Bedeviled by a revenue slide that won't quit, the Joint Commission on Accreditation of Healthcare Organizations lost money on its core business of quality evaluation in 2003-the second straight year of net losses after a two-year run of eight-digit profits to start the new millennium.
The JCAHO's loss of $915,000 actually looked better than it was because of an offsetting gain of $535,000 from investments. The true loss for the year on operations was nearly $1.5 million, Chief Financial Officer Paige Rodgers said.
The chief contributor to the loss was a $5.5 million decline in revenue from accreditation surveys to $74.3 million, down 7% from 2002 and 15% from the $87.2 million posted in 2001. Survey revenue was nearly 20% less than the $92 million recorded in 1998, the peak year for JCAHO surveys.
To the rescue came Joint Commission Resources, the not-for-profit subsidiary of the Oakbrook Terrace, Ill.-based accrediting firm. JCR earned $6.8 million in 2003, a profit margin of 21% on revenue of $32.9 million.
That enabled the consolidated business to earn $5.9 million, a 5% profit on $118 million in revenue. The results were reported in an annual tax filing, called a Form 990, that the JCAHO and JCR submitted separately to the Internal Revenue Service last month.
Putting aside year-to-year results, the JCAHO was sitting on total reserves of $62 million at the end of 2003, up by $17.5 million, or 39%, from 2002. That figure also has benefited during the past three years from transfers of "excess assets" to the parent company from the JCR subsidiary: $7 million in 2003, $6 million in 2002 and $3 million in 2001.
Prior to 2001, JCR was a minor consulting operation generating small net losses on revenue of less than $10 million per year. But in a major reorganization, the JCAHO began transferring a substantial portion of its business activities to its subsidiary, including publications, educational seminars, technical assistance and fees from an international accreditation initiative. The last of the transfers was completed in 2003, adding $3 million in revenue to the JCR side of the ledger for "strategic evaluation services"-fees and contracts from government agencies seeking quality measurement and management in their healthcare operations.
JCR in 2000 contributed only 4% of combined revenue, but the proportion jumped to 22% of revenue and 36% of profit in 2001. In 2003 it accounted for 28% of revenue and all of the profit.
Meanwhile, the parent organization, when stripped of everything but its core accreditation businesses, has become a no-growth operation. Revenue slid 14% to $85.3 million in 2003 from $99.4 million in 2001, offset only by aggressive cost control: expenses declined 4% to $86.2 million in 2003 from $89.9 million two years earlier.
Total surveys once again declined, to 7,297, down 29% from the peak hit in 1998, extending a downward trend from 7,398 in 2002, 7,800 in 2001 and 7,906 in 2000. Survey volume crested at 10,222 in 1998. Rodgers predicted about 4% fewer surveys for 2004, most of them in long-term care because of a decision in October 2002 not to require nursing homes owned by hospitals to undergo a separate survey if the nursing facilities opted for a CMS-authorized state inspection (Dec. 8, 2003, p. 12).
With the 2005 budget process just getting under way, "It's probably fair to say we're considering fee increases," Rodgers said. "It's something that's on the table, but no decision has been made."
A 3.25% fee increase went into effect in January 2000 for full surveys in all programs except ambulatory-care and home-care accreditation after the JCAHO posted an operating loss in 1999. But consolidated net profits of $11.6 million in 2000 and $14.3 million in 2001 cooled the climate for fee increases and led to some talk among providers of a rollback.
The profitability of 2000 and 2001 led the JCAHO to authorize lump-sum awards of 10% to 12% of base compensation for its top officers in 2002. With those one-time awards gone from base compensation in 2003, most JCAHO officers' total compensation decreased compared with 2002. In addition, expense-account compensation was folded into base compensation for the first time in 2003, inflating base pay by the amount of reimbursement for expenses.
Total compensation for JCAHO President Dennis O'Leary declined 6% to $860,165, including a 1.5% decrease in base compensation to $550,418 and contributions to benefit plans of $310,000. O'Leary's gains from plan contributions and deferred compensation have totaled $919,000 in the past three years.
JCR Chief Executive Officer Karen Timmons earned total compensation of $528,124 in 2003, down 19% from 2002, including a 7% decline in base compensation to $315,000 and benefit-plan contributions of $213,000. Deferred compensation totaled $101,600 in 2002 and $288,000 in 2001.