The Joint Commission on Accreditation of Healthcare Organizations will lose at least $2 million this year-far from the $5 million in profits that the organization had budgeted for, MODERN HEALTHCARE has learned.
When the books close on Dec. 31, it will be the first time in 20 years that the Joint Commission has lost money on operations.
"For the year, we're looking at something in the range of $1 million in red ink for operations, with a $1 million restructuring charge on top of that," JCAHO President and Chief Executive Officer Dennis O'Leary, M.D., confirmed last week.
The JCAHO had budgeted for $136 million in revenues this year, he said. The organization will fall about $17 million short of that.
On the expense side, the JCAHO had planned to spend about $131 million. After recognizing the growing budget shortfall, the organization put a stranglehold on expenses, bringing them down to about $120 million.
Those budget cuts included the elimination of 79 jobs in September (Oct. 11, p. 8). At the time, the JCAHO said the staff reduction and an accompanying restructuring were being driven by the need to improve services.
The results mark a dramatic change in fortunes for the Oakbrook Terrace, Ill.-based accrediting agency, which, along with the industry it regulates, has grown in wealth, power and size. But now, like the thousands of hospitals and other healthcare facilities it accredits, the JCAHO is facing higher costs and declining revenues.
The organization's accreditation programs in home health and long-term care have been affected the most this year. Those industries have been hard hit by changes in Medicare payment policies.
In 1999, survey volume in home health declined by 25% and in long-term care by 35%.
This unforeseen downturn follows on the heels of the Joint Commission's best year ever, as measured by revenue growth.
In 1998, Joint Commission revenues jumped nearly 20% to $122.8 million compared with $102.4 million in 1997, according to the JCAHO's latest annual tax filing with the Internal Revenue Service. The $4.1 million in profit that the JCAHO enjoyed last year was the third-highest in the past 10 years (See chart).
The JCAHO filed its tax Form 990 with the IRS on Nov. 12. MODERN HEALTHCARE reviewed it last week.
Driving last year's revenue growth was an increase of more than 17% in revenues from accreditation survey fees, which hit about $92 million last year compared with $78.4 million in 1997. The JCAHO conducted 10,222 accreditation surveys last year vs. 9,296 in 1997.
Expenses climbed 19% to $118.7 million from $99.7 million.
Total expenses were pushed up by a nearly fivefold increase in payments to outside consultants, the tax filing revealed.
Last year, the JCAHO spent nearly $5.8 million on consultants compared with $1.2 million in 1997.
The recession that hit the healthcare industry generally and the JCAHO specifically this year hadn't yet crept into the Joint Commission's executive suites in 1998.
O'Leary himself enjoyed a 52.7% increase in total compensation last year, according to the tax filing.
O'Leary earned $684,732 in total compensation last year compared with $448,348. Total compensation includes salary, contributions to employee benefits plans and expense account allowances.
O'Leary's 1998 total compensation included a $224,681 payment to his "executive supplemental retirement benefit plan." His base salary rose 5.8% to $442,245 last year.
In total, compensation for officers and directors of the Joint Commission rose more than 9% to a little more than $4 million last year from $3.7 million in 1997.
As for next year, it's budgeting for less revenues for the first time in the organization's 49-year existence.
Next year, the JCAHO has budgeted for $126 million in revenues, a drop of more than 7% from this year, and a profit of $4 million.
To help realize those results, the JCAHO's board recently approved the first accreditation fee increase in six years effective, Jan. 1, as well as reinstated some extra survey fees (Nov. 18, p. 2).