According to their executives, the parent company and a subsidiary of the Joint Commission on Accreditation of Healthcare Organizations operate as separate entities. Or do they?
It depends on which financial documents you examine.
The two organizations file separate IRS Form 990s, the annual financial disclosures that tax-exempt organizations are required to make public. Yet on the JCAHO's official balance sheets, the operations of the JCAHO and its wholly owned Joint Commission Resources subsidiary are consolidated. The consolidated financial statement is distributed each year in a glossy eight-page publication that also includes a signed auditor's report.
Besides having consolidated financial statements, the organizations overlap significantly in governance. Six of the 12 board members of JCR, to which the JCAHO recently moved some of its most profitable and controversial operations, are on the 28-member JCAHO board of commissioners. They include Chairman John Noble, M.D., director of the Center for Primary Care at Boston University School of Medicine. JCAHO President Dennis O'Leary, M.D., also is a JCR board member.
Operationally, they're independent, according to officials. JCR has its own staff of 102 employees and doesn't share information with the parent, said Karen Timmons, JCR's chief executive officer. For example, the JCAHO cannot provide lists of customers to JCR under an agreement that creates a "firewall" between them, she said.
But the parent company recognizes JCR as a "preferred provider" of accreditation-readiness services, a status for which the subsidiary pays royalty fees. Those fees totaled $720,000 in 2001, Timmons said.
JCR also contracts with the JCAHO for human resources functions such as management of payroll and benefits, paying a management fee in 2001 of $3.4 million. On the IRS Form 990, that's reflected as an expense for JCR that accrues to the JCAHO as revenue.
The JCAHO founded the JCR subsidiary as a consulting unit in 1986 under the name Quality Healthcare Resources. In addition to its new responsibilities, the subsidiary offers international accrediting and consulting services.