHO has hired four new communications directors. And in addition to Ms. Noie's transfer, the JCAHO has gone through two marketing directors during the same period.
All the sound and fury over the JCAHO's clinical indicator project may be academic because the mandatory use of the system by accredited hospitals may be illegal, said one top healthcare antitrust attorney.
Under federal antitrust laws, companies can't use their monopolies in one product line to force their customers to buy another product. Such transactions are called illegal tying arrangements.
The JCAHO has a monopoly on hospital accreditation services and, although accreditation isn't required, it may as well be, said John Cusack, an attorney with Gardner, Carton & Douglas in Chicago.
If the JCAHO leverages its accreditation monopoly to force hospitals to buy a separate and separately priced product-the indicator monitoring system-it's inviting lawsuits from hospitals and competitors, Mr. Cusack said.
"Unless the JCAHO can show that their system is so far superior than other systems, mandatory use of its indicators is very suspect," he said.
Dr. O'Leary said he and the JCAHO are well aware of the antitrust question, and he said the mandatory use of the indicator system doesn't create an illegal tying arrangement because accreditation isn't mandatory and because the system is part of accreditation, not a separate product.