The Joint Commission, a nonprofit organization founded in 1951, was created to provide voluntary health care accreditation for hospitals. All but one of the Joint Commission’s founding members continued to serve on its Board of Commissioners as of October 2006, including the American Hospital Association and the American College of Surgeons. The standards established by the Joint Commission address a facility’s level of performance in areas such as patient rights, patient treatment, and infection control. To determine whether a facility is in compliance with those standards, the Joint Commission conducts on-site evaluations of facilities, called accreditation surveys. The Joint Commission recognizes a facility’s compliance with its standards by issuing a certificate of accreditation, which is valid for a 3-year period. In 2004, the Joint Commission implemented a new accreditation process in an effort to encourage hospitals to focus on continuous quality improvement, rather than survey preparation. Previously, facilities were told in advance when Joint Commission surveyors would conduct their evaluations. As a part of the new process, the Joint Commission began conducting unannounced surveys. The Joint Commission employs over 900 staff members, including approximately 200 hospital surveyors from a range of disciplines—such as physicians, nurses, and hospital administrators—who conduct the accreditation surveys. In 2005, the Joint Commission accredited approximately 4,300 hospitals. The Joint Commission established JCR to provide consultative technical assistance to health care organizations seeking Joint Commission accreditation. (See fig. 1.) JCR is governed by a Board of Directors and employs approximately 180 staff members, including consultants located throughout the country. In 2000, the Joint Commission expanded JCR’s role beyond consulting to include all educational services, such as seminars and audio conferences, which the Joint Commission previously provided. (See app. II for a timeline of key developments in the Joint Commission and JCR relationship.) JCR also became the official publisher of the Joint Commission’s accreditation manuals and support materials. JCR offers consulting services either independently to health care facilities or through a subscription-based service called the Continuous Service Readiness (CSR) program, which is typically offered in partnership with state hospital associations. The CSR program provides ongoing technical assistance and education to subscribers through a variety of means, including meetings, e-mails, telephone calls, and conferences. In 2004, we reported that CMS’s oversight of the Joint Commission hospital accreditation process is limited. Although it conducts on-site validation surveys of a sample of Joint Commission-accredited hospitals, the agency cannot restrict or remove the Joint Commission’s accreditation authority if it detects problems. CMS reported that the agency and the Joint Commission engage in ongoing dialogue to identify potential hospital accreditation performance issues. In addition, CMS provides an annual report of its findings to Congress. Unlike the Joint Commission, JCR is not subject to any oversight by CMS. When developing policies regarding its relationship with JCR, the Joint Commission has been affected by the increased focus in both the public and private sectors on governance issues. The Sarbanes-Oxley Act of 2002, passed in response to corporate and accounting scandals, required publicly traded companies to follow new governance standards, including those designed to ensure auditors’ independence from their clients. Even though most provisions of the Sarbanes-Oxley Act are not applicable to nonprofit organizations, activities that have occurred in the wake of the act have affected nonprofits. For example, several state legislatures are considering legislation that applies standards similar to the Sarbanes- Oxley requirements to nonprofit organizations. In addition, some nonprofit organizations, such as the Joint Commission, have voluntarily adopted policies and altered governance practices based upon the act. Organizations in the public and private sectors have also begun to institute compliance programs and those that provide accreditation or certification services have developed standards to ensure the independence of these services. Compliance programs for health care organizations—such as hospitals, home health agencies, and medical supply companies—have used provisions of the federal Sentencing Guidelines, developed in 1991, as a program model. These guidelines lay out two common principles of adequate compliance programs—to prevent and detect criminal conduct, and to promote an organizational culture of ethics and compliance with the law. In 1998, the HHS Office of Inspector General developed a model compliance program for hospitals. Regarding independence standards, organizations that provide accreditation or certification, or recognize accreditation bodies, have begun to impose certain criteria to demonstrate independence. For example, the Department of Education developed criteria for educational accrediting bodies that are designed to ensure that those organizations granting accreditation are not improperly influenced by related trade or membership associations. The mission statements of the Joint Commission and JCR both share the same phrase of seeking “to continuously improve the safety and quality of care.” While each organization differs in the activities it engages in to achieve that mission, they maintain a close relationship through both their governance structure and operations. The Joint Commission has substantial control over the governance of JCR through the powers retained by the Joint Commission in JCR’s bylaws as well as through the Joint Commission’s representation on JCR’s Board of Directors. In addition, JCR manages all Joint Commission publications and educational activities, while the Joint Commission provides various support services and some management oversight to JCR. The Joint Commission has substantial control over the governance of its affiliate, JCR. In 2003, the Joint Commission undertook a major review of the structural, operational, and legal aspects of its relationship with JCR in an effort to address any real or perceived conflict-of-interest issues. This review led to the restructuring of JCR through revisions to JCR’s bylaws, which govern the internal affairs of the organization, and resulted in changes to the composition of JCR’s board and the appointment of board officers. In particular, after the restructuring the Joint Commission no longer retained a majority on the JCR board through board members who served on the boards of both organizations. However, through changes to JCR’s bylaws, the Joint Commission maintained control over JCR by reserving powers that would otherwise have been exercised by JCR. The 2003 restructuring of JCR allowed the Joint Commission to effectively maintain control over JCR by implementing a change in the “corporate membership” of JCR. Similar to for-profit entities that may have stockholders, nonprofit corporations may have corporate members who, in general, are responsible for major organizational decisions, such as electing the corporation’s board. If a nonprofit corporation does not have any members, the corporation’s board of directors holds decision-making authority. With the restructuring of JCR, the Joint Commission became the “sole member” of JCR. The sole member has the ability to exercise substantial control over the affiliate through its “reserved powers”—powers that would otherwise be exercised by the affiliate board, if the sole member did not reserve them for itself. When the Joint Commission became the sole member of JCR, its reserved powers included those previously held and a number of additional powers, as shown in table 1. A practicing attorney with expertise in transactions involving nonprofit health care organizations and who has served as external counsel for the Joint Commission considers this structure necessary to enable the parent to protect itself from the possibility of the affiliate acting against the parent’s interests. However, an article published in a law journal cautions that this structure allows the parent to make decisions solely in its own interest without considering the impact on the affiliate. As part of the 2003 restructuring, the Joint Commission took steps to reduce the proportion of persons serving on the JCR board who also served as board members on the Joint Commission board. Prior to the 2003 restructuring, JCR’s board had 13 directors with a majority—7 directors—from the Joint Commission, including the President of the Joint Commission as an ex officio director with voting rights. The other 6 directors were from outside the Joint Commission, and included the CEO of JCR as an ex officio director with voting rights. After the 2003 restructuring, directors from the Joint Commission no longer comprised the majority of members on JCR’s board. There are 17 directors on JCR’s board, consisting of 7 Joint Commission directors—including the President of the Joint Commission as an ex officio director with voting rights—and 9 external directors who cannot be, either concurrently or within the prior 3 years, Joint Commission commissioners or employees. The President/CEO of JCR also serves on the JCR board, serving as a voting ex officio director. (See fig. 2.) Directors we interviewed who serve on both the Joint Commission and JCR boards said that serving on the two boards has not been problematic because both organizations share the same mission. However, they also recognized the potential for overlapping board members to be faced with competing organizational interests if differences between the Joint Commission and JCR arise. These directors noted that, if competing organizational interests were to occur, the Joint Commission’s reserve powers would dictate the final decision. The restructuring also affected the appointment of JCR officers. Prior to the restructuring, the President and the Chief Financial Officer (CFO) of the Joint Commission also served in those same positions for JCR. The CEO of JCR was appointed by, and reported to, the President of the Joint Commission, and could only appoint other JCR officers after consulting with the Joint Commission’s President. Changes to JCR’s bylaws through the 2003 restructuring removed the requirement that the Joint Commission’s President and CFO serve in those positions for JCR. Rather, the Joint Commission appoints and has the power to remove the President/CEO of JCR. The President/CEO of JCR also now has the authority to appoint officers, such as the CFO, without consulting with the Joint Commission’s President. In addition, the Joint Commission, rather than JCR’s board, now appoints the vice chairman of JCR’s board.