BOSTON COLLEGE LAW REVIEW

BOSTON COLLEGE

LAW REVIEW

VOLUME XXIV



JULY

1983



NUMBER 4

THE JOINT COMMISSION ON ACCREDITATION OF

HOSPITALS: PRIVATE REGULATION OF HEALTH CARE

AND THE PUBLIC INTEREST

TIMOTHY STOLTZFUS JOST

Recent months have seen a flurry of books and articles examining the

relative merits of government regulation or market competition as means of ad-

dressing perceived problems in the health care industry.' The primary focus of

• B.A. 1970, University of California, Santa Cruz, ,J.D. 1975, University of Chicago,

Assistant Professor, The Ohio State University College of Law. The author wishes to thank Peter

Gerhart, Thomas Christoffel, Gregory Travalio, Arthur Greenbaum, and Ruth Stoltzfus Jost,

who commented on earlier drafts; my research assistants Mark Toledo, David Penning

ton, Janet

Kater and Mike Mueller; and M. Margaretann Newton who helped process these words.

' For a sampling of the large and growing literature of the health care regulation-

competition debate see, generally criticizing regulation and favoring competition or market

reform: A. ENTHOVEN, HEALTH PLAN (1980) (hereinafter cited as ENTHOVEN, HEALTH PLAN);

M. FELDSTEIN, HOSPITAL COSTS AND HEALTH INSURANCE (1981); C. HAVIGHURST,

DEREGULATING THE HEALTH CARE INDUSTRY (1982) (hereinafter cited as HAVIGHURST,

DEREGULATION); F. SLOAN & B. STEINWALD, INSURANCE, REGULATION, AND HOSPITAL

COSTS (1980); Blumstein & Sloan,

"Redefining Government's Role in Health Care: Is a Dose of Competi-

tion What the Doctor Should Order?,"

34 VAND. L. REV. 849 (1981); Blumstein & Zubkoff,

Public

Choice in Health: Problems, Politics and Perspectives on Formulating National Health Policy,

4,J.

HEALTH

POL., POL'Y & L. 382 (1979); Bovbjerg,

Competition versus Regulation in Medical Care: An Overdrawn

Dichotomy,

34 VAND.

REV. 965 (1981); Enthoven,

A Competitive Strategy,

304 NEW ENG.

MED.

109 (1980); Enthoven,

Consumer Choice Health Plan,

298 NEW ENG.

MED. 709 (1978);

Havighurst,

Competition in Health Services: Overview, Issues, and Answers,

34 VAND. L. REV. 1117

(1981) (hereinafter cited as Havighurst,

Competition);

Havighurst & Blumstein,

Coping with

Quality/Cost Trade-Offs in Medical Care: The Role of PSRO's,

70 Nw. U. L. REV. 6 (1975); Mc-

Clure,

Implementing a Competitive Medical Care System Through Public Policy, 7

HEALTH POL.,

POL'Y & L. 2

(1982) (hereinafter cited as McClure,

Implementing);

McClure,

Structure and Incentive

Problems

Economic Regulation of Medical Care, 59 MILLBANK MEM. FUND Q. 107 (1981)

(hereinafter cited as McClure,

Structure);

Noll,

The Consequences of Public Utility Regulation of

Hospitals in

CONTROLS ON HEALTH CARE 25 (Institute of Med. ed., 1975); Pollard,

The Essential

Role of Anti-Trust in a Competitive Market for Health Services,

59 MILLBANK MEM. FUND Q. 256

(1981); generally favoring regulation or counselling caution as to procompetitive reform: Brown,

Competition and Health Cost Containment: Cautions and Conjecture,

59 MILLBANK MEM. FUND Q. 145

(1981); Dunham, Morone & White,

Restoring Medical Markets: Implications for the Poor, 7

HEALTH POL., POL'Y &

L. 488 (1982); Ginzberg,

Procompetition in Health Care: Policy or Fable,

MILLBANK MEM. FUND Q. 386 (1982); Marmor, Boyer & Greenberg,

Medical Care and Pro-

Competitive Reform,

34 VAND. L. REV.. 1003 (1981); Rosenblatt,

Health Care, Markets, and

Democratic Values,

34 VAND. L. REV. 1067 (1981); Sigelman,

Palm Reading the Invisible Hand: A

Critical Examination of Pro-Competitive Reform Proposals,

6 J. HEALTH POL., POL'Y & L. 578 (1982);

835

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this debate has been the problem of the high and rapidly rising cost of health

care.'

Market reform advocates argue that the excessive cost of health care is

largely attributable to structural problems in the health care delivery system

and health insurance industry, as well as to government policies that perversely

impede competition.' They contend that health care costs can best be con-

trolled by reintroducing competition into the health care sector through anti-

trust enforcement,

reform of health care delivery and health insurance,' and

alteration or elimination of anticompetitive government policies and

programs.' They reject direct command and control regulation as a means of

regulating cost,' arguing that it has not worked when tried,' and indeed cannot

work because of basic failures in the regulatory model.'

Vladeck,

The Market and Regulation: The Case for Regulation,

59 MILLBANK MEM. FUND Q 209

(1981); Weiner,

Reflections on Cost Containment Strategies,

59 MILLBANK MEM. FUND Q. 269 (1981)

(hereinafter cited as Weiner,

Reflections);

Weiner,

Governmental Regulation of Health Care: A Response

to Some Criticisms Voiced by Proponents of a "Free Market, "

4 AM. J. L. & MED. 15 (1978) (hereinafter

cited as Weiner,

Governmental);

and collections of essays: AMERICAN MEDICAL ASSOCIATION,

NATIONAL COMMISSION ON THE COSTS OF MEDICAL CARE

(1978);

HOSPITAL COST CONTAIN-

MENT

(M. Zubkoff, I. Raskin & R. Hanft eds. 1978); NATIONAL HEALTH INSURANCE (M. Pau-

ly ed. 1980); and A NEW APPROACH TO ECONOMICS OF HEALTH CARE,

Olson ed. 1981

(hereinafter cited as NEW APPROACH).

See, e.g.,

ENTHOVEN, HEALTH PLAN,

supra

note 1, at xv-xvii; HAVIGHURST,

DEREGULATING,

supra

note I, at 25; Blumstein & Sloan,

supra

note 1, at 853; Bovbjerg,

supra

note I, at 965; Marmor,

supra

note 1, at 1003; Sigelman,

supra

note I, at 578. Throughout this

article "health care" will refer to care or treatment that promotes or restores human health;

"medical care" will refer more narrowly to care provided by physicians in accord with traditional

medical models.

See, e.g.,

ENTHOVEN, HEALTH PLAN,

supra

note 1, at 16-32; Blumstein & Sloan,

supra

note 1, at 856-58; Bovbjerg,

supra

note 1, at 967-73, 980-93; Havighurst,

Competition, supra

note 1, at 1120-25; Cohodes,

Where You Stand Depends on Where You Sit: Musings on

the

Regula-

tion/Competition Dialogue, 7

HEALTH POL., POLY & L.

54, 55-61 (1982); Havighurst & Blum-

stein,

supra

note 1, at 9-30; McClure,

Structure, supra

note 1, at 139-41.

See,



Blumstein & Sloan, supra note 1, at 908-24; Havighurst,

A Comment: The

Anti-Trust Challenge to Professionalism,

41 MD. L. REV. 30 (1981); Havighurst,

Competition, supra

note 1, at 1148-49; Pollard,

supra

note 1, at 260-66.

See, e.g.,

ENTHOVEN, HEALTH PLAN,

supra

note 1; HAVIGHURST, DEREGULATING,

supra note 1, at 381-434; Bovbjerg,

supra

note 1, at 976-80; Cohodes,

supra

note 3, at 65-67; Mar-

mor, Boyer & Greenberg,

supra

note 1, at 1016-21.

See, e.g. ,

HAVIGHURST, DEREGULATING,

supra note

1, at 92-96; Blumstein & Sloan,

supra

note 1, at 867-86; McClure,

Structure, supra

note I, at 139-41.

See, e.g.,

ENTHOVEN, HEALTH PLAN,

supra

note 1, at 93-114; HAVIGHURST, DE-

REGULATING,

Supra

note 1, at 25-50; Blumstein & Zubkoff,

supra

note 1, at 387-93; McClure,

Im-

plementing, supra

note 1, at 17.20; McClure,

Structure, supra

note 1, at 139-42. As used in this arti-

cle command/control regulation is government regulation that relies on direct enforcement of

regulatory commands, as opposed to, e.g., use of incentives to encourage compliance.

See, e.g.,

Blumstein

Sloan,

supra

note 1, at 870-80; SLOAN & STEtNWALD,

supra

note 1, at 167-75, 193-96; Steinwald & Sloan,

Regulatory Approaches to Hospital Cost Containment: A

Synthesis of the Empirical Evidence

in NEW APPROACH,

supra

note 1, at 274.

See, e.g.,

ENTHOVEN, . HEALTH PLAN,

supra

note 1, at 110-13; P. FELDSTEIN,

HEALTH CARE ECONOMICS, 235-42 (1979); McClure,

supra

note 1, at 117-41; Noll,

supra

note 1,

at 28-47.

July 1983]



PRIVATE REGULATION OF HEALTH CARE



837

On the other hand, defenders of regulation (some of whom would rather

be identified as skeptics of competitive reform)" pOint to the modest successes

of some forms of health care regulation" or argue for new forms of public inter-

vention more responsive to public values." They reject competitive alterna-

tives as inappropriate to and inconsistent with the basic nature of the health

care industry,'

as conceptually flawed," and, as unresponsive to basic politi-

cal values which regulation protects, such as public accountability and promo-

tion of distributional equity."

It is not surprising that this debate has focused on the issue of health care

costs. Recent increases in health care expenditures have been substantial, not

only in absolute terms," but also relative to the general inflation rate" and to

expenditures for other goods and services." Increases in government expendi-

tures on health care have also been dramatic and highly visible."

This focus on costs, however, has overshadowed a more traditional con-

cern of health care policy: the quality of health care. To the extent that advo-

cates of procompetitive market reform address the issue of quality, they do so

in disparate fashion. Some argue that increased competition would improve

quality by making health care delivery more efficient and eliminating excessive

and iatrogenic care.

° Others see a continuing minimalist role for regulation to

assure that basic standards of quality are maintained.

' Some theorize that as

the health care market becomes competitive a variety of levels of quality of care

" See, e.g.,

Rosenblatt,

supra

note 1, at 1069.

" Weiner,

Relectians, supra

note 1, at 274-75.

See generally

Rosenblatt,

supra

note 1, at 1069, 1108-14.

" See, e.g.,

Luft, On

the Potential Failure of Good Ideas: An Interview with the Originator•of

Murphy's Law, 7 J.

HEALTH POL., POLY & L. 45 (1982); Marmor, Boyer & Greenberg, supra

note 1, at 1011-26; Rosenblatt,

supra

note 1, at 1078-88; Sigelman,

supra

note 1, at 583.87;

Vladeck,

supra

note

at 210-12.

" See, e.g.,

Brown,

supra

note

at 174-87; Weiner,

Reflections, supra

note 1, at 287-93.

See, e.g.,

Dunham, Morone & White,

supra

note 1; Rosenblatt,

supra

note 1, at

1108-14; Sigelman,

supra

note 1, at 587-600; Vladeck,

supra

note 1, at 212-14; Vladeck,

The

Limits of Regulation: Implications of Alternative Models for the Health Sector

in TOWARD A NATIONAL

HEALTH CARE POLICY, 107, 137-40, 144-45

(K.

Friedman & S. Rakov eds. 1977).

National Health expenditures have increased from $26.9 billion in 1960 to $74.7

billion in 1970 to $286.8 billion in 1981. 4 HEALTH CARE FINANCING REV., Sept. 1982, at

19-20.

For the 12 month period ending March, 1982, medical care prices increased at a rate

of 11.4%. The consumer price index, all items, increased at a rate of 9.5%.

Health Care Financing

Trends,

June 1982, at 21.

Health care expenditures consumed 5.3% of the gross national product in 1960;

7.5% in 1970; 9.8% in 1981, 4 HEALTH CARE FINANCING REV.,

Sept.

1982,

19-21.

" Government expenditures for health programs have increased from $10.8 billion in

1965 to 122.53 billion in 1981.

Id.

at 31-32. In 1981 they constituted 42.75% of all health care ex-

penditures.

Id.

at 27. Health care expenditures currently consume more than 10% of the federal

budget, Executive Office of the President, Office of Management & Budget,

Budget of the United

States Government, Fiscal Year 1983,

3-34 (1972).

° See, e.g. ,

Enthoven,

Shattuck Lecture: Cutting Costs Without Cutting the Quality of Care,

298

NEW ENG.

MED. 1229 (1978).

21 See, e.g.,

Havighurst,

Competition, supra

note 1, at 1.140; Noll, supra

note 1, at 46.

838

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could emerge, offering consumers a greater range of choices." Finally, a few

assert that high health care costs may be the direct result of reliance on ex-

cessively high quality medical care (or perhaps on excessively intensive medical

care, inappropriately identified as of high quality)." Defenders of regulation

have even less to say on the issue of quality, though some fault advocates of

competition for an excessively narrow and economic reductionist view of

quality .

There are a number of reasons why health care quality and methods of

quality control ought to be at the center of the competition/regulation debate.

For market reform advocates the following issues of health care quality ought

seriously to be•considered. First, the ultimate success of a competitive reform

strategy may turn largely on whether the public perceives competition as main-

taining or threatening the quality of health care." Second, quality issues have

long been a focus of command and control regulation

;

if market reform advo-

cates depend on a critique of regulatory failures, analysis of regulation of quali-

ty should be a fruitful ground for inquiry. Finally, self-regulation has been a

pervasive form of quality control in the health care sector;" and some have

See, e.g.,

HAVIGHURST, DEREGULATING,

supra

note 1,

305-08.

See, e.g. ,

Blumstein and Havighurst,

supra

note 1, at 20-38; Zubkoff and Blumstein,

The Medical Market Place: Health Policy Formulation in Consideration of Economic Structure

in II

AMERICAN MEDICAL ASSOCIATION, supra note 1, at 88-89.

Rosenblatt,

supra

note 1, at 1091-1108.

A frequent comment of observers of the health care market is that consumers are

more concerned about the quality (or at least the effectiveness) of care they receive than about

cost. Blumstein & Sloan,

supra

note 1, at 857; Bovbjerg,

supra

note

at 972; Mechanic,

Some

Dilemmas in Health Care Policy,

59 MILLBANK MEM. FUND Q. 1, 3 (1981). Some attribute this to

the prevalence

of third

party payments that anesthetizes patients to the cost implications of health

care decisions. Blumstein & Sloan,

supra

note 1, at 856-57; HAVIGHURST, DEREGULATING,

supra

note 1, at 83-84. While there is undoubtedly a great deal of truth in this, it is likely that con-

sumers would remain vitally concerned about the quality of health care even if procompetitive

reforms were to be fully implemented.

Physician licensing laws, to maintain the quality of practitioners, have existed in the

United States since the colonial period and were enacted in all states by 1895. DERBYSHIRE,

MEDICAL LICENSURE AND DISCIPLINE IN THE UNITED STATES 3-8 (1969). The licensure of

health care institutions to assure quality came later, but was common by the middle of this cen-

tury. Lander,

Licensing of Health Care Facilities,

in LEGAL ASPECTS OF HEALTH POLICY: ISSUES

AND TRENDS, 130-33 (R. Roemer & G. McKray eds. 1980). Regulation aimed at cost control, in

contrast, is much more recent. The first state certificate of need law was enacted by New York in

1964.

The

federal government enacted the 1122 Health Planning Program (P.L. 92-603, Title

221(a)) 86 Stat. 1386 (codified at 42 U.S.C. 4,1320a-1 (1976)) in 1972, and P.L. 93-641 (86

Stat. 2225 (codified at 42 U.S.C. 4 300k-300t (1976)), making certificate of need and health plan-

ning programs ubiquitous, in 1974, D. SALKEVER & T. BICE, HOSPITAL CERTIFICATE OF NEED

CONTROLS: IMPACT ON INVESTMENT, COSTS, AND USE 3, 4 (1979). Professional Standards

Review Organizations were established in 1972. 42 U.S.C. S 1320c-1320c-19 (1976 & Supp. IV,

1980). Prospective rate review programs date from around 1970 (most existing programs having

been established in the mid 1970's). Coelen & Sullivan,

An Analysis

of the Effects of Perspective Reim-

bursement

Programs on Hospital Expenditures,

2 HEALTH CARE FIN. REV., Winter 1981, 1, 2.

" Medical associations play a prominent role in licensing and disciplining physicians in

a number of states. F.

GRADA

MARTI, PHYSICIANS' LICENSURE AND DISCIPLINE,

191-200

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



839

argued that self-regulation may be anti-competitive." Self-regulation based

quality control should, therefore, be subjected to close scrutiny by those who

favor the promotion of competition.

Defenders of regulation also ought to be concerned about quality control.

Just as critics of regulation may look to the effects of quality regulation to

establish their theories of regulatory failure, so defenders of regulation may

there find evidence of regulatory successes. Further, they legitimately may

challenge advocates of market reform to state how adequate quality of health

care will be guaranteed if current regulatory structures are swept aside. Final-

ly, the values of public accountability and distributional equity to which

defenders of regulation express allegiance, are, if anything, more relevant to

concerns of health care quality than to cost control.

This article examines the Joint Commission on Accreditation of Hospitals

(JCAH or Commission), the organization which has primary responsibility for

regulating the quality of care provided in American hospitals, and to a lesser

extent, that provided in nursing homes and other health care facilities. This in-

stitution is of particular relevance to the competition-regulation debate for

several reasons. First, the institutional medical (hospital and nursing home)

sector consumes a majority of health care expenditures and has been a major

offender in the dramatic health care cost inflation of recent years." It is also the

sector that consumes the vast majority of governmental funds expended on

health care.

Second, the JCAH is a private institution governed by represen-

tatives of hospitals and physicians, the participants in the health care industry

who have the most to lose from competition, and thus should be of particular

interest to those who seek to identify and eliminate impediments to competition

in the health care industry. Third, the JCAH is a private, non-governmental

entity, which wields considerable governmental authority. Those who defend

public regulation principally because of its responsiveness to public values

(1979). Certification of medical specialists is a totally private, intraprofessional function.

Id.

81; Grad,

The Antitrust Laws and Professional Discipline in Medicine,

1978 DUKE L.J. 443, 472-77.

Medical schools arc accredited by the Liaison Committee on Medical Education and hospitals

and nursing homes by the Joint Commission on Accreditation of Hospitals, both of which are

private, intraprofessional regulatory bodies. Professional Standards Review Organizations,

authorized by federal law to review utilization and quality of services delivered recipients of

federal medical benefits, are private peer review organizations composed of medical profes-

sionals. Control over staff privileges in hospitals, another form of professional self-regulation, is

significantly controlled by physicians.

Id.

at 468-72.

See

Pollard,

supra

note 1, at 265-66; HAVIGHURST, DEREGULATING,

supra

note 1, at

89-91.

Hospital and nursing home care consumed $132.2 of the $255 billion spent on per-

sonal health care in 1981. 4 HEALTH CARE FIN. REV., Sept. 1982, at 20. In the twelve month

period ending March 1981, the cost of hospital care increased at a rate of 14.1%, compared to a

10.7% increase for medical care generally.

HEALTH CARE FINANCING TRENDS, June 1982 at

13.

° Federal and state expenditure for hospital and nursing home care in 1981 constituted

$77.7

billion of the $102.9 billion government spent on personal health care. 4 HEALTH CARE

FIN. REV., Sept, 1982 at 27.

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must examine seriously whether this particular private regulator is defensible

at all.

An examination of JCAH may also be of interest beyond its relevance to

health policy. The Reagan Administration, in a dramatic departure from the

policies of its predecessors, has proposed a regulatory reform policy that relies

on private voluntary standards for government regulation without any require-

ment for procedural safeguards to assure due process within the standard set-

ting organizations, or any review mechanism to protect the public or com-

petitors.

' In that JCAH is a source of voluntary standards, scrutiny of its ef-

fects on consumers, competitors and the public may shed light on the wisdom

of this policy.

After describing the organization and history of JCAH in section I, this

article in sections II and III analyzes JCAH standards and accreditation pro-

grams in light of economic analysis of standardization and information. Sec-

tion IV evaluates the efficacy of governmental standardization and accredita-

tion of the medical care industry as compared to JCAH standardization and ac-

creditation, and also considers whether JCAH should be made to function like

a public entity. The final section, section V, discusses legal tools that could be

used to reform or supplement JCAH in response to public quality and cost con-

cerns. In particular, section V considers the application of the Sherman An-

titrust Act to JCAH standards and accreditation, and also touches upon tort

law, federal Medicare law, and the non-delegation doctrine as means of con-

trolling JCAH.

I. THE

JOINT COMMISSION ON ACCREDITATION OF HOSPITALS

Description

The JCAH is an Illinois Not For Profit Corporation headquartered in

Chicago. It is governed by a board composed of twenty-two commissioners"

appointed by the members of JCAH:" three by the American College of Physi-

cians (ACP); three by the American College of Surgeons (ACS); one by the

American Dental Association (ADA); seven by the American Hospital

Association (AHA); and seven by the American Medical Association (AMA).

An additional Commissioner is appointed by the Commission to serve as a

public member.

The Commissioners meet at least three times a year,

and

designated representatives of the constituent members meet at least once a

year."

" See

Proposed Revision to OIVIB circular A-119, 47 Fed. Reg. 16, 919 (1982).

BYLAWS

OF THE

JOINT

COMMISSION ON ACCREDITATION OF HOSPITALS,

art.

VI, §

1 (1982).

" Id.

at art. IV, § 1.

Id.

at art. VI, S 1.

Id.

at VI, § 7,

" Id. at art. V,

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July 1983]

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PRIVATE REGULATION OF HEALTH CARE

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841

The purposes of the Commission, as stated in Article One of its by-laws

are:

(a) to establish standards for the operation of hospitals and other

health-related facilities and services;

(b) to conduct survey and accreditation programs that will encourage

members of the health professions, hospitals, and other health-

related facilities and services voluntarily to:

(1)

promote high quality of care in all aspects in order to give pa-

tients the optimum benefits that medical. science has to offer,

(2)

apply certain basic principles of physical plant safety and

maintenance, and of organization and administration of

functions for efficient care of the patient,

(3)

maintain the essential services in the facilities through coordi-

nated effort of the organized staffs and the governing body of

the facilities;

of accreditation;

(d) to conduct programs of education and research and publish the

results thereof which will further the other purposes of the corpo-

ration .. 38

The accreditation of hospitals is the most publicly visible, and probably the

most important, function of the JCAH.

JCAH also, however, accredits child,

adolescent, and adult psychiatric facilities; alcoholism and drug abuse facili-

ties;" community mental health service programs;“ long-term care facilities;

and ambulatory health care services."

Accreditation decisions are based on standards developed by members

of the Commission's four Professional Technical Advisory Committees

(PTAC 's)

and JCAH staff, and approved by the Board of Commissioners.'"

Id.

at art. I.

See

JCAH, ACCREDITATION MANUAL FOR HOSPITALS (hereinafter cited as AMH)

(1982).

See

JCAH, CONSOLIDATED STANDARDS MANUAL FOR CHILD, ADOLESCENT, AND

ADULT PSYCHIATRIC, ALCOHOLISM, AND DRUG ABUSE FACILITIES (1981).

See

JCAH, PRINCIPLES FOR ACCREDITATION OF COMMUNITY MENTAL HEALTH

SERVICES PROGRAMS

(1979).

See

JCAH, ACCREDITATION MANUAL FOR LONG-TERM CARE FACILITIES

(1980).

See

JCAH, ACCREDITATION MANUAL FOR AMBULATORY HEALTH CARE

(1982).

JCAH is also currently considering the development of accreditation programs for hospices and

for facilities for the developmentally disabled.

See Pilot Test of Proposed Hospice Standards Conducted,

JCAH PERSPECTIVES, July-Aug

1982, at 5 cited as

Director Appointed to Develop Hospice Standards

and Guide,

JCAH PERSPECTIVES, Nov-Dec 1981, at 4.

* 4

The PTAC's are responsible for the hospital, ambulatory health care, long-term care

and psychiatric facilities accreditation programs. JCAH, MILESTONES OF PROGRESS,

COR-

PORATE REPORT 22, 23 (1962) (hereinafter cited as MILESTONES).

' AMH,

supra

note 39, at xi;

See

Affeldt,

JCAH and Voluntary Accreditation,

39 J. ORAL

SURG.

Feb. 1981, at 94, 95.

842

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These standards undergo a process of continual review and revision based on

input from the PTAC's, accredited institutions, and health care profession-

als." The PTAC's include representatives of health care organizations in addi-

tion to the members of the JCAH.

The Board is also advised by a Policy Ad-

visory Committee (PAC) composed of representatives of the PTAC's,

representatives of organizations involved in the provision of health related serv-

ices, representatives of other national organizations with interests similar to

those of JCAH, and selected individuals."

Accreditation by the JCAH is voluntary. Facilities must request a survey

by JCAH staff" who, based on the survey results, recommend to a Committee

of the Commissioners for or against accreditation.

° To be JCAH accredited a

facility must substantially comply with the JCAH standards as a whole, but

need not comply, nor even substantially comply, with every JCAH standard.

Facilities denied accreditation by the committee may request review by an ap-

peals hearing panel appointed by the president of JCAH, and, ultimately if

necessary, review by the Board of Commissioners or by a committee of the

Board." Most facilities that are surveyed receive accreditation: in a recent

survey only one percent were denied full or provisional accreditation."

JCAH does not view accreditation as a public regulatory program, rather

JCAH identifies itself as a consultant, paid by and responsible to the medical

care industry." It acts as a quality control consultant to the hospitals that it in-

AMH,

supra

note 39, at x; Affeldt,

supra

note 45, at 95; McCleary,Joint

Commission on

Accreditation of Hospitals: Twenty-Five Years of Promoting Improved Health Care Services,

34 AM. J. OF

HOSP. PHARM. 951, 953 (1977).

" MILESTONES,

supra

note 44, at 22, 23. For example, the hospital accreditation pro-

gram PTAC includes representatives of the American Academy of Family Physicians, the

American Academy of Pediatrics, the American College of Hospital Administrators, the Ameri-

can College of Obstetricians and Gynecologists, the American Nurses Association, the American

Psychiatric Association, the American Society of Anesthesiologists, the Association of American

Medical Colleges, the Association of Operating Room Nurses, and the College of American

Pathologists, and representatives of the five member programs.

Id.

at 22;

Reorganization Sets Future for Voluntary Accreditation,

PERSPECTIVES ON AC-

CREDITATION, Mar.-Apr. 1979, 1, at 6 (hereinafter

"Reorganization").

AMH, supra note 39, at xix.

'°

Id. at xxi,

xxii, 199-200.

" Id. at

xvii. Schlicke,

Dots the Joint Commission Have a Future,

63 AM. C. OF SURG.,

Apr. 1978, at 7, 11.

AMH,

supra

note 39, at xxii, 200-04.

Affeldt,

Voluntary Accreditation in Regulating Health Care: The Struggle for Control

(ed. A.

Levin), 33

PROC.

ACAD. POL. SCI. 182, 189 (1980).

See also Nursing Home Survey and Certification:

Assuring Quality Care, Hearings, Senate Special Comm. on Aging

97th Cong. 2d Sess. (1982) (here-

inafter cited as

Senate Hearings)

(20 hospitals denied JCAH accreditation in 1981). Hospitals can

either receive full three year accreditation or accreditation with contingencies requiring follow-up

by progress-reports or on-site visits. Affeldt,

What to Expect from New Contingency System,

56 HOSP.

Oct. 16, 1982, at 60.

Senate

Hearings, supra

note 53, at 103 (testimony of John Affeldt, JCAH President).

Physician

Training Facilities and Health Maintenance Organization: Hearings before the Subcomm. on Health

of the Senate Committee

on Labor & Publ c _Welfare,

92nd Cong., 2d Sess. 1990 (1972); (Statement of

John

Porterfield, JCAH director); Crosby,

Accreditation

and

Associated Quality Assurance Efforts,

July 1983]



PRIVATE REGULATION OF HEALTH CARE



843

spects and provides with confidential reports of deficiencies." In addition, it

provides essential information to physicians and other private certification en-

tities, who rely on JCAH accreditation.

Despite the fact that JCAH considers

itself a private consultant, it plays a major role in government regulatory pro-

grams. Indeed, although accreditation is in theory voluntary, hospital ac-

creditation is either explicitly or implicitly a requirement for participation in

many private or public licensing, certification and financing programs. For ex-

ample, the federal government relies heavily upon JCAH accreditation for cer-

tifying health care facilities for participation in the Medicare program. Section

1864 of the Social Security Act

permits the Secretary of Health and Human

Services (HHS) to enter into agreements with state health departments to

survey hospitals to determine their compliance with Medicare regulations. But

Section 1864 provides," as an alternative, that if an institution is accredited as

a hospital by the JCAH and the hospital authorizes JCAH to release to the

Secretary (on a confidential basis) a copy of the most recent accreditation

survey of the hospital, then such hospital shall, subject to minor exceptions,"

be deemed to comply with Medicare certification requirements for hospitals.

These hospitals are said to have "deemed" certification status. JCAH is

responsible for monitoring quality in deemed status facilities for the Medicare

program, subject only to verification inspections done by state agencies ran-

domly and on the basis of substantial complaints.

PROF. PSYCHOLOGY 132, 133,

(1982); Ellis,

Critical Challenges Lie Ahead for New JCAH President,

HOSP. MED. STAFF,

Oct.

1977, at 34, 41; Porterfield,

TheJCAH: An Assessment of Strengths, Needs,

Intentions,

5 HosP. MED. STAFF, Feb. 1976, 19, 20;

Punch, JCAH Says it's as Tough as Government

Surveyors,

12 MOD. HEALTH CARE, Sept. 1982, at 38, 40; Schlicke,

supra

note 51, at 12,

but cf.

JCAH's mission and scope statement, MILESTONES,

supra

note 44, at 25 (asserting JCAH's mis-

sion to be to "secure for the public an excellence of health care consistent with social and

economic considerations.")

AMH,

supra

note 39, at xxi, xxii, xxiv.

JCAH also operates educational programs to acquaint medical professionals with

JCAH accreditation standards, MILESTONES,

supra

note 44, at 11,

JCAH Education Programs,

1982 Fall/Winter Calendar,

and conducts research,

see

MILESTONES,

supra

note 44, at 9.

" 42 U.S.C. S 1395aa(a) (1976 and Supp. IV, 1980).

42 U.S.C. S 1395bb (1976).

See also

42 C.F.R. 405.1902(a)(2) (1981). Under the

regulation a hospital need only authorize the release of the JCAH survey if the hospital is the sub-

ject of a validation survey.

Independent state inspection of accredited facilities is necessary for compliance with

utilization review requirements and with any additional requirements promulgated by the

Secretary of HHS higher or more specific than JCAH accreditation requirements. 42 U.S.C. S

1395bb (1976).

" The Secretary contracts with state survey agencies to inspect, on a random basis and

in response to substantial complaints, JCAH accredited facilities to validate the JCAH accredita-

tion, 42 C.F.R. 405.1901(e) (1981). If facilities are determined, upon state inspection, to be out

of compliance with one or more conditions of Medicare participation and a significant deficiency

is determined to exist, the hospital will no longer be deemed to meet the conditions of participa-

tion and will be subject to full review by the state agency survey. 42 C.F.R. S 405.1901(e)(4)(i)

(1981). A significant deficiency will not be determined to exist, however, if (1) JCAH accepts the

state survey agency findings of deficiencies and agrees to monitor their correction; (2) the state

agency does not justify to HHS the need for continued full review by the state agency; and (3)

844

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BOSTON COLLEGE LAW REVIEW

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[Vol. 24:835

While general hospitals are given the option of obtaining Medicare cer-

tification either through deemed status based on JCAH accreditation or inde-

pendent state agency survey, a psychiatric hospital generally must be accred-

ited by the JCAH to participate in the Medicare or Medicaid program.

Moreover, Section 1865 also provides that HHS may grant deemed status to

skilled nursing facilities and home health agencies to the extent that the Secre-

tary of HHS finds that JCAH accreditation provides "reasonable assurances"

that the provisions of the Medicare Act will be met by such institutions.

The

Secretary has, under this power, published proposed regulations to grant

deemed status to JCAH accredited skilled nursing homes,

though Congress

has passed two moratoria delaying the implementation of these proposed

regulations."

To varying degrees, thirty-eight states have also incorporated JCAH

standards or accreditation decisions into their licensing programs for health

care institutions.

A few states, by statute, regulation, or administrative fiat,

deem hospitals to meet state licensure requirements by virtue of their JCAH

accreditation.

Other states, by statute or regulation, permit, but do not re-

quire the licensure agency to license on the strength of JCAH accreditation.

JCAH in fact provides HHS with periodic reports of progress towards correction. 42 C.F.R. §

405.1901(e)(4)(ii) (1981). Moreover, if the deficiencies, individually or in combination, jeopard-

ize the health and safety of patients or seriously limit the provider's capacity to render adequate

care, or if the non-complying facility does not come into compliance within a reasonable period of

time, it may be terminated from Medicare participation. 42 C.F.R. 5 405.1905, 1907 (1981).

42 U.S.C. 55 1395x(1), 1396d(h) (1976). A "distinct part" of a nonaccredited

psychiatrist facility may be certified for medicare without JCAH accreditation if HHS deter-

mines that it meets requirements equivalent to those of JCAH. 42 U. S.C.5 1395 x (0(1976), 42

C.F.R. 405.1036 (1982). "Distinct part" certification can also be used to establish medicaid

eligibility for institutions for mental diseases for persons aged 65 and older, 42 C.F.R.

440.140(2) (1982), but not for institutions for mental diseases for persons aged 21 and younger.

42 U.S.C. 5 1395bb (1976).

47 Fed. Reg. 23404, (May 27, 1982) (to be codified at 42 C.F.R. 405, 431, 442, 489,

490).

Pub. L. No. 97-248 5 135, 96 Stat. 324, 375, places a six month moratorium on the

final promulgation of the rule to "provide opportunity for further review, revision or

withdrawal" of the proposed regulations, H.R. Rep. 97.760 97th Cong. 2d Sess. 441 (1982).

This moratorium has been extended 120 days by Pub. L. No. 276 § 146, 96 Stat. 1186, 1199

(1981).

See

Robinson,

Congress Stalls HHS Survey Proposal,

12 MOD. HEALTH CARE, Sept. 1982, at

38. Several Congressional hearings have reviewed the HHS proposal:

Department of Health and

Human Services Oversight, Hearings before the Subcomm. on Oversight and Investigations on the House Comm.

on Energy and Commerce,

97th Cong. 2d Sess. (1982);

NUrsing Home Inspections; New Jersey, Hearing

before House Select Comm. on Aging,

97th Cong. 2d Sess. (1982) (hereinafter cited as House hear-

ings);

Senate hearings, supra

note 53.

Telephone interview with Eleanor Wagner and Daniel Schuyler, attorneys for

JCAH (December 9, 1982).

See also

MILESTONES,

supra

note 44, at 7 (an earlier source stating 34

states rely on JCAH);

Senate hearings, supra

note 53, at 76 (36 states).

See, e.g.,

ALA. CODE 5 22-21-24 (Supp. 1982); ARIZ. REV. STAT. ANN. 5 36-401,

424 (West. Supp. 1982); N.M. STAT. ANN. 5 24-1-5 (1978); TEX. STAT. ANN. art. 4437h 4(a)

(Vernon Supp. 1982); NEV. ADMIN. CODE Part

11,

Chapt. II 5 9B.

CAL. HEALTH & SAFETY CODE 5

1282 (1979); OR. REV. STAT. 5 441.055(2) (1981).

California is reportedly abandoning cooperation with JCAH because of dissatisfaction with

JCAH performance.

See Plaintiff'

s and Plaintiff-Intervenor's Trial Brief, 8-10 submitted Oct. 26,

July 1983]



PRIVATE REGULATION OF HEALTH CARE



845

Still others rely on accreditation supplemented with some form of validation

program." Several states require licensed hospitals to meet certain specific

JCAH standards, the most common requirement being that hospitals comply

with JCAH medical staff privilege standards.

A few states require that state

mental hospitals or state university hospitals be JCAH accredited.

° Finally, at

least two states have insurance laws permitting private health insurance com-

panies to pay for specific forms of care only if the care was provided in a JCAH

accredited facility."

JCAH hospital accreditation is also relied on by the private health care

sector. JCAH accreditation is required for institutions to participate in some

Blue Cross plans." Some professional organizations limit membership to pro-

fessionals associated with JCAH accredited hospitals." Finally, JCAH accredi-

tation is effectively required for hospitals to be approved for residency pro-

grams." As a result of these factors, eighty percent of all acute care hospitals in

the United States are JCAH accredited," including virtually all hospitals with

more than twenty-five beds.

This is true despite the expense of "voluntary"

accreditation: hospitals must pay $250 plus $1,000 per surveyor per day for a

survey, a minimum of $4,250 and often much more."

The Development of the JCAH

1. The American College of Surgeons Hospital. Standardization Program,

1912 Through 1951.

1982 in Wyatt v. Ireland, No. 3195-N (M.D. Ala.) (hereinafter cited as Wyatt Brief). (Wyatt v.

Ireland, is part of the ongoing Alabama mental hospital litigation,

see

Wyatt v, Strickney, 344 F.

Supp. 373 (M.D. Aka. 1972)

aff'd in part sub. nom.

Wyatt v. Aderholt, 503 F.2d 1305 (5th Cir.

1974). The JCAH has become involved because of a proposal of the defendants to permit JCAH

accreditation to substitute, in part, for the earlier system of monitoring imposed by the courts);

Senate hearings, supra

note 53, at 40 (testimony of Mildred Simmons, Deputy Director Cal. Dept.

of Health Services).

° VA. CODE 5 32.1.125.1(B) (1979); KAN. ADMIN. REGS. Art. 34 5 28-34-2, 28-34-3;

La. Admin. Reg. (Hosp.) 5 41.

FLA. STAT. ANN. 5

395.065 (West Supp. 1982). R.I. GEN LAWS 5 23-17-23 (1979);

VT. STAT. ANN. tit. 18 1905(9) (1968); N.H. ADMIN. CODE (Hosp) $ 2130.

7°

OHIO REV. CODE ANN. § 5119.10

(Page 1981) represents one such statute.

" OHIO REV. CODE ANN. § 1739.061 (Page 1981) 3923.27 (Page 1970); OR. REV.

STAT. 5 743.412(4)(b), 743.557(2)(6) (1981).

" See

F. Hair, Hospital Accreditation: A Developmental Study of the Social Control of

Institutions, 204-09 (Ph.D. dissertation Vand. U. 1972); 1 COMPETITION

AMONG

HEALTH

PRACTITIONERS IV-11 (W.

Lazarus ed., 1981) (hereinafter cited as W. Lazarus). Schlicke,

American Surgery's Noblest Experiment,

106 ARCH. SURG. 379, 381 (1973). In 1972, 20 of the 75 Blue

Cross plans in the United States required or encouraged JCAH accreditation. F. Hair,

supra,

208.

" Schlicke,

supra

note 72, at 381.

ESSEN'T'IALS

ACCREDITED RESIDENCIES

GRADUA'I'E MEDICAL EDUCATION §

1.4 in 1981-1982 DIRECTORY

RESIDENCY TRAINING PROGRAMS.

Affeldt,

supra

note 45, at 95; Affeldt,

supra

note 53, at 189,

Senate hearings, supra

note

53, at 78.

Affeldt,

supra

note 45, at 95; Affeldt,

supra

note 53, at 189.

" Affeldt,

The Three Year Cycle,

55 HOSP., Dec. 16, 1981, at 69. Nursing homes pay

846

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

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To understand fully the origins and development of JCAH, the history of

organized American health care delivery must be considered. The extensive,

indeed almost exclusive, reliance on large medical institutions which character-

izes the current health care delivery system is a quite recent development.

Though hospitals existed in the nineteenth century, they bore little resemb-

lance to the modern institution of the same name." Until late in the nineteenth

century a hospital was primarily a charitable institution that provided housing,

moral nurture, and health care for the worthy poor," usually for free." Middle

and upper class patients received medical care,- including surgery, in their own

homes and seldom entered hospitals.'"

During the late nineteenth and early twentieth centuries, however, the

organization of medical care changed rapidly and radically. Scientific and

technical developments, especially the development of antisepsis and asepsis,

made hospitals much safer and more attractive to the middle class," at the

same time that social changes were making home treatment less feasible."

With new technology came increases in hospital costs." In response, hospitals

began to charge for their care, and to permit physicians who practiced within

the hospital to charge for their services." All of this led to rapid growth. The

number of hospitals increased from 178 in 1873 to 4359 in 1909.

As the nature of the hospital was changing, so was the nature of the prac-

tice of medicine. In the nineteenth century most physicians were generalists."

Specialization for physicians, uncommon in the nineteenth century, developed

rapidly in the twentieth." Especially remarkable was the emergence of surgery

as a specialty practice. The discovery of antisepsis, following upon the earlier

discovery of anesthesia, made surgery safer and more common

;

the demand

$625 per surveyor per day.

Id.

ROSEN,

FROM

MEDICAL POLICE TO SOCIAL MEDICINE: ESSAYS IN THE

HISTORY

OF HEALTH CARE

293-95 (1974);

REVERBY,

THE

SEARCH FOR THE HOSPITAL YARD-

STICK: NURSING

AND THE RATIONALIZATION OF

HOSPITAL

WORK IN HEALTH CARE IN

AMERICA:

ESSAYS

IN SOCIAL

HISTORY 206, 207-09 (S. Reverby & D. Rosner eds. 1979)

(hereinafter cited as

HEALTH CARE IN AMERICA);

Rosner,

Health Care for the "Truly Needy":

Nineteenth Century Origins of the Concept,

MILLBANK

MEM. FUND.

Q. 355, 372, 375 (1982);

Vogel,

The Transformation of

the

American Hospital 1850-1920

HEALTH CARE IN AMERICA, supra,

at 105-10.

Vogel,

supra

note 78, at 105-10.

Id. at

109.

Id. at

105.

°2

Id. at

111-13.

" Id. at

110-11.

Id. at

112.

" Rosner,

supra

note 78, at 378-79; Rosner,

Business at the Bedside: Health Care in

Brooklyn, 1890-1915,

in HEALTH CARE

AMERICA, supra

note 78, at 122-28.

STEVENS,

AMERICAN

MEDICINE

AND THE PUBLIC INTEREST

52 (1972).

Id.

43-49.

Id.

at 49, 50, 77-80.



death rate for abdominal and pelvic surgery

was

40% in the decade 1880-1890,

by 1900 it was

below

5%.

Id.

at 49, 78-80.

July 1983]



PRIVATE REGULATION OF HEALTH CARE



847

for surgery increased greatly and surgeons' incomes grew rapidly.

° Though

surgeons increasingly relied on hospitals, the hospitals of the early twentieth

century continued to be organized poorly for the practice of surgery. Hospitals

lacked clinical laboratories, radiology, pathology, and other equipment and

services necessary for proper pre-operative and post-operative care." Inade-

quate medical records made it difficult to analyze the results of surgery."

Though surgical specialization and sub-specialization were becoming in-

creasingly common in the early twentieth century, it was hard for the public to

identify doctors qualified to perform surgery. General practitioners continued

to perform surgeries, as did many incompetent doctors who called themselves

surgeons." General practitioners could identify qualified surgeons, and refer

patients to them, but this arrangement often resulted in fee splitting, which was

costly and increasingly viewed as unprofessional conduct." Hospitals generally

made staff privileges - the privilege of admitting patients to and being

primarily responsible for patients within the hospital - available to any and all

physicians.

A closed staff system developed at this time in Britain, limiting

the practice of surgery to experienced specialists, but a similar system did not

develop in the United States."

The American College of Surgeons was organized in November 1912 in

an attempt to standardize and organize the practice of surgery." One of the

first tasks undertaken by the ACS was the standardization of hospital care. The

1912 Clinical Congress, at which the ACS was founded, adopted a resolution

calling for "some system of standardization of hospital work.

A committee,

established to study the improvement of hospital standards,

issued a report

recommending investigations, reports, and administrative procedures to im-

prove and standardize hospital care.'" In January of 1916, the ACS received a

$30,000 grant from the Carnegie Foundation to develop hospital standards,"'

and in October of the following year the first conference on hospital standardi-

zation was held.'" In December of 1917, a questionnaire was circulated to

9°

L. DAVIS, FELLOWSHIP OF SURGEONS: A HISTORY

OF THE

AMERICAN COLLEGE

SURGEONS 139 (1960).

Affeldt,

supra

note 53, at 182;

Reorganization Sets Future of Voluntary Accreditation,

JCAH

PERSPECTIVES ON ACCREDITATION,' Mar.-Apr, 1979, at 2.

Affeldt,

Voluntary Accreditation, supra

note 53, at 182; L. DAVIS,

supra

note 90, at 117,

204-05.

L. DAVIS,

supra

note 90, at 69-70; R. STEVENS,

supra

note 86, at 81.

L. DAVIS,

supra

note 90, at 87-88, 97-98, 137-42; R. STEVENS,

supra

note 86, at

83-84.

" R. STEVENS, supra note 86, at 83.

Id.

at 82.

L. DAVIS,

supra

note 90, at 61-62, 69-70; R. STEVENS,

supra

note 86, at 86-87.

9°

Affeldt,

supra

note 53, at 183, L. DAVIS,

supra

note 90, at 63, 475-76, F. Hair,

supra

note 72, at 36; Schlicke,

supra

note 72, at 379.

The committee was directed by Dr. Ernest A. Codman. F. Hair,

supra

note 72, at 36.

100

L. DAVIS,

supra

note 90, at 116, 117; F. Hair, supra note 72, at 37.

101

L. DAVIS,

supra

note 90, at 176; R. STEVENS,

supra

note 86, at 91.

102

L. DAVIS, supra note 90, at 207; F. Hair, supra note 72, at 45.

848

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[Vol. 24:835

2711 hospitals in the United States and Canada,'" followed by a survey of 692

hospitals in 1918 and the same number in 1919.

104

The standards on which the

survey was based concentrated on the surgeon's needs in the physician-hospital

relationship. The standards required medical staff organization; limitation of

staff privileges to qualified physicians and surgeons; regular meetings of the

medical staff; accurate, complete and accessible medical records; and provision

of diagnostic and therapeutic facilities (including clinical laboratory and x-ray

facilities).

103

Of the 671 facilities of over 100 beds surveyed by the ACS, only 89

could comply with the requirements.'" To avoid embarrassment to the promi-

nent hospitals that had failed the standard examination, the list of approved

hospitals was burned the night before its scheduled presentation in October

1919.'

The shocking results of the 1919 survey added impetus to the interest of

the ACS in hospital standardization.'" On December 20, 1919, the Board of

Regents of the ACS established the Hospital Standardization Program (HSP)

the predecessor of the JCAH.

The HSP attempted to identify and recognize

efficiently organized hospitals with well-run diagnostic and therapeutic serv-

ices, and accurate and complete case records. In addition the HSP sought

regularly to analyze and audit hospital progress toward compliance with the

minimum HSP standards."° Like the earlier ACS standards, HSP standards

focused on the organization and suitability of the hospitals for physicians. The

HSP standards stressed self-regulation of the medical staff, but left ultimate re-

sponsibility for granting staff privileges with the hospital administration and

governing board."'

Between 1926 and 1941 the Manual for Hospital Standardization was re-

vised seven times and grew from an eighteen-page pamphlet to a 118 page

book."' By 1941, the minimum standard had been supplemented by sixteen

additional standards addressing not only the organization of physician care,

but also the physical plant, equipment, and administrative organization of the

hospital."

The HSP effort to bring about medical staff organization had some

fairly dramatic immediate results: between 1918 and 1935 the percentage of

hospitals with organized medical staffs increased from twenty percent to ninety

109

L. DAVIS,

supra

note 90, at 207; F. Hair,

supra

note 72, at 45.

104

L. DAVIS, supra note 90, at 222; F. Hair, supra note 72, at 45, 46.

105

The standards are reproduced at Affeldt,

supra

note 53, at 184.

106

L. DAVIS,

supra

note 90, at 221; F. Hair,

supra

note 72, at 46.

187

L. DAVIS,

Supra

note 90, at 221; A. GERBER, THE GERBER REPORT 101-03 (1971);

F. Hair,

supra

note 72, at 46.

Affeldt,

supra

note 53, at 184.

109

L. DAVIS,

supra

note 90, at 221; F. Hair,

supra

note 72, at 47; Affeldt,

supra

note 53,

at 184.

L. DAVIS, supra note 90, at 172-74, 489-90; F. Hair,

supra

note 72, at 47.

L. DAVIS,

supra

note 90, at 221; F. Hair,

supra

note 72, at 49; M. ROEMER & J.

FRIEDMAN, DOCTORS IN HOSPITALS 36-37 (1971).

F. Hair,

supra

note 72, at 66.

Id.

at 66-67, 76-77.

July 1983]



PRIVATE REGULATION OF HEALTH CARE



849

percent of hospitals surveyed.

Nevertheless, many hospitals continued to

rely on unqualified staff, and shortages of physicians brought about by World

War II further aggravated problems in upgrading the quality of hospital physi-

cians.

The ACS and its HSP were from the first opposed by many physicians."

The American Medical Association (AMA) which represented the broader

spectrum of physicians, had previously passed a resolution opposing distin-

guishing marks for specialists.'" Many physicians opposed the HSP as a threat

to their freedom of medical practice and resisted mandatory medical record

charting and routine use of diagnostic laboratory tests.'" The AMA declined

an invitation from the 1914 ACS Congress to take over HSP,"

in 1918 threat-

ened to establish its own hospital standardization program, and even organized

a rival hospital conference. Tension continued to exist between the AMA and

ACS throughout the first half of the twentieth century,'

° reflecting the dif-

ferences between the elite and well paid hospital-based surgeons, and the pre-

dominantly poorer community-based general practitioners."' The American

Hospital Association (AHA), and Catholic Hospital Association on the other

hand supported the HSP.'

2. The Founding and Early Years of the Joint Commission on Accreditation

of Hospitals 1951-1965

The 1940's saw further changes in the organization of the delivery of

medical care in the United States. Well-defined classifications for medical spe-

cialists developed in the armed forces during World War II,

123

and public sub-

sidies for graduate medical education under the GI Bill led to a rapid rise in

specialization during the 1940's and 1950's.

124

Hospital expansion was stimu-

lated by the Hospital Survey and Construction Act of 1946

125

(the Hill-Burton

Act) which made generous federal assistance available for hospital construc-

tion. The Hill-Burton program also changed the nature of hospital regulation.

It imposed a cut-off on Hill-Burton funds to any state that did not, by July 1,

1948, enact "legislation providing that compliance with minimum standards of

maintenance and operation shall be required" of hospitals assisted through the

Id.

at 78,

Id.

at 80-84.

L. DAVIS,

supra

note 90, at 79, 89-93, 113-15 and 130-32.

ul R. STEVENS,

Supra

note 86. at 89.

See also

L. DAVIS,

supra

note 90, at 131; F. Hair,

supra

note 72, at 34 (discussing the opposition of the AMA to the ACS).

L. DAVIS,

supra

note 90, at 205-06; F. Hair,

supra

note 72, at 42-43.

L. DAVIS, supra

note 90, at 158, 175; F. Hair,

supra

note 72, at 91.

ISO L. DAVIS,

supra

note 90, at 230; R. STEVENS,

supra

note 86, at 128-29.

12L

See

L. DAVIS,

supra

note 90, at 133, 139; R. STEVENS,

supra

note 86, at 176-77 and

198.

122

L. DAVIS,

Supra

note 90, at 185, 206-07; F. Hair,

supra

note 72, at 43-44.

123

R. STEVENS,

supra

note 86, at 298-99.

Id.

at 297, 299.

' Pub. L. No. 79-725, 60 Stat. 958 (Codified at 42 U.S.C. §§ 291-291n (1946)).

850

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BOSTON COLLEGE LAW REVIEW

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[Vol 24:835

Hill-Burton Act.

126

In response to the Hill-Burton minimum standards re-

quirement, the AHA, with the assistance of the American Public Welfare Asso-

ciation, developed a model licensing law.'" This bill, as modified by a larger

group convened by the Council of State Governments, became the model hos-

pital licensing act upon which most current state hospital licensing laws are

based.'" The Hill-Burton Act, therefore, led to a radical increase in state in-

terest in hospital licensure: whereas only twelve states licensed general hospi-

tals prior to 1945, twenty-six additional states enacted licensure laws between

1945 and 1950)

The growing complexity of hospital care and increasing number of hospi-

tals gradually overwhelmed the HSP. Until 1950, ACS had single-handedly

financed the HSP, principally from the dues of its members, spending two

million dollars on the HSP, during the thirty-one years of the HSP, including

$68,577.27 for the fiscal year 1949.

° In 1950, the new director of the ACS,

Paul R. Hawley, began to seek out alternatives for the management of the pro-

gram."' Because of past AMA coolness toward the HSP, Hawley turned first

to the AHA,'" which had considered initiating its own hospital standardiza-

tion program as early as 1943 but had not proceeded because of the existence of

the ACS program.'" The AHA offered to take over the standardization pro-

gram,

134

and on July 21, 1950 a committee of the ACS and AHA drafted an

agreement for transfer of the HSP.

139

The proposal for transfer was rejected by

the ACS Board of Regents on August 4, 1950, but on August 5, the AHA

Board of Trustees adopted a resolution to create its own standardization pro-

gram.

136

At this point, the AMA entered the fray, attacking AHA control over

hospital standardization as an attempt to "superimpose lay judgment on pro-

fessional knowledge and ability,'"" other medical association journals called

for a boycott of hospitals accredited by the AHA,'" and attacks on the ACS

standardization program within the AMA and the newly formed American

Academy of General Practice (AAGP) were revived.

139

126

42 U.S.C. § 291f(d) (1946).

Lander,

supra

note 26, at 131, A. SOMERS, HOSPITAL REGULATION: THE DILEMMA

OF PUBLIC POLICY 107 (1969).

123

Lander,

supra

note 26, at 131, A. Somers,

supra

note 127, at 107.

129

F. Hair,

supra

note 72, at 245.

"° L. DAVIS,

supra

note 90, at 379, 380; F. Hair,

supra

note 72, at 99; Schlicke,

supra

note 72, at 380.

131

F. Hair,

supra

note 72, at 100.

132

L. DAVIS,

supra

note 90, at 381.

133

F. Hair,

supra

note 72, at 100.

134

Id.

at 101.

"' Id.

The transfer as proposed would have created a 25 member commission: 13

members (including the chairman) appointed from hospital trustees; 6 hospital administrators, 3

surgeons appointed by the ACS, and 3 physicians appointed by the ACP. L. DAVIS,

supra

note

90, at 382; F. Hair,

supra

note 72, at 101-02.

136

L. DAVIS,

supra

note 90, at 382, 383; F. Hair,

supra

note 72, at 102.

132

Editorial,

Inspection of Hospitals by

Hospitals,

1441 AM. MED. A.

394, 395 (1950).

138

F. Hair,

supra

note 72, at 105-06.

139 L. DAVIS,

supra

note 90, at 383; F. Hair,

supra

note 72, at 108.

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851

In this context of strife and suspicion, efforts at cooperation nevertheless

were begun. On November 19, 1950, the AHA, AMA, ACS, and ACP agreed

tentatively to coordinate their efforts and attempt to establish a joint hospital

standardization program.'

° Characteristically, the meetings that followed

were "highlighted by tangential discussion, misstatement of facts, misunder-

standings of purposes, and evasive answers to pointed questions."141

The

AMA continued to take a dim view of the involvement of non-physicians in

hospital standardization. Continued discussions, however, finally resulted in

the proposal of a joint commission, with representation of six members each for

the AMA and AHA, three members each for the ACS and ACP and one mem-

ber to represent the Canadian Medical Association.

142

The Commission was to

be funded by each of the member groups in proportion to its representation,

with field inspection staff provided by the ACS and the AMA.

143

The proposed commission was quickly approved by the AHA, ACS and

ACP, but opposition continued within the AMA.

144

The AAGP led the opposi-

tion, insisting upon either a standardization program conducted solely by the

AMA, or independent representation for itself on any joint commission."' The

AMA house of delegates finally approved the formation of the Joint Commis-

sion on September 16, 1951, with a proviso admonishing the AMA to continue

to press for strengthened representation on the Commission for the AMA, and

for less representation for the AHA.

146

The JCAH held its organizational

meeting on December 15, 1951.

147

Although JCAH adopted the ACS standards without alteration, it paid

more attention to specific aspects of the hospital medical program: medical

records, staff appointments, clinical pathological conferences, and tissue

review.

118

This was seen as interference in medical practice and provoked some

opposition from physicians.

Continued opposition from the General Practice

section of the AMA necessitated AMA committees which in 1956 and again in

1961 and 1963 investigated the JCAH, each time recommending continued

AMA participation .

14°

DAvIS,

supra

note 90, at 343, 500; F. Hair,

supra

note 72, at 109.

"' L. DAVIS,

supra

note 90, at 384.

L. DAVIS,

supra

note 90, at 386. The Canadians withdrew in 1959 when they

founded their own accrediting commission, Schlicke,

supra

note 72, at 380.

F, Hair,

supra

note 72, at 112.

144

L. DAVIS,

supra

note 90, at 386, 387.

144

F. Hair,

supra

note 72, at 113;

Joint Commission is Proposed,

MOD.

HOSP.,

June

1951, at 70;

Looking Forward,

76 MOD. HOSP., May 1951, at 49.

F. Hair,

supra

note 72, at 116. (The AHA and AMA have continued to have an equal

number of representatives on the Commission and AMA efforts to change this appear to have

been abandoned).

147

Id.

at 117.

148

Id.

at 119. The hospitals accredited by the ACS were also automatically accorded ac-

creditation by the JCAH, L. DAVIS,

supra

note 90, at 387.

149

F. Hair,

supra

note 72, at 119-22,

15°

Id.

at 122-32.

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The early 1960's saw changes in the JCAH. In 1961, JCAH developed its

own paid survey staff permitting an end to reliance on the field staff of the ACS

and AMA."' In 1964, the JCAH began to charge fees for its inspection pro-

gram, reducing the financial burden of its members.

152

Then, in 1965, the

JCAH expanded its scope, assuming responsibility for nursing home accredita-

tion, and adding commissioners to represent the American Nursing Home

Association and American Association of Homes for the Aging.

153

JCAH also

expanded by adding a program to accredit psychiatric facilities in 1960 and a

program for accreditation of rehabilitation facilities in 1967.

154

3. The Joint Commission and the Medicare Program: 1965-1975

With the advent of Medicare in 1965, JCAH was radically changed from a

private, voluntary accreditation program to an agency with a major role in

public

health care regulation and financing. Though national health insurance

had been a popular issue for much of this century, legislation which directly

spawned the current Medicare and Medicaid programs was introduced only in

the late 1950' s."

Early drafts of this legislation paid minimal attention to con-

trolling the quality of health care services which

the new government funds

would purchase.

156

Subsequent bills, however, began to contemplate quality

control through the use of existing accrediting agencies. A bill introduced in

1961 would have required the Secretary of Health, Education and Welfare

(HEW) to consult with "recognized national listing or accrediting bodies" in

setting standards for hospitals, nursing homes, and home health agencies."'

This bill also permitted the Secretary to grant deemed status to these health

care providers: to the extent that the Secretary found national accreditation

bodies to provide reasonable assurances that conditions of participation would

be met, accredited hospitals, nursing homes, and home health agencies would

be deemed to meet quality conditions of Medicare participation.'" Both

161

Schlicke,

supra

note 72, at 380.

Id.

'" F. Hair,

supra

note 72, at 148-50. The ANHA (now the American Health Care

Association) and AAHA lost their seats on the Commission when the Accreditation Council for

Long Term care was established in 1971,

Reorganization, supra

note 91, at 5.

Hair,

supra

note 72, at 150-51.

155

P. CORNING, THE EVOLUTION OF MEDICARE FROM IDEA TO LAW 74.76 (1969);

Cohen & Ball,

Social Security Amendments of 1965: Summary and Legislative History,

SOC. SEC. BULL.,

Sept. 1965, at 3, 3-4.

166

H.R. 4700, introduced in 1959 would have permitted any licensed hospital to receive

Medicare funds. H.R. 4700, 86th Cong., 1st Sess. (d)(1) (1959),

reprinted in Hospital, Nursing

Home, and Surgical Benefits for.OASI BenefiCianes,

Hearings on H.R. 4700 before the House Comm.

on Ways and Means, 86th Cong., 1st Sess. 3 (1959).

'" H.R. 4222, 87th Cong., 1st Sess. 5 1607 (1961)

reprinted in Health Services for the Aged

Under the Social Security Insurance System Hearings before the House Comm. on Ways and Means,

86th

Cong., 1st Sess. 7 (1961).

158

Id. , 5

1608(b) at 7.8.

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HEWI

and AHA'

° supported reliance on JCAH accreditation to assure

quality.

Proposed Medicare legislation introduced in subsequent years steadily

strengthened the position of the Joint Commission."' These changes were

warmly supported by the AHA. Kenneth Williamson, an Associate Director of

the AHA, testified in

1965:

We also believe that it is particularly important that the references to the

Joint Commission on the Accreditation of Hospitals .... be retained in the

bill as it provides that the Secretary cannot establish standards whose re-

quirements are in

excess

of those which the health field itself prescribes. This

understandably gives a great feeling of comfort to the health fteld.

162

The Medicare statute, as finally enacted, not only required HEW to accept

JCAH accreditation as a conclusive determination of

hospital quality for par-

ticipation

in the Medicare program, but forbid HEW to promulgate standards

of quality higher than those adopted by JCAH.'

The reasons for heavy reliance by Medicare on JCAH were twofold. First,

there was substantial political pressure to get the Medicare program fully oper-

ational rapidly.'" President Johnson, with a large political stake in Medicare,

Id.

at 223 (statement of Abraham Ribicoff, Secretary of HEW July 24, 1961). Dur-

ing 1961 hearings, Secretary Ribicoff of HEW testified that if required to immediately imple-

ment Medicare, he would " ... hand down an order that any hospital that was accredited by the

Joint Commission on Accreditation would be prima facie eligible."

Id.

at 223. He further stated

"I would give the greatest respect, as I do now, to the Joint Commission on Hospital Accredita-

tion. I think they are doing a fine job in America to raise the standards of our hospitals, and I

would not look behind their accreditation."

Id.

at 224.

° In his testimony during the 1961 hearings, AMA president Frank Groner supported

the notion of permitting JCAH accredited hospitals to participate in Medicare.

Id.

at 250 (state-

ment of Dr. Frank S. Groner, President, AMA, July 26, 1961).

163

1806(a) of H.R. 11865, defined hospital as an institution which "meets such other

of the requirements prescribed for the accreditation of hospitals by the Joint Commission on the

Accreditation of Hospitals as the Secretary finds necessary in the interest of health and safety of

individuals who are furnished services by or in the institution." H.R. 11865, 5 1806(a) 88th

Cong., 2d Sess., (1964),

reprinted in Social Security, Medical Care for the Aged Amendments: Hearings

before the Senate Comm. on Finance,

80th Cong., 2d Sess. 21 (1964). The bill further provided that

"an institution shall be deemed to meet the conditions of participation under 5 1806(a) ... if

such institution is accredited as a hospital by the Joint Commission on the Accreditation of

Hospitals."

Id. 5

1808(b)(1) at 25. H.R. 6675 provided that hospital certification requirements

promulgated by the Secretary could not "be higher than the comparable requirements prescribed

for the accreditation of hospitals by the Joint Commission on the Accreditation of Hospitals."

H.R. 6675, 5 1861(c)(8), 89th Cong., 1st Sess. (1965),

reprinted in Social Security. Hearings before the

Senate Comm. on Finance,

89th Cong., 1st Sess., 21 (1965).

162

Medical Care for the Aged,

Executive Hearings before the House Committee on Ways

and Means, 89th Cong., 1st Sess., 2236 (1965) (Statement of Kenneth Williamson, Associate

Director AHA, Feb. 2, 1965).

163

See

Pub. L. No. 89-97, 5 1861(e)(8) (codified at 42 U.S.C. 1395x(e)(g) (Supp. II

1966); 5 1865 (codified at 42 U.S.C. 1395bb (Supp.

1966)) 79 Stat. 290, 315, 326, 327, 89th

Cong., 1st Sess. (1965). Insofar as .5 1861(e)(7) required hospitals to be licensed in states that had

licensing laws as an additional prerequisite to certification, it was possible that an accredited

hospital could be refused Medicare certification if a state denied it licensure.

164

FEDER, MEDICARE: THE POLITICS OF FEDERAL HOSPITAL INSURANCE 11

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believed that its success depended on maximum access from the beginning of

the program, and thus on immediate near universal hospital participation."'

Those who had to administer the program were greatly relieved to have a fully

developed quality certification system,'" that, by the mid-1960's; accredited

sixty percent of the hospitals, and eighty-seven percent of the hospital beds in

the country."' Second, reliance on the JCAH was strongly supported by the

AHA. Though the AMA had consistently and vigorously opposed Medi-

care,

168

the AHA had cautiously supported parts of the Medicare program'"

and the use of JCAH for hospital regulation strengthened this support.

Following the passage of the Medicare law in 1965, JCAH entered a

period of rapid growth and elaboration. In 1966 it had about a dozen staff, a

dozen surveyors and a budget of about $500,000 annually; by the late 1970's it

had about 350 employees, 100 surveyors and an annual budget of $14

million.'" The JCAH also further diversified its efforts, entering into agree-

ments with twenty-four national organizations representing health constituen-

cies to establish four accreditation councils to accredit different kinds of med-

ical care."' While the councils were subject to the ultimate authority of the

Board of Commissioners, they functioned with substantial independence in set-

ting standards and in recommending accreditation decisions."' Finally, be-

tween 1966 and 1971 theiCAH completely rewrote its hospital accreditation

standards. The effect of this rewrite is disputed: JCAH claims it created a

higher national minimum hospital quality care standard;'

others claim that

the new standards were more vague and less demanding than the earlier stand-

ards."

(1977).

165

Id.; J.

FEDER, THE SOCIAL SECURITY ADMINISTRATION AND MEDICARE: A

STRATEGY FOR IMPLEMENTATION IN TOWARD A NATIONAL HEALTH POLICY 19,

22-23 (K.

Friedman & S. Rakoff eds.

1977).

166

See supra

note

159,

telephone interview with Wilbur Cohen, Aug. 30, 1982.

165

FEDER,

supra

note 164, at

Cashman and Myers,

Medicare: Standards of Service

New Program — Licensure, Certification, and Accreditation,

AM.

OF PUB. HEALTH

1107, 1114

(1967).

166

See generally

HARRIS, A SACRED TRUST

(1966) (describing the AMA lobbying

campaign against Medicare).

ISO See

CORNING,

supra

note 155, at

79, 80;

Telephone interview with Wilbur Cohen,

(Aug. 30,

1982).

Ste also

SOMERS & A. SOMERS, MEDICARE AND THE HOSPITALS 83

n. l0

(1967).

° Schlicke,

supra

note 51, at 8.

Affeldt, supra note 53, at 186.

172

See JCAH Plans Reorganization,

PERSPECTIVES ON ACCREDITATION,

Sept.-Oct.

1978

The Accreditation Council for Services for the Mentally Retarded and Other Developmen-

tally Disabled Persons was established in

1969;

the Accreditation Council for Psychiatric

Facilities in 1970, the Accreditation Council for Long-Term Care Facilities in 1971, and the Ac-

creditation Council for Ambulatory Health Care in

1975,

Reorganization, supra

note 93, at 5.

' Schlicke,

supra

note 51, at 8; Schlicke,

supra

note 72, at 381.

176

S. LAw &

S. POLAN, PAIN

AND PROFIT, 65-67 (1978);

A. SOMERS,

supra

note

127,

130, 131. The revised standards included a standard for review of hospital utilization by patients

parallel to that found in the Medicare law. H.

SOMERS & A. SOMERS,

supra

note 169, at 83.

July 1983]

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This period of growth and elaboration was not without its trials. In the

early 1970's, growing consumer awareness led to controversy about the JCAH

role in the Medicare program. In mid-1970, the National Welfare Rights Or-

ganization and a number of other consumer groups met with the JCAH,

presenting JCAH with twenty-five demands for opening up the accreditation

process and for altered standards to require of hospitals more consumer partici-

pation and greater responsibility toward the poor.

Almost simultaneously

several consumer groups sued HEW, challenging the delegation of authority

for Medicare certification to the JCAH as a delegation of public authority to a

private body in violation of the United States Constitution.'" The case was

precipitated by JCAH accreditation of the San Francisco General Hospital and

the District of Columbia General Hospital despite serious problems and con-

sumer complaints.

Also in 1970 and 1971 a number of legislative proposals,

including a bill introduced by Senator Edward Kennedy to establish an in-

dependent federal commission for accreditation, further challenged the role of

the JCAH.'

JCAH responded to this consumer pressure by adding a preamble to its

standards recognizing patient's rights, and incorporating public information

interviews into the accreditation process.'" It briefly had a consumer advisory

committee. The leadership of JCAH, however, continued to identify JCAH as

a consultant accountable to the medical care industry and to reject the role of a

regulator accountable to the public.

JCAH standards and enforcement also had become a source of concern to

those administering the Medicare program. The annual report on Medicare of

the Health Insurance Benefits Advisory Council (HIBAC), issued July 1969

and covering July 1, 1966 through December 31, 1967, stated that the Council

"found reason for concern that JCAH standards are not applied with the fre-

quency of inspection and range of inspector skills necessary to assure a high

degree of effectiveness" and that "the JCAH standards in some cases impose

an undesirably low ceiling" on Medicare health and safety standards.'"

" Schlicke,

supra

note 72, at 382, 383.

Other demands are set forth in Worthington & Silver,

Regulation of Quality of Care in

Hospitals: The Need for Change,

35 LAIN & CONTEMP. PROBS., 305, 328-31 (1970).

'" Self-Help for the Elderly v. Richardson, No. 2016-71 (D.D.C. 1972).

See infra

text

accompanying notes 571-616 discussing the delegation doctrine.

Hearings, supra

note 54, at 1944-71 (testimony of Fred Hiestand, attorney for plain-

tiffs), 1976-89 (testimony of Kenneth Barres and Bruce Terris); J. FEDER,

supra

note 164, at 23,

Suit Challenges Delegation of Medical Standards toJCAH, 7

HOSP. FRAC., Feb. 1972, at 186, 187, 195,

196, 199 (1972) (hereinafter cited as Suit

Challenges); Suit Calls JCAH Role in Medicare Unconstitu-

tional,

MED. WORLD NEWS,

Nov. 5, 1971, at 18 (hereinafter cited as Suit

Calls).

S. 3327, 92d Cong., 2d Sess., (1972) reprinted in 118 Cong. Rec. 31551,

31557-31561; Schlicke,

supra

note 72, at 382.

° Porterfield,

The JCAH: A Look at What Has Changed, What Has Endured,

5 HOSP.

MED, STAFF,

Sept. 9766 at 23, 25; Schlicke,

JCAH and the Federal Government,

64 BULL. AM.

COLL. SURG., March 1979, 23, 24, 25; Schlicke,

supra

note 72, at 382,

' Schlicke,

supra

note 51, at 8-9, 11, 12;

Suit Calls, supra

note 178, at 19.

182

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HIBAC recommended that HEW be given authority to set standards for hospi-

tals and that states be given authority to inspect accredited facilities.

/83

Similar-

ly, several state agencies also began to criticize JCAH standards and inspec-

tions.

184

Congress responded to consumer and HIBAC concerns through the Social

Security Amendments of 1972, which permitted HEW to promulgate hospital

standards exceeding JCAH accreditation standards;

185

to validate JCAH ac-

creditation by state inspections performed randomly and in response to

substantial complaints;

186

and to decertify accredited hospitals that failed to

comply with the federal regulations."' The amendments relieved consumer

pressure on JCAH but increased tension between JCAH and HEW. The first

HEW report to Congress concerning the results of the validation surveys sub-

mitted in 1976 identified wide discrepancies between JCAH and state surveys,

with JCAH finding fewer deficiencies.'" JCAH responded publicly to this

report, pointing out that most of the additional deficiencies were in the physical

plant or fire safety areas, which it regarded as less directly related to the quality

of care.'" JCAH also improved its fire safety standards and inspection.'

HEW and the JCAH also clashed over the confidentiality of hospital ac-

creditation reports. The 1972 amendments required hospitals, as a condition of

Medicare participation, to release JCAH accreditation survey reports to HEW

for validation of accreditation.'

' Although the statute specified that the reports

were to be kept confidential, HEW in 1975 released a number of JCAH defi-

ciency letters to a consumer organization pursuant to a Freedom of Informa-

tion Act request.

JCAH immediately ceased providing validation reports to

THE PERIOD

JULY

1966 - DECEMBER 31, 1967, 11 (1969).

Id.

at 11, 12.

194

HIBAC,

Task Force on Extended Care Services,

SELECTED STATE REPORTS, staff report,

at 5, Ark. Report at 5, 6. Fla. Report at 9, 10 (Sept. 4, 1968).

'" Pub. L, No. 92-603 5 244(b)(1), 86 Stat. 1329, 1423 (1972) (codified at 42 U.S.C.

1395bb(a)(4) (1976)).

See

SEN. REP. No. 92-1230 92d Cong., 2d Sess. 290 (1972) for the

legislative history.

'" Pub. Law No. 92-603 5 244(a), 86 Stat. 1329, 1422, 1423 (1972) (codified at 42

U.S.C.

1395aa(c) (1976)).

197 Pub. Law No. 92-603 5 244(b)(2), 86 Stat. 1329, 1423 (1972) (codified at 42 U.S.C.

5 1395bb(b) (1976)).

198

HEW, REPORT OF MEDICARE VALIDATION SURVEYS OF HOSPITALS ACCREDITED

BY THE JOINT COMMISSION ON THE ACCREDITATION OF HOSPITALS

5-7 (1975). Annual reports

on the results of validation surveys were required by Pub. Law No. 92-603, 5 244d, 86 Stat.

1329, 1423 (1972) (codified at 42 U.S.C. $ 1395bb (1976)).

189

JCAH REPORT TO CONGRESS

MB (1975).

199

Lewis,

The Uncertain Future of JCAH, 4

MOD. HEALTH CARE, August 1975, 21-22;

Schlicke,

supra

note 51, at 9, 10; Schlicke,

supra

note 185, at 26.

See also

Affeldt,

JCAH the Best

Game in Town,

59 HOSP. PROG. September 1978, 51, 53 (explaining differences in HEW and

JCAH survey procedures that resulted in discrepancies in survey results).

Pub. Law No. 92-603, 5 244(b)(1) 86 Stat. 1329, 1423 (1972) (codified at 42 U.S.C.

5 1395bb(a)(2) (1976)).

192

Schlicke,

supra note 51, at 9; Van Amringe,

Putting Hospital Standards on the Examining

Table,

HCFA FORUM, December 1980, at 23;

Hospital Accreditation - Where Do We Go From Here,

2 HEALTH PERSPECTIVES Mar.-Apr. 1975, at 4, (hereinafter cited as Hospital Accreditation).

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HEW and sued to enjoin any further releases.'" In October of 1975, JCAH

and HEW reached a settlement barring release by HEW of accreditation let-

ters or accompanying recommendations or comments.

194

Finally, the emergence of Professional Standards Review Organizations

(PSRO's)t" in 1972 challenged JCAH dominance of hospital regulation.'"

The PSRO legislation established a quality and utilization peer review pro-

gram for Medicare and Medicaid financed hospital care wholly independent of

JCAH. The program even duplicated some of JCAH's quality audit pro-

cedures.

191

A final notable development in the early 1970's was the increased em-

phasis of JCAH on evaluation of quality of patient care. JCAH had long been

accused of emphasizing physical and administrative structures - the capacity

to deliver care, rather than the actual quality of patient care."' In response to

this criticism (and perhaps to other factors)''' JCAH began to require outcome

oriented hospital quality review programs. It also developed a specific system,

the Performance Evaluation Procedure for Auditing and Improving Patient

Care (PEP),

" that hospitals could use to meet this standard.

4. Recent Developments - 1975 to the Present

During 1977 and 1978, JCAH was extensively reorganized. The accredita-

tion councils, set up in the mid-1960's, had functioned with increasing

autonomy, creating administrative and managerial problems and, some claim,

threatening the control of JCAH's member groups over the accreditation pro-

gram."' Accreditation staff functioned under a dual authority, responding

both to the accreditation councils and to JCAH management.

202

To eliminate

these accountability problems, JCAH abolished the accreditation councils and

established the current PTAC system described earlier."' Two of the four ac-

I" Joint Commission on Accreditation of Hospitals v. Weinberger, No. 75 C175 (N. D.

Ill. Oct. 8, 1975) (dismissed by stipulation).

19*

Id.

Pub. Law No. 92-603, § 249F, 86 Stat. 1329, 1429-1445, (1972) (codified at 42

U.S.C. § 1320c-1320c19 (1976)).

196

Ellis,

supra

note 54, at 36; Porterfield,

supra

note 180, at 23, 24; Schlicke,

supra

note

180, at 26, 27.

'" Schlicke,

supra

note 51, at 10, 11;

see

Crosby,

supra

note 54, at 133, 134.

'" Crosby,

supra

note 54, at 133.

'" For an analysis which attributes the development of JCAH quality review to the

malpractice crisis, see S.

LAW &

S. POLAN,

supra note 174, at 65-67 (1976).

200

Id. See

JACOBS,

T. CHRISTOFFEL & N. DIXON, MEASURING THE

QUALITY

PATIENT CARE: THE RATIONALE FOR OUTCOME AUDIT,

ix-x

(1976).

See also

Crosby,

supra

note

54, at 134; Porterfield,

A Farewell Look at JCAH Standard Audit Requirements,

HOSP. MED. STAFF,

July 1977, at 29, 31; Porterfield,

JCAH Board Adopts Schedule for Implementation of Quality Review, 3

HOSP. MED. STAFF, Sept. 1974, at 33 (discussing the PEP).

201

Crosby,

supra

note 54, at 136, 137;

JCAH Moves to Change its Policy Structures,

7 AHCA

WEEKLY NOTES, Oct. 6, 1978, at 3 (hereinafter

JCAHMoves); Reorganization, supra

note 91, at 5;

JCAH Plans Reorganization, supra

note 172, at 6.

202

JCAH Moves, supra

note

201, at 3.

202

See supra notes 44-47 and accompanying text.

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creditation councils refused to go along with the reorganization proposal: three

of the five members of the Ambulatory Health Care Council broke off to

establish an independent Accreditation Association for Ambulatory Health

Care;

204

eight of the eleven members of the Mental Retardation and De-

velopmental Disabilities Council also rejected the arrangement and set up an

independent accreditation body.

206

JCAH continued its own ambulatory facili-

ty accreditation program under a PTAC, but has largely abandoned the men-

tal retardation/developmental disabilities facility program.

The late 1970's and early 1980's also marked a rapproachment between

JCAH and HEW. A 1979 GAO Repoit essentially supported a continued

JCAH role in Medicare certification.

207

Increasingly, HEW sought to

cooperate with rather than to police JCAH:

" new 'HEW validation regula-

tions issued in 1980 emphasized reconciling discrepancies between JCAH and

state inspection reports more than monitoring JCAH performance.

209

JCAH

overtures included attempts to coordinate activities with the PSRO's.

° In May

of 1981, the Reagan Administration, as part of its regulatory reform efforts,

proposed permitting JCAH to certify nursing homes for participation in

Medicare and Medicaid.

The late seventies also saw an increase in state

reliance on JCAH for licensure. 1979 and 1980 GAO Reports recommended

that HEW encourage coordination between the JCAH accreditation and state

licensure programs.

212

As of 1982, thirty-eight states relied on JCAH standard-

ization or accreditation in some way in their medical regulation programs.

213

At the same time as the government increasingly has been relying on

JCAH as part of a program of deregulation, JCAH, ironically, has undertaken

deregulation efforts of its own. The 1970 standards are currently being sub-

stantially revised to make them simpler and more flexible.

In particular, the

264

Crosby,

supra

note 54, at 137.

205

206

Id. , AP-MRDD Discontinued in Present Form,

JCAH

PERSPECTIVES ON ACCREDITA-

TION,

July-Aug. 1979, at 2.

205

GAO

REPORT

B-164031(4),

THE MEDICARE HOSPITAL CERTIFICATION

SYSTEM

NEEDS REFORM,

ii, 14, 16, 19, 31 (1979); Schlicke,

supra

note 185, at 27-28;

GAO Report Favors

JCAH,

PERSPECTIVES ON ACCREDITATION,

July-Aug. 1979, at 1.

208

See, e.g.,

Derzon,

Needed.• A Durable JCAH-HCFA Partnership,

Host'. PROGRESS,

Sept. 1978, at 54; Schlicke,

supra

note 180, at 25-27; Van Amrige,

supra

note 192, at 23-25.

45 Fed. Reg. 74826 (1980) (codified at 42 C.F.R. $S 405.1901, 405.1902 (1981)).

210 C

S. B

LUM, P.

GERTMAN & J. RABINOW,

PSRO's

AND THE LAW,

78-79 (1977);

Schlicke, supra note 51, at 10-11; Van Amrige,

supra

note 192, at 24.

211

See supra

text accompanying and authority cited in notes 63, 64.

212

GAO Report B-199186,

INFORMATION ON HOSPITAL INSPECTIONS, REPORTING

REQUIREMENTS AND LIFE SAFETY CODE ENFORCEMENT

3-5 (1980) (hereinafter cited as 1980

GAO

REPORT);

GAO Report,

supra

note 207, at 34; Schlicke,

supra

note 51, at 11.

213

See supra

text accompanying and authority cited in notes 65-71.

214

Affeldt,

New Directions in Standards and Survey Process,

10 HOSP. MED. STAFF,

Aug.

1981, at 24; Laviolette,

JCAH Board Mulls Radical Survey Change,

11 MED. HEALTH CARE,

June

1981, at 18-19; Laviolette,

Simpler JCAH Standards on Thawing Board, 11

MED.

HEALTH CARE,

Feb. 1981, at 33, 34; Laviolette,

JCAH Will Go Easy on QA Standards Surveys,

10 MED. HEALTH

July 1983]



PRIVATE REGULATION OF HEALTH CARE



859

quality assurance standard has been revised to eliminate specific numerical

audit requirements and give hospitals substantial flexibility in achieving com-

pliance."' JCAH has also moved from a two to three year accreditation cycle

and toward more reliance on self-conducted surveys by hospitals.

216

Finally, JCAH, which has spent relatively little time in court during its 31

year history, has recently become the defendant in an increasing number of law

suits that reflect varying aspects of JCAH's significant role as a private and

public regulator. Several antitrust cases have been brought, pressing claims

that JCAH and its constituent members and hospitals have conspired to ex-

clude chiropractors, psychologists and other non-physician health care practi-

tioners from access to hospitals.'" Psychiatric hospital patients who lost their

eligibility for Supplemental Social Security payments when the hospital lost its

Medicaid certification because of JCAH disaccreditation, have challenged the

delegation of authority to JCAH to certify health care facilities for federal pro-

grams."' The suit claims alternatively that JCAH decertification decisions are

acts of the federal government, requiring due process. Moreover, a number of

malpractice cases brought against hospitals have included the JCAH as a de-

fendant, claiming that JCAH accreditation should serve as a guarantee of

quality.

219

In summary, JCAH is a private entity governed by representatives of

hospitals and physicians. Its most important function is the accreditation of

hospitals, but JCAH also accredits a variety of other health care providers. In

theory, JCAH accreditation is voluntary. In practice, most acute care hospitals

are JCAH accredited because of the important role of accreditation in private

or public licensing, certification, and financing programs. Despite JCAH's

CARE, Nov. 1980, at 11-12;

Board Considers Major Changes,

JCAH PERSPECTIVES, July-Aug.

1981, at

1; JCAH Treads Lightly on Survey of QA Standard,

11 MED. HEALTH CARE, June 1981, at

46. One particular move towards deregulation is a weakening of requirements for informed con-

sent documentation, Affeldt,

Patients Rights,

11 HOSP. MED. STAFF, Feb. 1982 at 9, 10-11.

215



QA Standard Approved,

PERSPECTIVES ON ACCREDITATION, May-June 1979, at 1.

216

Board Sets Guidelines for Three Year Accreditation, JCAH

PERSPECTIVES, Jan.-Feb. 1982,

at 1;

JCAH Board Approves Three-Year Accreditation,

JCAH PERSPECTIVES, Sept.-Oct. 1981, at 1.

217

v. JCAH, 354 F.2d 515 (D.C. Cir. 1965); Wilk v. AMA, 635 F.2d 1295 (7th

Cir. 1980) (appeal pending No. 81-1331 7th Cir. argued 1981); Garland v. Soc'y of

Anesthesiologists No. 81-4278 (N.D. Cal. Second amended complaint filed May 10, 1982);

Health Care Equalization Comm. of the Iowa Chiropractic Society v. Iowa Medical Soc'y, 501

F. Supp. 970 (S.D. Iowa 1980) pending No. 79-381-A; New York v. AMA, No. 79C 1732

(E.D.N.Y. dismissed July 9, 1981); Ohio v. JCAH, Civ. No. C-2-79-1158 (filed Dec. 14, 1979);

Slavek v. AMA, 1982-1 Trade Cas. (CCH) 1 64,509 (E.D. Pa. Jan. 27, 1982).

See also

In re

Chiropractic Antitrust Litigation, 483 F. Supp. 811 (J.P.M.D.L. 1980) (deciding issues in same

litigation not directly related to those considered here).

Cospito v. Califano, No. 77-869 (D.N.J. 1983) (granting and denying several cross-

motions for partial summary judgment); 80 F.R.D. 374 (1981).

219

Green v. Carlson, 581 F.2d 669 (7th Cir. 1978) of 'd,446 U.S. 14 (1980); Ruggirello

v. Memorial Hospital, No. 79-314-C7 (Cir. Ct. Macomb County Mich.); Kele v. United States,

No. C79-1093A (N.D. Ga.); Blanchard v. Our Lady of the Lake Medical Center, No. 231,311

(19th Judicial Dist. East Baton Rouge, La.); State of La. v. JCAH, No. 82-938 (4th Dist.

Quachita, La. filed March 18, 1982).

860

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BOSTON COLLEGE LAW REVIEW



[Vol. 24:835

continued identification as a private consultant to the medical industry, JCAH

plays a major and sometimes controversial role in government regulatory pro-

grams. The Medicare program, in particular, relies heavily on JCAH ac-

creditation for certifying facilities for participation in Medicare. Through its

standards and its accreditation program, JCAH has the primary responsibility

for the quality of care provided in American hospitals.

II. A MODEL FOR UNDERSTANDING THE

JOINT COMMISSION

Standardization

Standardization and certification are not, of course, unique to hospital

care.

° During the first three decades of the twentieth century the idea of

achieving efficiency through voluntary standardization swept the country,

bringing about the standardization of characteristics of many industrial prod-

ucts,

' including the viscosity of oil, sizes of lumber, and composition of steel

alloys."' While the role of, and reasons for, standardization in medical care

have received little study, the phenomenon of industrial standardization, par-

ticularly the economics of standardization, has been the subject of extensive in-

quiry."' This literature contributes much to an understanding of the hospital

standardization effort. This article will, therefore, discuss at some length the

economics of standardization, as it has generally come to be understood, and

apply this learning to understanding the JCAH.

Industrial standards fall into two basic categories: standards for uni-

formity and standards for quality.

224

Uniformity standards can further be

broken down into standards primarily adopted to promote interchangeability

of products (usually of parts such as nuts and bolts) or standards primarily

adopted to promote economies of scale either by making possible large scale

production or by simplifying market exchanges (such as standard bond paper

or lumber sizes).

225

Although this is not their primary purpose, JCAH hospital standards can

be understood as uniformity standards. They help to make the product,

"hospital care," or component parts of this product, such as radiology and

220

Standardization of medical care itself was not limited

to hospitals. The AMA as-

sumed the task of standardizing medical education by founding its Council on Medical Educa-

tion in 1904 and went on to achieve rapid and dramatic results following the release of the Flex-

ner Report in 1910. The ACS undertook not only to standardize hospital care but also the prac-

tice of surgery.

See

L. DAVIS,

supra

note 90, at 33,

61; R. STEVENS,

supra

note 86, at 58-73, 87,

221

HEMENWAY, INDUSTRYWIDE VOLUNTARY PRODUCT STANDARDS, 13-16, 22-24

(1975); NATIONAL BUREAU OF STANDARDS, REPORT OF THE VOLUNTARY STANDARDIZATION

POLICY STUDY GROUP 2-3

(1970); Hamilton,

The Role of Non-Governmental Standards in the Develop-

ment of Mandatory Federal Standards Affecting Safety or Health,

56 TEX. L. REV.

1329, 1368-70 (1978).

222

HEMENWAY,

supra

note 221, at

15, 16, 24,

223

See

FEDERAL TRADE COMMISSION, STANDARDS AND CERTIFICATION (1978); P.

HARTER, REGULATORY USE OF STANDARDS

(1979) and authorities cited

supra,

at note 221.

224

D. HEMENWAY,

supra

note 221, at 8, 9, 19, 45.

222

Id.

at 19.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



861

pathology, more uniform, and thus promote interchangeability of radiologists

and pathologists between hospitals and, perhaps, simplify comparisons of

hospitals by those who consume their services. JCAH standards are, however,

more commonly and accurately understood as qualiiy standards. To under-

stand quality standards it is necessary to consider the economics of informa-

tion,

Economics of Information

Quality standards are a form of information. A major function they serve

is to facilitate the smooth operation of markets for goods and services. For a

competitive market to exist, participants in the market must have the means of

acquiring information regarding exchange opportunities and the prices of

available goods and services in the market.

226

Traditional price theory assumes

that this information is costless and universally available.

227

Price and quality

information is, of course, seldom universally available and is often costly. Con-

sumers, however, have economic incentives to try to seek out or create infor-

mation, as informed choices are more efficient and can lead to an increase,

potentially significant, in the real utility of income.

228

Consumers may obtain

information about goods and services in a variety of ways: from their own ef-

forts, from sellers, or from independent sources.

First, consumers may produce information themselves through inspection

(search) or experience.

229

Consumers may themselves inspect simple goods, or

search advertisements or literature concerning products to make informed

decisions."° Consumers also get information through experience by purchas-

ing a product and evaluating the utility obtained from it

" or relying upon the

experience of others with the product.

232

Experience is most useful for

evaluating frequently purchased goods, as to which extensive experience can

be rapidly acquired.

233

Consumer inspection and experience are, however, of limited value for

purchasing hospital services.

234

First, the complex, technological nature of

226

Id.

at 47; J. GELMAN, COMPETITION AND HEALTH PLANNING: AN ISSUES PAPER,

38 (1982).

227

D. HEMENWAY,

supra

note 221, at 47.

226



GELMAN,

supra

note 226, at 40-42; Beales, Croswell & Salop,

The Efficient Regula-

tion of Consumer Information,

24 J. LAW AND ECON., 491, 501-02 (1981).

229

D. HEMENWAY,

supra

note 221, at 51; Nelson,

Information and Consumer Behavior,

78 J.

POL. ECON., 311, 311-12 (1970).

239

GELMAN,

supra

note 226, at 40.

231

HEMENWAY,

supra

note 221, at 51-52; Hirschliefer,

Where Are We in the Theory of

Information,

85 PROC. AM. ECON. ACAD. 31, 37-38 (1972); Nelson,

supra

note 229, at 312.

232 Nelson,

supra

note 229, at 321-23.

233



supra

note 231, at 37-38; Nelson,

supra

note 229, at 314.

234

CI J.

GELMAN,

supra

note 226, at 39, 40 (discussing consumer use of search and ex-

perience in medical care purchases). For a more sanguine view of the ability of consumers to

make medical care purchases,

see

Frech,

The Long Lost Market in Health Care

in NEW APPROACH,

supra

note

1, at 44, 47-50. Frech argues that consumers are more knowledgeable concerning their

862

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BOSTON COLLEGE LAW REVIEW

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[Vol. 24:835

hospital care makes direct inspection by consumers impractical. Second, the

emergent nature of many hospitalization decisions limits the time available for

evaluating alternative hospitals. Moreover, inpatient hospitalization is a suffi-

ciently infrequent experience that consumers will find experience of limited use

in evaluating quality. While the experience of others may occasionally be of

some use, the wide variety of medical conditions makes this experience unreli-

able. Finally, consumers are handicapped in assessing the product of hospital

care, as it is distinguished from most other products by "credence"

qualities:

" not only is the consumer ill-equipped to evaluate hospital care by

search before purchase, but also to understand and evaluate experience after-

wards. The consumer must trust professionals not only as to diagnosis and

treatment, but also for interpretation of treatment results.

Sellers are a second source of quality information for consumers. A seller

may have particular incentives to produce information if it tends to differen-

tiate advantageously the seller's product from other products on the market,

and thus allows the seller to recover the cost of information production and dis-

semination through increased sales.

" Individual sellers disseminate informa-

tion through a variety of means, including advertising, brand name promo-

tion, or guarantees. Advertising assists consumer investigation by providing

accessible product information; brand names facilitate consumer use of experi-

ence by allowing easy identification of products with which the consumer has

previously had a good (or bad) experience; guarantees permit the seller to ap-

pear to alter his pay-off matrix so that superior product quality appears to be a

rational goal for the seller to pursue.

237

These means may also serve as signals

of other quality characteristics not otherwise readily discernable.

238

While con-

sumers may find seller produced information useful, there are risks in con-

sumers relying exclusively on such information. Information produced by

discrete sellers may be unreliable and one-sided. In particular, sellers may tend

to emphasize marginally important attributes which differentiate their prod-

ucts from others in a particular market.

239

Again, this traditional source of consumer information is not well-suited

to the medical care context. Dissemination of medical care quality information

to ultimate consumers by sellers has been relatively rare.

240

Advertising aimed

own value schedules than are providers, and thus are better equipped to make certain health care

choices.

For a discussion of "credence goods,"

see

Darby & Karni,

Free Competition and the Op-

timal Amount of Fraud,

16 J. LAW & ECON., 67, 68-72 (1973); Wolfson, Tribilcock & Tuohy,

Regulating The Professions: A Theoretical Framework

in S. ROTTERBERG, OCCUPATIONAL LICEN-

SURE AND REGULATION 180, 190-92 (1980).

23.9

Beales, Craswell & Salop,

supra

note 228, at 502.

4]7

HEMENWAY,

supra

note 221, at 52-53; Hirschliefer,

supra

note 231, at 37; Nelson,

Advertising ar Information,

82 J. POL ECON., 729 (1974).

239

Beales, Craswell & Salop,

supra

note 228, at 506-07.

339

Id.

at 506.

" Advertising aimed at intermediate producers of health care, on the other hand, is ex-

tensive and highly sophisticated, as a cursory examination of pharmaceutical advertisements in

July 19831



PRIVATE REGULATION OF HEALTH CARE



863

directly at consumers by professionals has until recently been regarded as

unethical, and guarantees may increase malpractice exposure.

" Moreover,

the complexity of a product such as hospital care renders advertising of limited

value.

242

Similarly, brand name identification may play a role in the competi-

tion of health care institutions — consider the Mayo or Menninger Clinics —

but the role is minor.

Third, information about products may be produced neither by con-

sumers nor sellers but independently as a separate commodity. Information is

a quite peculiar commodity. First, on the supply side, the economies of scale in

the production of information are significant: once information is produced it

can be disseminated at very low marginal cost.''' These economies of scale

should in theory lead to a natural production monopoly and discourage entry of

additional information sellers into the market.'" Such a monopoly may not be

profitable, however. Information is not subject to the same imperatives of scar-

city as are most other goods: its possession by one person does not exclude its

possession by others. Indeed, sharing of information may improve its quantity

and quality.

245

As buyers of information have no incentives not to resell it, or

even pass it on for free, sellers of information face substantial free rider prob-

lems. Finally, the initial cost of production of information about a complex

product (such as hospital care) may be very substantial, further discouraging

sellers from entering the market. These factors are serious impediments to the

production of information about products.

There are also significant problems with marketing information on the de-

mand side.

purchaser will often be unable to judge the value of information

until it is purchased, for if the seller of information allows the buyer to inspect

the information, it is effectively transferred before purchase.'" Moreover, even

after a buyer has purchased information, he can never be sure of its value,

because this value can only be evaluated by the use of additional information

which can only be obtained at additional cost."' These factors may discourage

demand for information and further impede its production.

any major medical journal will show.

241

is possible, however, that otherwise uninformative advertising could serve as a

signal of high quality care, see Hirschliefer, supra note 231, at 38; Nelson,

supra

note 237, at 745.

242

See

Comment,

A Prescription for Doctors.

Avoid Warranties,

28 LOY. L.J. 307 (1982),

Sullivan v. O'Connor, 363 Mass. 579, 296 N.E.2d 183 (1973).

242

D. HEMENWAY,

supra

note 221, at 47; Beales, Craswell & Salop,

supra

note 228, at

503-05.

244

Beaks, Craswell & Salop,

supra

note 228, at 503-05.

245

D. HEMENWAY,

supra

note 221, at 47; Beaks, Craswell & Salop,

supra

note 228, at

503-04.

246 D. HEMENWAY,

supra

note 221, at 48. The seller may, however, convey some infor-

mation about information through signaling: one piece of information can be divulged that serves

as an adequate signal of the quality of undisclosed information.

247

Id.

at 48-49.

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[Vol. 24:835

Standardization and Certification: Contributions to Efficiency

Standardization and certification programs are common means of produc-

ing information as an independent commodity. By identifying for buyers rele-

vant aspects of product quality,

248

standards enable consumers to compare

rapidly and accurately the quality of a range of products, thus lowering search

costs and increasing efficiency.'" Standards identify more accurately than

advertising those product characteristics that are genuine signals of overall

product quality.

250

By focusing buyer-seller negotiations on a limited number

of relevant quality characteristics, standards lower exchange transaction costs,

focus competition on price, and lessen costly misunderstandings or disputes.'"

On the supply side, standards narrow product variation, permitting

economies of scale and accumulation of standardized inventory for rapid or

repeated delivery.

252

This in turn enhances buyer opportunities to evaluate

quality by experience. Standardization also facilitates producer entry into

markets by lowering research and development costs, decreasing brand

allegiance and increasing buyer acceptance.

253

Certification or grading programs further enhance the benefits of stand-

ardization, especially where complex products are involved.

254

While standards

identify important quality attributes, they do not inform the consumer which

products possess those attributes to what extent. If standards are complex or

application of standards requires technical expertise, standardization itself does

the consumer little good. An impartial certification program, however, can ap-

ply standards to evaluate products for the consumer, thus simplifying con-

sumer choices and assuring greater utility.'" Certification programs also

facilitate entry of products into a market by reducing the need for consumer

reliance on brand names or advertising.

256

Efficiency Enhancing Motivations for Standardization and Certification Programs

Because of the problems in marketing information discussed earlier, it is

by no means certain that standardization or certification programs will emerge

" Id. at

55.

249

FEDERAL TRADE COMMISSION,

supra

note 223, at 42, 43.

See also

Nelson,

supra

note

229, at 312-18 (discussing determinants affecting the optimal amount of consumer search).

See

Beales, Craswell & Salop,

supra

note 228, at 506-07 on the limitations of advertis-

ing as a signal of product quality.

FEDERAL TRADE COMMISSION,

supra

note 223, at 47-48; D. HEMENWAY,

supra

note

221, at 55.

25' D. HEMENWAY,

supra

note 221, at 55,

see

Stigler,

The Economics of Information,

69 J.

POL. ECON. 213 (1961).

2s3



TRADE COMMISSION,

supra

note 223, at 45-46. Howe & Badger, An

Anti-

trust Challenge to Non-Profit Certifying Organizations: Conflicts of Interest and a Practical Rule of Reason Ap-

proach to Certification Programs as Industry-wide Builders of Competition and Efficiency,

60 WASH.

U.L.Q. 357, 376.78 (1982).

+ FEDERAL TRADE COMMISSION, supra

note 223, at 86, 87.

255 Id.

206

D. HEMENWAY,

supra

note 221, at 60.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



865

in any particular market. Though consumers have much to gain from stand-

ardization and certification, it is unlikely that consumers will create standards

if the demand side of a market is large and diffuse."' The production of stand-

ards and the evaluation of sellers for a certification program is too costly a job

for any one consumer to undertake. Individual consumers, or groups of con-

sumers, theoretically could go into the business of creating standards for resale,

but the marketing problems discussed earlier, particularly the problem of free

riders, makes this a difficult undertaking. If consumers of a product are

unorganized and atomistic and the product itself is technical and complex, con-

sumer standardization and certification is particularly unlikely. Medical care is

such a product; not surprisingly, consumer standardization and certification of

medical care has been rare.

258

Nor is it surprising that JCAH, the major agent

of standardization and certification for institutional health care, is not spon-

sored by consumers.

Though sellers have some economic incentives to initiate standardization

or certification programs as discussed above, such programs will seldom be ad-

vantageous to any particular seller. Sellers of poor quality products will prefer

competition in a market characterized by minimal quality information, as they

have more to gain from purchase decisions based on random choice or strictly

on price. Sellers of high quality goods may well prefer product differentiation

based on brand name identification or advertising which may lift their goods

out of the competitive market.

259

Sellers may also oppose standardization

because it facilitates entry of new producers into the market. Standardization

by sellers is, therefore, not common,

° and it is understandable that the initial

push for hospital standardization did not come from the hospital industry; that

the ACS hospital standardization program existed for thirty-two years without

significant hospital input; and that even now the representatives of hospitals

make up less than a third of the JCAH Board."'

Under special conditions, however, either buyers or sellers may have

economic incentives to set up standardization and certification programs.

Buyers may do so if the demand side of a market is oligopsonistic or monop-

sonistic.

262

If any one buyer, or small group of easily organized buyers, con-

257 See

D. HEMENWAY,

supra

note 221, at 63-68.

258

It might be possible for consumers to accumulate the resources to carry on evaluation

of some health care services provided in highly concentrated urban markets or of health related

goods and services sold in a national market.

See

CONSUMER HEALTH PERSPECTIVES published

by the Consumer Commission on the Accreditation of Health Services, Inc., a New York-based

non-profit organization with union and consumer support, or publications of the Public Citizen

Health Research Groups, a Ralph Nader affiliate, which focus largely on pharmaceutical and

medical devices.

259

D. HEMENWAY,

supra

note 221, at 68.

260

'61

See supra

text accompanying notes 34, 97-122, 130-47.

" D. HEMENWAY,

supra

note 221, at 63-68. (If a market is controlled by one buyer it is

monopsonistic; if controlled by a few buyers, it is oligopsonistic).

866

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BOSTON COLLEGE LA W REVIEW



[Vol. 24:835

trols such a large share of a market that it can internalize enough of the benefits

of standardization and certification to outweigh the costs of the program,

standardization or certification is likely.'"

This form of concentration is likely if products are produced in vertical

chains of production, with highly concentrated intermediate producers, or if

products produced in one industry (complementary products) are necessary

complements to products produced in a coordinated, highly concentrated in-

dustry (primary products). Certification and standardization are common

wherever vertical or complementary production is found,'" For example, the

Society of Automotive Engineers (SAE), composed of employees and represen-

tatives of the auto companies, standardized component parts of autos such as

steel tubing or lock washers, and complementary products such as oil.'"

Standardization and certification of complementary products by pro-

ducers of a primary product increases demand for the primary and com-

plementary product, considered as a unit, by reducing the cost and, perhaps,

improving the quality of the complementary product."' The cost of the com-

plementary product is lowered because of reduced information costs and

economies of scale induced by coordinated demand.

267

Improved quality of the

complement may improve the utility of the primary product and protect it from

malfunctioning, thus preserving the reputation of and demand for the primary

product.'" Intermediate producers in vertical production chains standardize

products higher up the chain (initial products) to lower their costs and improve

the quality of inputs into their product (final products), thus increasing the

ultimate quality and utility of and demand for the final products.'"

The initial push for hospital standardization and certification came from a

group of surgeons, the ACS."° Surgeons are, in effect, intermediate producers

in the hospital production chain. Laboratory tests, medical records, and

x-rays, for example, are consumed not by patients but by physicians and

surgeons, who in turn deliver the products of diagnosis and treatment to the

patient."' Other aspects of hospital care, such as the hospital rooms, hospital

265



A classic example of standardization involving a single buyer is the prominent

role General Motors played in the standardization of steel alloys.

Id.

at 15.

264

Id.

at 74-75.

265

Id.

at 13-18. In addition the National Petroleum Institute has written standards not

for petroleum products, but for products purchased by petroleum companies such as steel plug

valves.

Id.

at 66. Similarly, the American Gas Association writes standards for gas appliances

and accessories which are complementary to their product.

Id.

at 75, 82.

266

Id.

at 75.

267

266

Id.

269

Id.

at 75-76.

See supra

text accompanying notes 97-111.

" M. FELDSTEIN, HEALTH CARE ECONOMICS 392 (1979); M. FELDSTEIN, HEALTH

ASSOCIATIONS AND THE DEMAND FOR LEGISLATION: THE POLITICAL ECONOMY OF HEALTH

44-46 (1977) (hereinafter FELDSTEIN, ASSOCIATIONS); J. Harris,

The Internal Organization of

Hospitals: Some Economic Implications,

8 BELL J. ECON.,

467-470 (1977);

See,

Redisch,

Physician

Involvement in Hospital Decision Making

in Zubkoff, Raskin & Hanft,

supra

note 1, 217 at 222-223.

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social work, and some nursing services complement the services of surgical

care, making the entire product of hospitalization of more or less utility to the

patient. Though the supply side of the market for surgeons is not as highly con-

centrated or organized as is the auto industry, the small size of the market in

the early twentieth century and the unity created by professional identity made

organization of the market relatively easy. Moreover, the market for surgery is

highly concentrated in any particular geographic and specialty market.

272

Surgeons had much to gain from hospital standardization. Standardi-

zation and certification helped to make surgery in the hospital a safe and attrac-

tive alternative to home surgery, thus making the work of surgeons more effi-

cient and effective, and permitting radical increases in demand for surgery and

the productivity of surgeons.

273

Control over hospital standardization also, in-

cidentally, assured physicians a central, indeed controlling, position in

hospitals.

274

To the extent that JCAH standardization and certification programs are

attributable to physicians and surgeons acting as intermediate producers,

JCAH may increase the utility of hospital services for ultimate consumers. A

primary economic goal of physicians and surgeons, as producers in a vertical

line of production and as sellers of services complementary to hospital care,

should be to increase patient satisfaction and thus to increase demand for their

services."' Though the relative inelasticity of demand for the services of physi-

cians and surgeons attributable to the necessity of those services may weaken

the influence of this goal, it still remains a significant determinant of physician

behavior. This goal of patient satisfaction is, moreover, also consistent with the

professional self-image of surgeons and physicians. It is to be expected,

therefore, that physicians within JCAH would push for standards and ac-

creditation decisions that would assure production by hospitals of high quality

inputs and complements to their services, to the benefit of patients.

Physician and surgeon dominance of hospital standardization, which no

doubt results from the relationship between physician and hospital services, has

a second, incidental, efficiency enhancing effect. Because JCAH is currently

responsive to a broad constituency of physicians, a major effect of JCAH at the

272

See

discussions of market for surgery in Marrese v. American Academy of Or-

thopaedic Surgeon, 692 F.2d 1083, 1095 (7th Cir. 1982) and in Robinson v. Magovern, 521 F.

Supp. 842, 877-86 (W.D. Pa. 1981).

223

H. SOMERS & A. SOMERS, DOCTORS, PATIENTS, AND HEALTH INSURANCE 41-42,

56, 57 (1962); Redisch,

supra

note 271, at 223.

274

Ste

generally, Saltman & Young,

The Hospital Power Equilibrium,

6 J. HEALTH POL.

POLY & L. 391 (1982).

275

See

D. HEMENWAY,

supra

note 221, at 75, 76. The pervasive effects of third party

payments on the medical care delivery system has been discussed exhaustively elsewhere and is

beyond the scope of this paper. It should be noted, however, that one effect of third party pay-

ment is undoubtedly to diminish consumer consciousness of the price of medical care, and thus to

increase the need for physicians to attend to consumer satisfaction and utility as arenas for com-

petition.

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local hospital level is probably to increase the access of physicians to hospitals

through JCAH requirements of reasonable and fair procedures for determining

physician eligibility for staff privileges.

276

Just as producers of complementary or intermediate goods and services —

here physicians and surgeons — may have economic incentives for standardi-

zation and certification of product quality, so too may sellers — here hospitals.

The economic incentives of sellers will likely outweigh the disincentives

discussed above when the external costs placed on sellers of high quality prod-

ucts by sellers of low quality products exceed the costs of standardization. This

phenomenon was described by Ackerlof in his classic article on the market for

lemons.

If buyers are cognizant of the average quality of a product, but not

the quality of any particular individual product, buyers will be unwilling to pay

premium prices for allegedly superior products the quality of which they are

unable to assess. Thus sellers of above average products will be forced to sell

their products at a loss, and will either be driven out of the market or reduce

product quality. As sellers of high quality products leave the market, the

average quality in the market will continually decline. This will in turn

decrease demand and harm all sellers. In this situation, product standardi-

zation and certification will increase consumer confidence in the average prod-

uct by increasing the quality of that product.

278

This will increase demand,

willingness to pay higher prices, and product quality.

279

While standardization under these circumstances should improve the

quality of products in the market ,

° the degree to which quality will improve is

uncertain. If demand for a product is relatively inelastic because the product is

a necessity for which there are few substitutes, sellers may not be able to cause

any substantial increase in demand by raising the quality of the average prod-

uct above a very minimal level."' Further, if a product is sufficiently imper-

meable to consumer evaluation, standards emphasizing symbolic aspects of

276

A. SOUTHWICK, THE LAW

HOSPITAL & HEALTH CARE ADMINISTRATION

456

(1978); Kissam, Webber, Bigns, & Holtzgraefe,

Antitrust and Hospital Privileges: Testing the Conven-

tional Wisdom,

70 CALIF. L. REV. 595, 648 (1982).

277 See

Akerlof,

The Market for Lemons: Quality Uncertainty and the Market Mechanism,

84 Q. J.

ECON. 488 (1970); D. HEMENWAY,

supra

note 221, at 70-71; Weingast,

Physicians, DNA Research

Scientists, and the Market for Lemons,

REGULATING

THE

PROFESSIONS: A PUBLIC POLICY SYM-

POSIUM 81 (R. Blair & S. Rubin eds. 1980). This phenomenon is even more likely to occur in a

market in which sellers are unable to differentiate their product from other products through

advertising, brand market identification, or guarantees,

see

Beaks, Craswell & Salop,

supra

note

228, at 502.

D. HEMENWAY,

supra

note 221, at 70-71.

One of the most dramatic examples of this effect of standards is the effect of Japanese

standards and inspection laws, enacted in 1949, which revolutionized the overall quality of prod-

ucts exported from Japan.

Id,

280

See

Gelman,

supra

note 226, at 134.

281

For example, an inner city public hospital can allow the quality of its care to fall to

very low levels before its clientele, dependent on its service by necessity, will cease to come to it

for help. It has little economic incentive to raise the quality of its care above that low level.

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quality may, in the short run at least, be as effective in increasing consumer de-

mand as standards emphasizing real quality.

262

As Compliance with such sym-

bolic standards may be much less expensive than compliance with standards

that accurately reflect quality, sellers may find misleading symbolic standardi-

zation profitable.

The Ackerlof phenomena probably played a role in the initial acceptance

of standards by hospitals in the early twentieth century. It also undoubtedly

has contributed to the increasing interest of nursing homes in standardization.

The nursing home industry has suffered extensive negative publicity in the last

decade"' and is increasingly experiencing competition from the home health

care industry."' If consumers of nursing home care accepted JCAH accredita-

tion with the same respect it has received in the hospital field, accreditation

could have a significant positive effect on the image of the industry and thus on

demand for its product.

In sum, seller standardization probably provides only minimal assurances

of quality to consumers of the services of medical care institutions. As institu-

tional medical care is usually urgently necessary, difficult for consumers to

evaluate, and without readily available substitutes, sellers will, for the reasons

just discussed, seldom have substantial incentives for creating or enforcing

standards that will increase the quality of their product above a fairly minimal

level.

Causes of Inefficient or Efficiency Neutral Standardization and Certification

To this point we have focused on the contributions of standardization and

certification programs to efficiency, and discussed conditions under which cer-

tification and standardization programs may emerge that will enhance the utili-

ty of standardized goods and services to the ultimate consumer. Unfortunately,

standardization and certification programs may also emerge that make little

contribution to efficiency, or even that are seriously inefficient.

First, sellers may establish standardization or certification programs to

avoid or co-opt government regulation."' If public concern about the quality

deficiencies of a particular product — especially deficiencies that threaten

health or safety — reaches the level where government action seems inevitable,

292 See

Weingast,

supra

note 277, at 92, 93.

253

See, e.g.,

M. MENDELSON, TENDER LOVING GREED (1974); F. Moss & V. HAL-

AMANDRIS,

Too OLD,

Too Sicx, Too

BAD (1977).

Many current nursing home residents could be cared for in their own homes or in

other non-medical settings given adequate home health care.

See

VLADECK, UNLOVING

CARE,

221-23 (1980); Butler,

Financing Noninstitutional Long-Term Care Services for the Elderly and

Chronically Ill: Alternatives to Nursing Homes,

13 CLEARINGHOUSE REV. 335, 335-40 (1979). Recent

amendments to the Medicare statute greatly expand the availability of home health care services

to elderly persons currently in nursing homes.

See

Pub. Law No. 96-499 S.§ 930b, 930g, 94 Stat.

2599, 2631-2633 (codified at 42 U.S.C. § 1395d(a)(3), 1395(K)(a)(2)(A) (Supp. IV, 1980)).

285

D, HEMENWAY,

supra note 221, at 68-70.

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a threatened industry may act first to develop a standardization program,

either out of fear of adverse effects of bureaucratic government administra-

tion"' or of uncomfortably rigorous government definitions of quality, or both.

While such a program may in fact make a market function more efficiently and

enhance product quality, its main goal is political rather than economic. If,

therefore, political pressure can be relieved by symbolic rather than real quality

control, the program may contribute less to consumer utility than would gov-

ernment regulation.

This preemptive form of standardization-may be illustrated in the history

of the JCAH. The AHA became a member of the JCAH in 1950, immediately

following the great expansion of hospital licensing programs in the late

1940's.

287

There are some who believe that the program implemented

thereafter was less demanding of health care institutions than was the ACS pro-

gram that preceded it.

" Similarly, JCAH began accrediting nursing homes in

the late 1960's, just as the government began to discuss the need for increased

regulation of nursing homes under the Medicaid program.'" JCAH has con-

sistently held itself out to the industry as an attractive alternative to govern-

ment regulation.'" It has also been put forward as a single alternative to the

host of public and private programs that regulate various aspects of hospital

care,'" and its accreditation program has been widely relied on by federal and

state government regulators.

292

Standardization and certification programs that are efficiency neutral or

inefficient from a consumer perspective may emerge for a second reason. Sel-

lers may establish standardization and certification programs to avoid disputes

and limit liability."' To the extent that sellers can create consumer acceptance

of standards or certification, sellers will be less likely to incur disputes with or

liability to consumers regarding certified standard products. If sellers can con-

vince courts to judge their products by industry created quality standards,

286

See

Katz,

Industry Self-regulation: A Viable Alternative to Government Regulation

in KATZ ,

PROTECTING THE CONSUMER INTEREST 167, 168 (1976) (claiming that industries may prefer

self regulation, even if its substantive effects are more rigorous than government regulation,

because of a psychological preference for dealing with peers).

'a'

See supra

text accompanying notes 125-29. That the AHA played a major role in

drafting the model licensing act may cast doubt on this explanation of the AHA's behavior, but

may, alternatively, demonstrate that the AHA adopted several strategies to coopt regulation.

288

See

GERBER,

supra

note 107, at 130-31.

289

See

VLADECK,

supra

note 284, at 59-69. For an alternative explanation of JCAH

involvement in nursing home accreditation,

see

FELDSTEIN, ASSOCIATION,

supra

note 271, at

158-59. Feldstein argues that hospitals attempted to use JCAH accreditation of nursing homes as

a means of controlling competition from nursing homes.

290

See

Affeldt,

supra

note 45, at 95 (1981); Affeldt,

supra

note 53, at 189-91; Affeldt,

supra

note 190, at 52; Porterfield,

supra

note 54, at 20; Schlicke,

supra

note 51, at 9, 10; Schlicke, supra

note 72, at 384-85; Schlicke,

supra

note 180, at 28.

See

1980

GAO

REPORT,

supra

note 212, at 2.

292 See supra

text accompanying and authorities cited at notes 57-71.

293

D. HEMENWAY,

supra

note 221, at 73-74.

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PRIVATE REGULATION OF HEALTH CARE

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871

sellers may lessen their adjudicated liability."' It is, therefore, possibly not

coincidental that the JCAH push for hospital output quality control followed

closely on the heels of the revolutionary changes that resulted in the mid-1960's

when

Darling v. Charleston Hospital Association"'

found a hospital liable for physi-

cian malpractice.

Standards created under these conditions will undoubtedly have some

tendency to enhance consumer utility, for if they did not they would stand little

chance of being accepted by the courts. But, because of the substantial costs of

establishing the meaning of negligence through independent expert testimony

or economic analysis, judges may generally find it expedient to rely on industry

standards to define reasonable care rather than independently to create new

standards on a case by case basis.

296

Accordingly, industry standards may find

judicial acceptance despite the fact that they ultimately may bring about lower

quality products than would independent adjudications, if such adjudications

were costless

297

Finally, standardization and certification programs may be used, or

perhaps even created, to facilitate efforts to suppress competition.

298

If stand-

ards are widely publicized and accepted, the sponsors of the standards may be

able to exclude from the market potential competitors who produce non-stand-

ard goods.

299

Moreover, if standardization and certification are enforced by an-

cillary means of policing, exclusion can become quite coercive and effective.

For example, in

Radiant Burners v. People Gas & Electric,

300

the plaintiff's non-

standard burner was not only denied certification, but also persons using the

burners were refused gas by natural gas producers."' The plaintiff's product

was thus eliminated from the market.

The target of an anticompetitive standardization or certification program

will depend on the sponsor of the program. First, if the program is originated,

as most are, by a group of intermediate producers, it may limit access to the in-

294

Cf.

Jackson,

The Subject was Standards, 10

AKRON L. Rev. 185, 187-89, 216-18 (1976)

(arguing that industries lobby for federal standards legislation to limit their products liability ex-

posure).

295

33 lll. 2d 326, 211 N.E.2d 253 (1965),

cert. denied,

383 U.S. 946 (1966).

See

Schlicke,

supra

note 180, at 24.

296

The difficulties of proving medical negligence no doubt are a major contributor to the

substantial administrative costs of the malpractice litigation system. It has been estimated that

lawyers consume over half of the malpractice insurance premium dollar.

See

LAW & S. POLAN,

supra

note 174, at 88.

29a



standards for medical practice may also put some limits on the practice of

defensive medicine, a major factor in the high cost of medical care.

298

D. HEMENWAY,

supra

note 221, at 76-78.

See

G. LAMB & C. SHIELDS, TRADE

ASSOCIATION LAW AND PRACTICE, 78-84 (1971); FEDERAL TRADE COMMISSION,

supra

note

223, at 113-88.

299

FEDERAL TRADE COMMISSION,

supra

note 223, ar. 55, 161; D. HEMENWAY,

supra

note 221, at 77.

'" 364 U.S. 656 (1961).

Id.

at 658.

872

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24:835

itial product by other competing intermediate producers or standardize the in-

itial product in such a way that it is useless to competitors."

Second, if the

program is originated by sellers, they may use it so as to eliminate products

that compete with their products."' Third, because the production of informa-

tion is a natural monopoly, a standardization program may itself either inten-

tionally or unintentionally exclude competing standardization programs. The

elimination of alternative sources of certification may, in turn, assist the spon-

sors of the program by discouraging the production of competing uncertified

products.

As JCAH is responsive to both intermediate producer and seller constitu-

encies, it could potentially suppress competition in all three of these respects.

First, insofar as JCAH limits competition on behalf of its intermediate pro-

ducer constituency, the physicians, it does so through its standardization of

hospital medical staff organization. An early and continuing concern of first the

HSP and then JCAH has been the organization of medical staff.'" The

original constituents of the HSP were surgeons. Their economic interest lay in

requiring hospital organization along a closed staff model that would exclude

competition from general practitioners. This would have maximized the de-

mand for and income of surgeons. The fear of this possibility no doubt explains

much of the opposition of the AMA to the HSP during the first half of this cen-

tury, when the AMA's constituency was still largely general practitioners."'

The lingering fear of exclusion of general practitioners from hospital practice

by surgeons and other specialists also may explain the continuing opposition of

the general practitioner section of the AMA to the JCAH until the late

1960's.

306

In fact, despite early efforts by specialists to limit staff privileges, most

hospitals were open to almost all physicians at least until the late 1930's.

307

This very likely reflects the political power of general practitioners within the

health care professions until that point — the general practitioners were no

902

See

D. HEMENWAY,

supra

note 221, at 67, 68.

Id. at 77.

304

See supra

text accompanying notes 105, 111, 114. On the literature concerning anti-

competitive effects ofhospital staff organization, see: W. Lazarus,

supra

note 72, at IV-1-IV-76;

Dolan & Ralston,

Hospital Admitting Privileges and the Sherman Act,

18 HOus. L. REV. 707 (1981);

Kissam, et al.,

supra

note 276; Comment,

Denial of Open Staff Hospital Privileges: An Anti-Trust

Scrutiny,

26 ST. LOUIS U. L.J. 751 (1982).

Cf.

on staff privileges generally M. ROEMER & D.

FRIEDMAN,

supra

note 111; Southwick,

supra

note 276, at 427-65 (1978); Groseclose,

Hospital

Privilege Cases: Braving the Dismal Swamp,

26 S.D.L. REV. 1 (1981).

305

See supra

text accompanying notes 116-22;

see DAVIS, supra

note 90, at 133, E.

RAYACK, PROFESSIONAL POWER AND AMERICAN MEDICINE: THE ECONOMICS OF THE

AMERICAN MEDICAL ASSOCIATION, 41-43 (1967); M. ROEMER & D. FRIEDMAN,

supra

note

111, at 38.

See supra

text accompanying notes 137-39, 149-50; F. Hair,

supra

note 72, at 123-32,

see also

E. RAYACK,

supra

note 305, at 230.32; R. STEVENS,

supra

note 86, at 252 (general practi-

tioner opposition to restricted staff privileges).

3°7

STEVENS,

supra

note 86, at 163, 253; Dolan & Ralston,

supra

note 304, at 724, 725.

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doubt politically able to stop the surgeons who controlled the HSP from using it

to exclude competition from the general practitioners. That hospitals have

become increasingly selective in granting staff privileges to physicians is surely

attributable in part to the increasing power of specialists within the medical

professions.'" Because JCAH has had to respond to a broad constituency of

both generalist and specialist physicians, its impact on staff privileges has not

been consistently to the advantage of either group. It has played a major role in

the growing articulation and rigor of staff privilege requirements, but has also

opened up hospitals to physicians through its standards requiring fair con-

sideration of staff privilege applications.

309

JCAH has also responded to its physician constituency by playing a major

role iri limiting the role of non-physician health care practitioners in hospitals.

The Accreditation Manual for Hospitals (AMH) recognizes several categories of

staff privileges. Under the AMH, members of the medical staff may admit pa-

tients to the hospital and supervise their care within it.

310

Moreover, active

medical staff also play a major role in hospital governance."" Unless provided

otherwise by state law, only physicians (medical doctors or osteopaths) or den-

tists may be members of the medical staff.

312

Podiatrists may be granted clini-

cal privileges, permitting them to provide medical care in a hospital, but podia-

trist admissions and discharges must be supervised by a physician.

313

Only "li-

censed practitioners," that is, physicians, dentists or podiatrists, may have

direct responsibility for diagnosis and treatment of patients; other health pro-

fessionals may not admit patients and may provide medical care only if super-

vised by a licensed physician.

JCAH standards assure, therefore, that accredited hospitals will primarily

rely on physicians to be responsible for patient care and to provide governance

through the medical staff structure. JCAH standards lirriit to a subordinate role

psychologists, chiropractors, midwives, nurse practitioners and other non-

physician practitioners who compete with physicians. Yet many of these practi-

tioners may need access to hospitals for certain aspects of their practice if they

are to compete with physicians: the psychologist to provide a controlled en-

vironment for observing or stabilizing a difficult patient; the midwife for a

delivery that threatens to become complicated.'`s

9o8 See

W. Lazarus,

supra

note 72, at IV-3 t-IV-39 for a discussion of the effects of staff

privilege controls on limiting the practices of generalists and of certain specialists.

See

authorities cited

supra

note 276.

' Q

AMH,

supra

note 39, at xviii, 93.

' Id.

at 100-09.

Id.

at 93.

Id.

at xviii, 97.

31 *

Id.

at xviii, 209;

see also

W. Lazarus,

supra

note 72, at IV-15-IV-16; Affeldt,

Accredita-

tion Clinic: JCAH Requirements for Delineation of Clinical Privileges and Duties,

HOSP. MED. STAFF,

Feb. 1980, at 7 (discussing effect of JCAH staff privilege standards on non-physicians). If state

law requires admission of non-physician practitioners to medical staff privileges, the standard

would also permit them admitting privileges,

see

AMH,

supra

note 39, at xviii, 93.

313

See

Lavine,

Memorandum Supporting Investigation of Joint Commissions on Accreditation of

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Because of the practical necessity of accreditation for a hospital to func-

tion, JCAH accreditation is a powerful tool for limiting competition against

physicians in the hospital setting and thus for limiting competition against

physicians generally.'" JCAH may, by thus restraining competition, increase

the cost of health care.'" It is not surprising that JCAH is currently involved in

litigation on several fronts concerning its role in controlling staff privileges in

hospitals.'"

JCAH not only limits the role of non-physician practitioners in hospitals

but also does so in a variety of other institutional settings. The "all or none"

policy of JCAH requires that all facilities operated by a JCAH accredited in-

stitution be JCAH accredited as a condition for any part of the institutions to

retain JCAH accreditation.

319

Under this policy, .a hospital that includes a

distinct part facility for the developmentally disabled or a substance abuse pro-

gram also would have to limit staff privileges in its auxiliary programs to com-

ply with JCAH standards for those programs

° to retain accreditation for its

hospital program.

JCAH may not only limit competition against physicians, but also limit

competition against its seller constituent members: the hospitals. If hospitals

can get state legislatures or private insurance companies to license or pay for

only those health care services delivered by JCAH accredited facilities, where

those services delivered could also be provided in a non-institutional or non-

medical program, the hospitals can exclude competition from the non-

accredited programs. For example, a recent legislative proposal in Ohio per-

mitted insurance companies to use JCAH standards as an alternative to state

certification for determining reimburseability of substance abuse programs.

Opponents contended that use of JCAH standards might require delivery of

these services in institutions using a medical model and exclude social service-

oriented substance abuse programs.

321

Hospitals and American Medical Associations,

submitted to the FTC, July 12, 1976, at 29-34; W.

Lazarus,

supra

note 72, at IV-40-IV-42, IV-50; Grad,

Allied Health Professionals and Hospital

Privileges,

10 L. MED.

HEALTH CARE 165, 165 (1982).

Cf.

Blue Shield of Va. v. McCready,

102 S. Ct. 2540 (1982) acknowledging competition between psyChologists and psychiatrists.

216

W. Lazarus,

supra

note 72, at IV-5, IV-7.

Id.

at IV-19-IV-20, IV-50-IV-52, IV-54-IV-55.

316



cases cited

supra note 217.

See

AMH,

supra

note 39, at

xx.

32°

Staff privilege standards for mental health facilities arc set forth in the CON-

SOLIDATED STANDARDS,

supra

note 40.

These standards are, on the whole, considerably more open than those of the AMH, and

permit staff privileges for not only physicians, but also for clinical psychologists, social workers,

psychiatric workers and substance abuse workers.

9.2.1. They do, however, maintain a central

role for physicians in diagnosis, SS 3.1, 1.10.3.11, and professional staff governance, 5 3.7.2.1.

Moreover, the JCAH is currently considering evaluating all. hospital based mental health

facilities under the AMH, a move that could strengthen the hand of physicians in those facilities.

321

Telephone interview with David Shover, Director of Operations, Council on Ac-

creditation (September 8, 1982), regarding Subst. Sen. Bill 336 S 3923.28 (1982) (codified at

Ohio Rev. Code S 3923.28 (Baldwin)).

July 1983]

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875

Finally, through its all or none policy JCAH can limit competition against

itself from rival accrediting programs. If a hospital operating a substance abuse

program must have the program accredited by JCAH to maintain its hospital

accreditation, the hospital is unlikely to seek additional accreditation for the

program from the Council on Accreditation, a social service oriented accredita-

tion agency which also accredits substance abuse programs."'

Reasons Why Standardization and Certification Programs Beneficial to Intermediate

Producers and Sellers May Not Optimize Consumer Utility

Standardization programs originated to enhance the utility of initial prod-

ucts to intermediate producers may fail to optimize the utility of those products

for ultimate consumers. First, a standardization or certification program neces-

sarily requires identification of some products as standard, others as non-

standard. If consumers must rely on standards or certificates for consumption

decisions, either because of the complexity of a product or because enforcement

methods — such as licensing requirements — eliminate the possibility of con-

sumer choice, consumers will not buy non-standard products even though they

may better suit some consumers. Any standardization or certification program

will thus narrow consumer choices and cause some consumers to buy products

that are not suited to their needs.'" Some consumers may have preferred to

have lower cost, lower quality products available, others just different prod-

ucts. If JCAH requires all hospitals to provide certain services, a consumer

must go to a hospital with such services, even though they are useless to that

consumer and may increase the costs of hospitalization.

Second, if a standardized or certified product is complex, and the quality

standardization program relies on many criteria, it is likely that the program

will err in providing products of too high or too low quality in some respect.

324

If standards permit some aspects of the product to be of low quality, consumers

will derive less utility from that aspect of the product. If standards require ex-

cessive quality as to some product characteristics, consumers may have to pay

for quality of no use to them.

If a standardization and certification program is initiated by intermediate

producers, both the problem of non-availability of non-standard goods and the

problem of error as experienced by the ultimate consumer may be exacerbated.

If the market power of the intermediate producer is sufficiently strong, or if the

program is enforced independently, the initial producer may eliminate non-

standard initial products that may independently be of use to the ultimate con-

sumer but do not enhance the utility of the intermediate producer's product.

Moreover, the program may discourage the initial producer from producing

322

COUNCIL ON ACCREDITATION, PROVISIONS FOR ACCREDITATION, 80-84 (1982).

323

FEDERAL TRADE COMMISSION,

supra

note 223,

55, 56; J. GELMAN,

supra

note

226, at 135.

FEDERAL TRADE COMMISSION,

supra

note 223, at 567-69.

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products that could be useful to competitors of the intermediate producer. If in-

termediate producers use standardization as a means to deny the initial prod-

uct to competing producers of substitute final products, the consumer may be

denied access to a final product he prefers. Finally, a standardization and cer-

tification program initiated by an intermediate producer will not necessarily in-

crease the utility of the product of the intermediate producer to the ultimate

consumer. In relation to the ultimate consumer, intermediate producers are

sellers; intermediate producers will assure the quality of their own product

through standardization only to the extent that it is independently in their in-

terest to do so as sellers.

325

Similar effects may result from the standardization

of complementary products.

This analysis may provide insight into the effect of JCAH standards on

quality of institutional health care as experienced by the ultimate consumer:

the patient. JCAH was initiated by surgeons and a majority of the commis-

sioners are still physicians and surgeons. The analysis above would suggest

that JCAH standards, and the hospitals developed to comply with them, would

be structured to assure high quality initial inputs to be used by or to comple-

ment the services of physicians and surgeons. Accordingly, it is not surprising

that JCAH standards have been criticized frequently for excessive emphasis on

the quality of medical care inputs as opposed to the quality of actual medical

outcomes in accredited hospitals.

325

The hospital, the major product of JCAH

standardization, has also been criticized for relying excessively on costly, com-

plex, and technological forms of medical care"' that increase the demand for

and the price of physician or surgeon services. The hospital appears to have

been organized largely for the convenience and welfare of the physician rather

than the patient.

328

This analysis also explains deficiencies critics have identified in the JCAH

survey and accreditation program. First, JCAH accreditation inspections are

arranged beforehand with ample warning to the institutions, assuring that

JCAH only sees the institution at its best behavior and not in its normal condi-

Set supra

text accompanying notes 277-78, 285-86, 293-94, 298-303, discussing cir-

cumstances in which sellers may standardize or certify their products.

326

Wyatt Brief,

,supra

note 67, at 10-14; J. Feder,

supra

note 164, at 8; Gelman,

supra

note 226, at 128; A. GERBER,

supra

note 107, at 130-136; S. LAW & S. POLAN,

supra

note 174, at

58, 64; A. Somers,

supra

note 127, at 106; Crosby,

supra

note 54, at 133-35; Gerber,

Surgical Pros

and Cons,

135 SURD. GYNCOL. OBSTE. 431, 432 (1972); Worthington & Silver,

supra

note 176, at

312;

Suit Challenges, supra

note 101, at 186.

322

This criticism has been voiced both from the perspectives of concerns about the cost

of care,

see

Havighurst & Blumstein,

supra

note 1, at 25-30; Cohodes,

supra

note 3, at 65-66;

Rosenblatt,

supra

note 1, at 1094-1106, and concerns about quality, see V. SIDEL

R. SIDEL, A

HEALTHY STATE, 69-78 (1977); ILLICH, MEDICAL NEMESIS: THE EXPROPRIATION OF HEALTH

18-25 (1975).

328

See

Pauly & Redisch,

The Not-For-Profit Hospital as a Physician Cooperative,

63 AM.

ECON. REV. 63, 87-99 (1973); Redisch,

supra

note 271, at 218-31; Saltman & Young,

supra

note

274, at 406-10.

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877

don.'" Second, a two hour public information interview provides the only op-

portunity for hospital staff and consumer representatives to participate in the

JCAH survey process. Moreover, hospital administrators are normally present

at this interview, a factor that may intimidate hospital staff members."'" JCAH

further limits hospital staff and consumer input into accreditation decisions by

permitting hospital employees and staff and consumer representatives no fur-

ther opportunity to participate in the accreditation process, rebut administra-

tion claims, or review a decision to grant accreditation."' JCAH provides a

lengthy appeal process during which a hospital denied accreditation may con-

tinue to operate as though accredited."' Dissatisfaction with these procedures

and their results is evidenced by the charges of inadequacy leveled at the JCAH

surveys."' The inspection process itself takes place only once every three years

and, under new JCAH survey procedures, may even rely on self-survey to

assure the correction of violations identified by the inspection process.

334

Final-

ly, JCAH does not require facilities to meet all, or indeed any, of its re-

quirements or standards, but only to "substantially comply" with the stand-

ards as a whole.'"

JCAH has responded to these criticisms principally by asserting that they

are based on a misunderstanding of JCAH's role. JCAH perceives itself not as

an enforcer, but rather as a consultant or educator whose role is to encourage

and inspire hospitals voluntarily to deliver high quality care.

336

JCAH asserts

that its primary role is to assure that hospitals have the capacity to deliver care

rather than to guarantee that such care is in fact delivered."'

Both the criticisms of JCAH and its response are not surprising, given that

JCAH is a standardization and certification program enacted by sellers and by

House hearings, supra

note 64, at 6;

Senate hearings, supra

note 53, at 38, 44, 103-05;

Hearings, supra

note 54, at 1904; Wyatt Brief,

supra

note 67, at 15; Rubin,

The Accreditation of

Hospitals, What Does it Promise?,

HEALTH L. PROD. LIB. BULL. 90, 93 (1980).

930

See

AMH,

supra

note 39, at xx; xxi; Rubin,

supra note 320, at 94.

See also

Misericordia

Hospital Medical Center v. NLRB, 623 F.2d 808 (2d Cir. 1980) (sustaining an NLRB order

reinstating a nurse fired for testifying at a JCAH public information interview).

"' See Hearings, supra

note 54, at 1905; Wyatt Brief,

supra

note 67, at 15-17; Rubin,

supra

note 329, at 94.

992



Rubin,

supra

note 329, at 96.

933

See

Wyatt Brief,

supra

note 67, at 8-19;

Senate hearings, supra

note 64, at 38, 66, 68;

House hearings, supra note 64, at 56-60.

See

Wyatt Brief,

supra

note 67, at 16, and authorities cited

supra

at note 216. JCAH

does accept complaints regarding hospitals from patients or staff and, on occasion, makes unan-

nounced inspections based on such complaints. Telephone interview with Eleanor Wagner and

Daniel Schuyler, attorneys for JCAH, Dec. 9, 1982. However, recent hearings brought out that

JCAH only received 24 complaints in 2 years

(Senate hearings, supra

note 64, at 104) (compare the

3400 complaints received by the California Health Department over a one year period

(id.

45)). Moreover, though JCAH has made some unannounced surveys in response to complaints

(id.

at 104), it handles many complaints by asking the facility to investigate itself

(id.

at 39, 116;

House hearings, supra

note 64, at 81).

See

authorities cited

supra

note 51.

See

authorities cited

supra

note 54.

337 Hearings, supra

note 54, at 1901.

878

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24:835

complementary and intermediate producers. Physicians and surgeons who

practice in the hospital setting are not as interested in the final product the

hospital delivers as they are in the capacity of the hospital to support their own

production of services.

338

While infrequent announced inspections may not

guarantee continued high quality care, they are adequate to insure that the

hospital will be organized along the lines set out in the JCAH standards, and

that physician goals can be met within the hospital. It is not in the interests of

physicians or surgeons to have an accreditation program that would monitor

their own performance or be a constant intrusive presence in the hospital, in-

terfering with their practice.'" The institutions also have no interest in a more

intrusive inspection program or higher standards. As long as the JCAH pro-

gram is adequate. to avoid political pressure for more intensive government

regulation, and, perhaps, to keep the worst violators of consensus standards

out of operation, institutions ought to be satisfied."°

This is not to say, however, that the JCAH accreditation program has not

had or cannot have a positive affect on the quality of care patients receive from

hospitals. Weaknesses in the inspection system need not mean that hospitals do

not in fact comply with the standards. Insofar as the standards address major

administrative systems or physical plant characteristics, it is unlikely that com-

pliance will fluctuate markedly over the three year accreditation period, or that

a hospital seriously out of compliance will be able to achieve compliance solely

for the purposes of an accreditation inspection."' •

Empirical and anecdotal evidence concerning the effect of JCAH stand-

ards on the quality of hospital care is inconclusive. JCAH accreditation of

hospitals with serious quality deficiencies played a prominent role in consumer

criticisms of JCAH in the early 1970's.

342

Implementation of the JCAH quality

audit, the centerpiece of its quality control system, has been criticized as inade-

quate."' Research has found low correlations between JCAH accreditation

and other measures of hospital quality.'" and wide variations in quality be-

'" See supra

text accompanying notes 270-74.

'" Id.

340

See supra

text accompanying notes 277-97.

" It is instructive that in 1970, 74% of all hospitals inspected received full accreditation

but that only 45% of the hospitals inspected for the first time did so. Schlicke,

supra

note 72, at

381. Hospitals apparently find it easier to maintain compliance with accreditation standards than

to initially meet them.

]42

BRESLOW,

QUALITY

AND COST CONTROL: MEDICARE AND BEYOND IN THE AD-

MINISTRATION OF MEDICARE: A SHARED RESPONSIBILITY, 17, 30, 31 (B.

Smith & N.

Hol-

lander

eds. 1973); Worthington & Silver,

supra

note 176, at 312-13;

see Hospital Accreditation, supra

note 192, at 3;

Suit Challenges, supra

note 178, at 187.

See

Escovitz, Burkeitt, Kuhn, Zeleznic & Gonnella,

The Effects of Mandatory Quality

Assurance,

16 MED. CARE, Nov. 1978, at 941.

NEUHAUSER, THE RELATIONSHIP BETWEEN ADMINISTRATIVE ACTIVITIES AND

HOSPITAL PERFORMANCE 60-69, 100

(1971);

see also

Roemer, Mostafa & Hopkins,

A Proposed

Hospital Quality Index: Hospital Death Rate Adjusted for Cast Severity,

HEALTH

SERV. RESEARCH 96,

115 (1968) (finding little difference in quality between accredited and unaccredited hospitals).

July 1983]

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PRIVATE REGULATION OF HEALTH CARE

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879

tween JCAH accredited hospitals.'" Nevertheless, overall consumer satisfac-

tion with medical care remains high

346

and JCAH itself continues to enjoy

general respect.

347

Non-Accountability of Self-Regulation

A final basis for criticizing self-regulatory standardization and certifica-

tion programs is their lack of accountability to the public, a factor not directly

related to efficiency. Inefficient regulation may to some extent be excused if a

regulatory program advances public policy goals other than efficiency, such as

distributional equity or public participation. Industry self-regulation lacks,

however, a commitment to these goals. JCAH claims that it is responsible pri-

marily to its members and the institutions that it accredits, not to the public.'"

JCAH asserts this even though it has accepted a major role in federal and state

programs regulating health care, a role responsible for much of its growth over

the last two decades.'"

Few opportunities for public participation in either its standardization or

its accreditation programs are provided by JCAH. Its consumer advisory coun-

cil was short-lived. Its one "public" member was added only recently and can-

not seriously be considered a representative of health care consumers.

° It has

been claimed that representation and participation of consumers in the ac-

creditation councils may have been a significant factor in JCAH's disbanding

the councils and establishing the PTAC system."' Since the early 1970's,

JCAH has allowed some consumer participation in its accreditation inspections

through its public information interviews, but this participation is strictly

limited, and JCAH still makes no provision for consumer appeals of accredita-

tion decisions.

352

' See

Longest,

Administrative Coordination in General Hospitals,

Georgia State University,

School of Business Administration, Research Monograph No. 55 (1973)

cited

in P. O'DONO-

GHUE, EVIDENCE ABOUT THE EFFECTS OF HEALTH CARE REGULATION 86 (1974).

346

See Anderson, Fleming & Champney,

Exploring a Paradox: Belief in a Crisis and General

Satisfaction with Medical Care,

59 MILLBANK MEMORIAL FUND Q. 329 (1982).

347

See, e.g. ,

1979 and 1980 GAO Reports urging substitution of JCAH accreditation for

state licensure; People v. Barksdale, 8 Cal.3d 320, 336-37, 503 P.2d 257, 269-70, 105 Cal. Rptr.

1, 13-14 (1972);

Senate hearings, supra

note 53, at 16 (testimony of Carolyn Davis, Administrator,

Health Care Financing Administration),

See

authorities cited

supra

note 54.

349

About 30-32% of the survey fees paid JCAH are reimbursed by the federal govern-

ment. GAO REPORT,

supra

note 207, at 5. More important, the prominent role of JCAH in

federal and state regulation undoubtedly explains much of its growth since 1965. See

supra

text

accompanying note 170.

"° JCAH's first public member, appointed in 1981, is a governor of a hospital, presi-

dent of a telephone company and director of several corporations including a major Chicago

bank.

See BOC Selects First Public Member,

JCAH PERSPECTIVES, Nov.-Dec. 1981, at 4.

" Crosby,

supra

note 54, at 137 n.4.

See

AMH,

supra

note 39, at xx-xxi describing JCAH's public information interview

procedure. Persons wishing to testify at the public informatidn interview must request the right to

do so in writing. The request must be received by JCAH at least two working days before the

880

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The

most serious failure of JCAH with respect to public accountability is

its refusal to provide public access to information. As related earlier, JCAH

maintains strict confidentiality regarding its survey records, and has gone so

far as to sue the federal government to maintain the confidentiality of these

records.

353

The question of availability of survey information if deemed

Medicaid certification status is to be accorded to accredited nursing homes con-

tinues to be a major issue in that policy decision.'" The JCAH policy of con-

fidentiality not only decreases the accountability of JCAH and of the

hospitals it regulates to the public, but also diminishes the possibilities for com-

petition between health care providers by not disclosing information to con-

sumers that might permit consumers to make more informed decisions among

competing providers.

Considering the earlier analysis,

555

none of this is surprising. If JCAH has

been created to serve the needs of a constituency of physicians and surgeons

and a constituency. of institutions, there is no reason for it to become account-

able to the public, encourage public participation, or make its operations and

records public. Not having been formed to serve the public, JCAH is not ac-

countable to the public.

III.

JCAH: BENEFITS AND PROBLEMS

At this point it is appropriate to stop and draw up a balance sheet based on

what the economics of the information model reveals about JCAH. Having

done this, it will be possible to evaluate JCAH as compared to alternative

means of quality control.

survey begins. JCAH notifies the hospital of all requests for public information interviews and

hospital representatives are expected to attend. The public information interview takes place on

the first survey day and normally does not exceed two hours in length. Any further participation

in the survey by outside sources of information must be authorized by the hospital.

See Hearings,

supra

note 54, at 1990, at which then director Porterfield testified that turning the accreditation

process into an adversary procedure by allowing consumer appeals would destroy the "internal

quality promotion mechanism" of the JCAH.

See also

Rubin,

supra

note 329, at 94 (criticizing the

JCAH inspection process).

" See supra

text accompanying note 193; Affeldt, Maintaining

Confidentiality of Survey Data,

HOSP.,

Sept. 16, 1982, at 70; Affeldt,

Accreditation Problems: Confidentiality of Survey Reports,

HOSP. Mar. 16, 1979, at 44 (hereinafter cited as

Confidentiality).

JCAH defends its confidentiality

policy in part by claiming that the public is incapable of understanding survey information.

Lewis,

supra

note 190, at 20, 21.

See

47 Fed. Reg. at 23406 (1982), Letters, from John E. Affeldt, president of JCAH

to Edward L. Kelley, acting director Health Standards and Quality Bureau (Dec. 2, 1980) in-

sisting on confidentiality of accreditation survey reports and reply from Kelley to Affeldt (Jan.

30, 1981) affirming the critical need for disclosure of survey records before HHS could grant

JCAH accredited nursing homes deemed status for Medicare and Medicaid certification.

See also

Senate hearings, supra

note 53, at 16, 64-65, 102, 241,

House hearings, supra

note 64, at 76 (discussing

JCAH confidentiality policy).

See supra, §§

IIA-IIF.

July 1983]

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881

First, on the positive side of the ledger:

JCAH standards assure the organization of hospitals so as to maximize

the utility of hospitals to physicians and surgeons. Derivatively, the standards

in some instances increase the utility of hospitals to patients. They do so first by

identifying and describing factors that assure the quality of inputs necessary for

physician care in hospitals. For the reasons discussed earlier,"

it is much more

efficient for a single entity to do this than for

each physician, acting as an

atomistic consumer, to identify these attributes through his own search and ex-

perience. Second, JCAH, through its accreditation program, assisted by an-

cillary enforcement tools both public and private — such as licensure re-

quirements — assures that institutions are organized to enhance the quality of

these inputs. Third, and perhaps most important, JCAH standards give physi-

cians a controlling role in many aspects of hospital organization. In particular,

the standards require self-governing, organized hospital medical staffs, with in-

itial responsibility for staff appointments and quality control."' Through these

JCAH requirements physicians have created a structure perhaps unparalleled

elsewhere in industrial organization. JCAH standards assure physicians a

prominent role in administering aspects of the hospital relevant to their prac-

tice without requiring them to assume economic or general administrative

responsibility for the hospital. Hospitals must accept this arrangement because

of ancillary private and public enforcement devices, including government

licensure and Medicare certification. Thus to the extent that physicians' serv-

ices are useful to hospital patients, JCAH assures that those services will be

delivered in a context that provides optimal inputs for those services.

Hospital participation in JCAH further assures patients an adequate

level of care in accredited hospitals. Hospitals are motivated to use standards to

maintain a sufficiently high average level of quality to assure confidence in and

demand for their services, to minimize political pressure for increased regula-

tion and to minimize tort liability. They will therefore generally be motivated

to exercise their power within JCAH to maintain at least a minimally adequate

level of quality in hospitals.

JCAH operates efficiently. JCAH can get by with a minimal inspection

program because the bulk of standards enforcement is achieved through physi-

cians and administrators within the hospital. As JCAH standards promote the

self-interest of physicians and hospitals, they are largely self-enforcing. JCAH

is a consultant, not an enforcer. Moreover, because JCAH is responsive to the

industry, it can draw heavily on industry expertise at a

minimal

cost and effi-

ciently create and review standards. There is some empirical evidence of such

€ See

discussion of problems faced by consumer standardization efforts, supra text ac-

companying notes 229.35, much of which would apply to physicians acting as individual con-

sumers.

"' See

AMH,

supra

note 39, at xviii, 103-05, 151-54, 209.

882

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efficiency. The 1979 GAO Report relates that state validation inspections cost

on the average $150 more than JCAH accreditation surveys.'"

4) Finally, the standards would appear to minimize regulatory inefficien-

cies. A frequent complaint about regulation is that it creates inefficiencies in

the regulated industry.

359

As JCAH is accountable to the institutional medical

care industry, such inefficiencies ought to be minimal. JCAH analyzes its

regulations for cost effectiveness, and attempts to allow hospitals maximum

flexibility in applying standards.

The negative side of the balance, however, also is weighty:

JCAH provides little useful information to ultimate consumers about

accredited institutions. Consumer preferences in health care vary, but JCAH

provides consumers with almost no information to assist their choices.

JCAH provides ultimate consumers with little protection as to the

quality of the medical care they receive. JCAH focuses on the quality of the in-

itial products physicians use in delivery of care, less on the quality of the final

product: physician/hospital services provided to patients.

JCAH does not address the quality of services of non-institutional

health care services, as they are generally not accredited by JCAH. It addresses

poorly the issue of quality of care delivered by non-physician practitioners. Its

standards have the effect of excluding non-physician practitioners or subjecting

them to the supervision of physicians rather than of optimizing the use of their

skills.

Moreover, the effects of JCAH standards on alternative health care

providers are anticompetitive. JCAH standards restrict significantly the role of

non-physician practitioners in hospital settings. JCAH accreditation also limits

health care delivery to institutional settings by excluding competing non-

institutional alternatives, insofar as accreditation is used as a requirement for

licensing or insurance payments.

JCAH is less useful for identifying the quality of services of institutions

in which physicians are not involved. In institutions such as hospitals, where

physicians are heavily involved, the intermediate producer "cross-regulation"

aspects of JCAH counterbalance its self-regulatory aspects. For facilities like

nursing homes, however, where physician involvement is minima1,

' JCAH

represents pure self-regulation, and provides less protection for consumer in-

terests.

See

GAO REPORT,

supra

note 207, at iii, 24-25,

but see Senate hearings, supra

note 53, at

46 (testimony of Mildred Simmons, deputy director of California Department of Health Service,

claiming that state inspections are less expensive).

359

See, e.g.,

McClure,

Structure, supra

note 1, at 136-39; Noll,

supra

note 1, at 38, 39.

365

See

Affeldt,

Cost Effective Health Care, How JCAH Will Help,

Hose.

MED. STAFF,

Apr. 1979, at 7-9.

"' See Mechanic &

Arkin,

A Cooperative Agenda for Medicine and Nursing,

307 NEW ENG. J.

MED. 747, 749 (1982).

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8B3

6) JCAH lacks the saving grace of availability for achieving public policy

goals other than efficiency. It is not open to public scrutiny, participation or

responsibility.

IV. ALTERNATIVES

The picture of JCAH that emerges at this point is mixed. Significant con-

tributions to efficiency and consumer welfare are counterbalanced by ineffi-

ciencies and an absence of accountability. With this assessment before us, we

can consider how JCAH compares to alternative means of quality regulation.

Some of these alternatives can be disposed of summarily. First, suppres-

sion of JCAH in favor of leaving hospital quality to be determined by a com-

pletely unregulated market does not seem warranted. The positive contribu-

tion of JCAH to maintaining health care quality is significant. The negative

aspects of JCAH, such as its anticompetitive effects, may perhaps be controlled

without suppressing JCAH itself. The major problem with JCAH's quality

standards is not that they are wrong, just incomplete.

Second, consumer accreditation does not seem an adequate alternative.

Though this alternative has much to commend it in theory, it is impractical.

For the reasons set out earlier,

962

the cost of standardization and certification of

medical care facilities would be high, the difficulties with consumers recaptur-

ing this cost by reselling information insurmountable. It is also unlikely that

consumers could assemble the expertise necessary to evaluate technically com-

plex health care, or even that they would be allowed admission to private

health care facilities for accreditation inspections. This is not to say that con-

sumers cannot play a significant role in assuring health care quality. It is,

however, unlikely that they could ever replace the JCAH.

There are, however, other, more viable options. A comprehensive federal

regulatory program could be established. Alternatively, JCAH could be made

a public body. Finally, JCAH as it stands could be supplemented and con-

trolled.

Government Standardization and Accreditation

A first possibility is comprehensive federal government regulation of in-

stitutional medical care in addition to the JCAH program. Government

regulation of medical care institutions, of course, has already existed at the

state and local level for at least thirty to forty years. Almost all states now re-

quire hospitals and nursing homes to be licensed."

Nevertheless, state stand-

ards and inspections often are more superficial than those of JCAH.

364

And

362

See supra text

accompanying notes 229-35.

363

A. SOMERS,

supra

note 127, at 107 n.4.

See also

Lander,

supra

note 26, at 132, 133

(discussing hospital licensure).

364

GAO

REPORT,

supra

note 207, at 16-21; Schlicke,

supra

note 72, at 381; J. GELMAN,

884

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many states, encouraged by the federal government, have moved towards rely-

ing on JCAH accreditation for state licensure.

365

There is currently no comprehensive federal government program for

standardizing and certifying medical care facilities. The Senate passed a bill in

1973 to establish a federal Commission of Quality of Health Care Assurance

which could have replaced the JCAH for the purpose of certifying facilities to

participate in federal programs.

366

The idea of such a commission has much to

commend it. It would presumably be more directly accountable and responsive

to the public interest than JCAH. It could easily be made subject to the

Freedom of Information Act

367

and to AdMinistrative Procedure Act rule-

making requirements,

368

thus assuring public access to information and public

participation in standard setting. It might also have less anticompetitive effects

than JCAH.

There are, however, reasons why the creation of such a program might be

unwise. As to a federal hospital regulatory program these arguments are quite

strong. First, it is probable that if a federal program were created the consti-

tuency of JCAH would retain JCAH as a separate parallel private program.

Certainly physicians would support a continued JCAH program to protect

their interests. A federal program would therefore constitute an expensive

duplication of the JCAH program. Because JCAH represents professional

organizations of substantial size and experience, and can consult with addi-

tional professional groups through its PTAC 's, it has access at minimal cost to

extensive and widely varied expertise. For a health care regulatory commission

to operate independently it would need to develop its own duplicate system of

experts at considerable cost.

369

Though the program could avoid this cost in-

itially by adopting JCAH standards, it would still need to develop its own ex-

pertise to update and enforce the standards. This duplication would of necessi-

ty be inefficient to the patient/taxpayer unless the benefits of the federal pro-

supra

note 226, at 126; Lewis,

supra

note 190, at 23; Worthington & Silver,

supra

note 176, at

308-310.

365

See

authorities cited

supra

notes 66-71, 212.

366

Health Maintenance Organization and Resources Act of 1973, S. 14 S 403, 93rd

Cong., 1st Sess. S. REP. NO. 129, 81-88 (1973),

reprinted in

Boggs,

"A Contextfor Quality Control,"

in THE MENTALLY RETARDED CITIZEN AND THE LAW, 357, at 370-371 (M. Kindred ed. 1976)

(the proposal passed the Senate but was dropped from the bill in the House,

see

Boggs,

supra

370).

Cf.

Clark,

Why Does Health Care Regulation Fail?, 41

MD. L. REV. 1, 26-28 (1981) (sug-

gesting the establishment of a Commission on Medical Technologies to provide some non-

physician control over medical decision making). The federal government has not always shown

interest in health care standardization. In 1913 the ACS petitioned the Public Health Service to

take over the hospital standardization effort. The government declined the offer, stating that

standardization was a task for the public sector. M.

ROEMER & D. FRIEDMAN,

supra

note 111, at

36.

367

See

5 U.S.C. 5 552(a)(2) (1976, Supp. IV 1980).

368

See

5 U.S.C. 5 553 (1976).

369

Henderson & Pearson,

Implementing Federal Environmental Policies, the Limits of Aspira-

tional Commands,

78 COL. L. REV. 1419, 1438 (1978); McClure,

Structure, supra

note 1, at 136;

Wolfson, Trebilcock & Thohy,

supra

note 235, at 211.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



885

gram were so significant as to justify the costs of establishing and operating a

duplicate program. It is generally believed, both at the federal and the state

level, that JCAH does a sufficiently adequate job of regulation of hospitals so

that such additional costs would not be justified.

A second problem is the potential lack of flexibility in a federal hospital

standardization effort. JCAH has responded to the constantly changing nature

of the technology of health care delivery by continually revising and updating

its standards. By contrast, the federal government basically adopted JCAH

standards for its small independent Medicare hospital certification program for

non-accredited hospitals in 1966

371

and has made only minor changes since.

372

While public rulemaking procedures facilitate public participation and ac-

countability, they are cumbersome and time-consuming and impose upon a

standardization program an inflexibility that would hinder regulation of a

rapidly evolving industry like institutional medical care.

373

Third and most significant, it has frequently been noted that regulatory

agencies have a tendency to favor the interests of organized regulated in-

dustries over those of diffuse and unorganized consumers.

374

This tendency is

particularly strong in the medical care industry, which has shown itself

remarkably adept at co-opting any programs designed to regulate it.

375

Hospi-

tal patients are singularly atomistic and unorganized; they have no common

characteristics to facilitate organization other than their idiosyncratic medical

problems. Accordingly, there is little ground for optimism that a federal

government regulatory agency would be any more responsive to consumer in-

terests or less responsive to hospitals than JCAH.

All of these arguments, however, carry much less force when applied to

regulation of nursing homes and perhaps of other non-hospital institutions.

First, JCAH nursing home accreditation is much less pervasive than is hospital

accreditation. Whereas the vast majority of hospitals are now subject to JCAH

accreditation, only 1,300 of the nation's 23,000 nursing homes are currently

JCAH accredited.

376

Six hundred of these are hospital based facilities.

377

JCAH nursing home accreditation has never been accepted by state licensing

970

authorities cited

supra note 347.

' J. FEDER, supra note 164, at 11; A. SOMERS, supra note 127, at 117.

372

Recent proposed changes in the federal program appear to aim at bringing it in line

with proposed JCAH changes.

See

48 Fed. Reg. 299 (1983).

373 P. HARTER,

supra

note 223, at 203-07 (1979); McClure,

Structure, supra

note 1, at

129-131; Noll, supra

note 1, at 35-38; Schlicke,

supra

note 51, at 384.

FELDSTEIN, HEALTH

CARE ECONOMICS, 241-242 (1979) (Feldstein argues that regulatory agencies resist change both

to limit their risks of failure and to protect regulated industries from competition and diminished

profitability).

374

McClure,

Structure, supra

note 1, at 122-26; Stewart,

The Reformation of American Ad-

ministrative Law,

88 HARV. L. REV. 1671, 1684-87 (1975).

378

See generally

Clark,

supra

note 366 (addressing the problem of physician co-option of

medical regulation).

House hearings, supra

note 64, at 83; Punch.

sora

note 54. at 40.

Downey,

Nursing Homes vs. JCAH,

MODERN HEALTH CARE, April 1975, at 35.

886

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[Vol. 24:835

agencies or for federal Medicare and Medicaid program certification purposes

as a "deemed" equivalent of state or federal inspection and approval. Virtual-

y all states license nursing homes

378

and most nursing homes are certified to

participate in some federal program,

379

so government regulation is much more

pervasive than is JCAH accreditation. As to nursing homes, therefore, it is

clearly JCAH accreditation and not government regulation which is the dupli-

cative program. Second, the arguments based on lack of expertise and flexibili-

ty carry much less weight here. Nursing home care is much less technologically

complex than hospital care and is subject to less frequent and substantial

changes in technology. Further, the federal and state governments have

regulated nursing home care for some time and have had an opportunity to ac-

cumulate signifiCant expertise.

" In addition, the highly organized nature of

the senior citizen and nursing home consumer lobby makes it less likely that

regulatory agencies will become subservient to provider interests.

' Finally,

and most important, the internal guarantees that make JCAH a more accept-

able instrument for regulating hospitals are not applicable to nursing homes.

As the model developed earlier shows, the independent interests of physicians

and surgeons in hospital regulation, combined with their heavy representation

on the JCAH, assures that the hospital regulatory program at least guaran-

tees patients high quality theatres for the performance of physicians and

surgeons.

382

The presence and interest of physicians in nursing homes is mini-

mal,'" however, and thus physicians are much less likely to operate as a bal-

ancing force against the nursing home constituency within JCAH. JCAH nurs-

ing home regulation may well be an undesirable form of self-regulation.

In summary, JCAH accreditation may be superior to government regula-

tion for some purposes such as hospital accreditation, but not for other pur-

poses, such as nursing home regulation.

Make JCAH a Public Body

A second option is to make JCAH function essentially like a government

entity. This could be done by making JCAH accountable to the public: open-

ing its board to public participation and its records and reports to the public.

578

See

JOST,

MODEL RECOMMENDATIONS: INTERMEDIATE SANCTIONS FOR EN-

FORCEMENT OF QUALITY OF CARE IN NURSING HOMES, at 57-71 (1981).

17,000 nursing homes participate in Medicaid,

House hearings, supra

note 64, at 79.

380

Most states adopted nursing home licensing statutes in the 1940's or earlier. F. Hair,

supra

note 72, at 246. The JCAH nursing home accreditation program did not begin until 1965.

Id.

at 148-50.

" The strength and effectiveness of this lobby is demonstrated by the response to

regulations proposed to permit deemed status for JCAH accredited nursing homes. A position

statement opposing use of JCAH accreditation for Medicare and Medicaid certification of the

National Citizens Coalition for Nursing Home Reform was endorsed by 43 national organiza-

tions (July 12, 1982). A letter to Secretary Schweicker expressing opposition to the bill was signed

by 49 Congressmen. A six month moratorium on the issuance of the regulations was passed by

Congress. The moratorium was subsequently extended 120 days.

See supra

note 64.

See supra

text accompanying notes 270-276.

3e]



& Arkin,

supra

note 361, at 749.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



887

In the recent past the federal government has explored this option with

regard to private standard-setting bodies generally. JCAH is, of course, not

the only private standard-setting and certifying body with considerable

authority over public decisions.

384

The implications of such power being held

by private bodies have not been lost on the federal government, which, during

the Carter Administration, showed real concern about the accountability of

private standard-setting bodies. A policy statement of the Office of Manage-

ment and Budget (OMB)

388

and proposed rules of the Federal Trade Commis-

sion (FTC)

386

issued in the late 1970's would have required considerable ex-

pansion of opportunities for public participation and public access to the stand-

ard making process.

387

Similar proposals were made by the National Standard

Policy Advisory Committee

388

and raised in Congress.

389

The Reagan Ad-

ministration has, however, distanced itself from these proposals, and given free

reign to private standard setting.

There are legal arguments under existing law for making JCAH function

like a public entity. First, there is the Administrative Procedures Act (APA).

The APA generally requires "agencies" of the federal government generally to

conduct public rule-making procedures,'" provide procedural protections to

subjects of formal adjudicatory decisions

393

and, with certain exceptions, hold

their records and determinations available for public inspection and

copying.'" If JCAH were deemed a federal agency, it essentially would have to

function like a public body and, in all likelihood, would be less efficient.

While the question is not wholly free from doubt, it seems unlikely that the

JCAH is an agency under the APA. In

Forsham

tr.

Harris,'" the Supreme Court

considered the definition of agency under the Freedom of Information Act

(FOIA) (which incorporates the definition of agency from the AP-A). Drawing

on an earlier case defining agency for tort claims act purposes,

396

and on

384

See

FEDERAL TRADE COMMISSION,

supra

note 223, at 31-38.

" OMB Circular A-119, Federal Participation in the Development and Use of Volun-

tary Standards, 45 Fed. Reg. 4325 (1980);

but see

Proposed Revision of OMB Circular A-119, 47

Fed. Reg. 16,919 (1982).

See

Proposed Trade Regulation Rule — Standards and Certification, 43 Fed. Reg.

57,269 (1978)

(see

46 Fed. Reg. 39845 (1981), setting new schedule for submission of final staff

report) (to be codified at 16 C.F.R. 457).

" These proposals generally excluded from their coverage professional standardization

and certification,

see

47 Fed. Reg. 16920 (1982), 43 Fed. Reg. 57269 (1978), 45 Fed. Reg. 4326.

388

43 Fed. Reg. 6298 (1978).

389

See

Voluntary Standards Accreditation Act, 5.825, 95th Cong., 1st Sess. (1977).

399

See

47 Fed. Reg. 16,919 (1982).

391

5 U.S.C. 5 551-559 (1976 and Supp. IV, 1980).

392

5 U.S.C. 5 553 (1976). The rulemaking provisions do not apply to matters involving

loans, grants, benefits, or contracts and therefore might not cover much of the Medicare pro-

gram, JCAH's principal federal responsibility.

393

5 U.S.C. SS 554, 556, 557 (1976 and Supp. IV 1980).

5 U.S.C. S 552 (1976 and Supp. IV 1980).

445 U.S. 169 (1980).

396

Id.

at 180 and note 11 citing United States v. Orleans, 425 U.S. 807 (1976).

888

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legislative history of the FOIA showing that Congress did not intend to include

within the FOIA corporations that merely received grants from the federal

governmenf,

597

the Court held that absent "extensive, detailed, and virtually

day-to-day supervision,''

” grantees of the federal government do not become

agencies.

Although the JCAH receives large sums of money from the federal

government through reimburseable survey fees and is actively cooperating with

the federal government by providing information as to hospital accreditation, a

recent case —

Cospito

Califano

399

—

has held that JCAH is not sufficiently

subject to day-to-day control by the federal government to make it an agency

under this test. The Court rejected the argument of the plaintiffs in

Cospito

(pa-

tients in a mental hospital who had lost federal assistance because JCAH had

disaccredited their facility) that JCAH was a federal agency subject to the

APA.

A stronger argument can be made for JCAH agency status under another

test that also appears in earlier cases and has not explicitly been rejected by the

Supreme Court. Under this test the question is whether an entity has independ-

ent "authority by law" to take "final and binding action affecting the rights

and obligations of individuals."

' Even under the independent authority test,

however, JCAH would probably not be subject to the APA and FOIA, as deci-

sions of the JCAH are in most instances not final independent government

decisions. Only in two instances does JCAH exercise authority that might sub-

ject it to the federal APA and FOIA under the independent authority test. The

first involves JCAH certification decisions concerning Medicaid payments to

psychiatric hospitals for minors; the second, certification decisions for Med-

icare or Medicaid payments to psychiatric hospitals not eligible for distinct

part certification. In both situations JCAH accreditation is required for pro-

gram participation

It should be noted, however, that the extensive authority

397

Forsham v. Harris, 445 U.S. at 179-80.

" Id. See also

Public Citizen Health Research Group v. Department of Health Educa-

tion and Welfare, 668 F.2d 537 (D,C. Cir. 1981); St. Michael's Convalescence Hosp. v. Califor-

nia, 643 F.2d 1369 (9th Cir. 1981); Irwin Memorial Blood Bank of the San Francisco Medical

Soc'y v. American Nat'l Red Cross, 640 F.2d 1051 (9th Cir. 1981) (applying a similar test).

" No. 77-859, at 23-25 (D.C. N.J. 1983) (granting JCAH motion for summary judg-

ment as Agency issue).

°°

Id.

at 23.

°' Lumbardo v. Handler, 397

Supp. 792, 795 (D.D.C. 1975), aff'd 546 F,2d 1043

(D.C. Cir. 1976),

cert. denied,

431 U.S. 932 (1977) (quoting Freedman,

Administrative Procedure and

the Control of Foreign Direct Investments,

119 U. PA. L. REV. 1, 9 (1970)).

See also

Washington

Research Project Inc. v. DHEW, 504 F.2d 238, 248 (D.C. Cir. 1974)

cert. denied,

421 U.S. 963

(1975); Gruman Aircraft Eng'g Corp. v. Renegotiation Bd., 482 F.2d 710, 714, 715 (D.C. Cir.

1974)

rev'd on other grounds,

421 U.S. 168 (1975); Soucie v. David, 448 F,2d 1067, 1073 (D.C. Cir.

1971); Wolfe v. Weinberger, 403 F. Supp. 238, 241 (D.D.C. 1975); Note,

The Definition of

"Agency" Under the Freedom of Information Act as Applied to Federal Consultants and Grantees,

69 GEO.

L.J. 1223

(1981) (applying a similar test).

42 U.S.C.



1395x(f)(5) (1970).

See supra

note 61.

July 1983]



PRIVATE REGULATION OF HEALTH CARE



889

given JCAH by law or regulation in some states may subject JCAH to some

state APA's or FOIA's.

403

A second potential legal tool

for increasing public control over JCAH is

the Federal Advisory Committees Act (ACA).

404

If JCAH were an advisory

committee under the ACA it would have to hold open meetings, publish notice

of its meetings in the Federal Register, make its records available to the public,

keep detailed minutes, and generally function subject to public oversight.

Section three of the Advisory Committees Act defines advisory committee to

mean:

any committee, board, commission, council, conference, panel, task force,

or other similar group, or any subcommittee or subgroup thereof . . . which

is (C) established or utilized by one or more agencies, in the interest of

obtaining advice or recommendations for the President or one or more agen-

cies or officers of the Federal Government ....

406

Insofar as JCAH is a "commission" utilized by HHS in the interest of obtain-

ing recommendations with regard to facilities that should be permitted to parti-

cipate in the federal Medicare program, it is arguably covered by this defini-

tion."'

This argument, however, does not hold up to more thorough analysis.

The ACA does not extend to entities that merely provide to the government

consultant services under contractual relationships

408

or to industry associa-

tions that voluntarily provide the government with proposals for regulatory ac-

tion.

409

Further, legislative history of the ACA establishes that the drafters in-

tended to exclude from ACA coverage committees or commissions with actual

responsibilities for program operations (like facility inspections).

410

The ACA

would, therefore, not seem to apply to entities such as the JCAH that have a

' See

Nassau-Suffolk Hosp. Council v. Whalen, 89 Misc.2d 304, 390 N.Y.S. 995

(1977) (holding JCAH reports delivered to Department of Health without a promise of con-

fidende are publicly available); Patients of Philadelphia State Hosp. v. Commonwealth of Pa., 53

Pa. Commw. 126, 417 A.2d 805 (1980) (holding JCAH report on state hospital to be public

record under state Right-to-Know act).

404

5 U.S.C. App. 1 (1976 and Supp. IV, 1980).

See

5 U.S.C. App. 1 5 10 (1976),

see

National Nutritional Food Ass'n v. Califano,

603 F.2d 327 (2d Cir. 1979); Food Chemical News Inc. v. Davis, 378 F. Supp. 1048 (D.D.C.

1974).

406

5 U.S.C. App. 1 § 3 (1976).

The possibility of the ACA applying to standard setting bodies has been recognized

by the commentators:

AD1vIINISTRATIVE CONFERENCE OF THE UNITED STATES, 1978

Report, p.

44 (1979); P.

HARTER,

supra

note

223, at 236-41; Hamilton, supra note 221, at 1475-77.

See also

Proposed Amendment to OMB-circular A-119, 47 Fed. Reg. 16,919, at 16,921 (1982) (noting

that standard setting bodies may be subject to the A.C.A. in some circumstances).

408

Lumbardo v. Handler, 397 F. Supp. 792, 799-800 (D.D.C. 1975); H.R. Rep.

No.

1017, 92nd Cong., 2d Sess. (1972)

reprinted

is 1972 U.S. CODE CONG. & AD. NEWS, at 3494

(House report supporting this conclusion).

409

Consumers Union of United States, Inc. v. HEW, 409 F. Supp. 473, 476-77

(D.D.C. 1976).

410

H.R. Rep. No. 1017, 92d Cong., 2d Sess. (1972)

reprinted in

1972 U.S. CODE CONG.

& AD. NEWS, at 3494.

890

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IV ol.

24:835

substantial existence independent of the federal government and that carry on

their own programs in conjunction with and under contract to the federal

government.

Even if JCAH is neither an agency as defined in the APA or

FOIA

nor an

advisory committee as defined in the ACA, it may still be an instrumentality of

the federal or state governments for purposes of the application of the due proc-

ess provisions of the fifth and fourteenth amendments. The procedural protec-

tions of the Constitution limit only the actions of the government and not of

private entities. Nevertheless, it is often hard to determine whether the

acts

an entity that in some way is exercising or directing the power of the federal or

state government are "state action" subject to the control of the Constitution.*"

*" The Supreme Court has increasingly narrowed the scope of the state action doctrine

in recent years. Two cases decided by the court in its 1981 term, Blum v. Yaretsky, 102 S. Ct.

2777 (1982) and Rendell-Baker v. Kahn, 102 S. Ct. 2764 (1982) establish that the mere facts that

an entity, nominally private, receives virtually all of its funds from the government through a

contractual relationship, and is extensively subject to government regulation, do not make the

actions of the entity "fairly attributable to the state" for the purpose of applying the Fourteenth

Amendment unless the state has exercised coercive power or has provided such significant en-

couragement, either overt or covert, that the choice [motivating the private action] must in law

be deemed to be that of the State," 102 S. Ct. at 2786, or the private entity has exercised powers

that are "traditionally the exclusive prerogative of the state," 102 S. Ct. at 2786. Since few

JCAH decisions result from government compulsion and health care standardization and ac-

creditation are not traditional government functions,

Blum

and

Rendell-Baker

would not make

JCAH actions state actions.

In Lugar v. Edmonson Oil Co., 102 S. Ct. 2744 (1982), a third case decided on the same

day as

Mum

and

Rendell-Baker,

a nominally private party again was involved, specifically a

creditor that had seized property under a pre-judgment attachment procedure executed by the

county sheriff. 102 S. Ct. at 2747, 2748. The question in

Lugar

was whether the private use of a

state procedure in cooperation with a state officer was "under the color of state law" and thus

subject to the civil rights law, and ultimately to the Fourteenth Amendment. 102 S. Ct. at 2747,

2748. In this situation the court set out a different test: where there is a deprivation of a federal

right, this deprivation may be fairly attributable to the state if two conditions are met. First, the

deprivation must be caused "by the exercise of some right or privilege created by the state or by a

rule of conduct imposed by the state or by a person for whom the state is responsible." 102 S. Ct.

at 2754. Second, "the party charged with the deprivation [must be] a person who may be fairly

said to be a state actor ... because he is a state official, because he has acted together with or has

obtained significant aid from state officials, or because his conduct is otherwise chargeable to the

state." 102 S. Ct. at 2754.

JCAH accreditation in some respects more closely resembles the private conduct in

Lugar

than that in

Rendell-Baker

and

Blum.

While the JCAH standards, pursuant to which ac-

creditation decisions are made, are in one sense private rules of action, they have also been

adopted explicitly by the federal government through the deemed status law. By deeming JCAH

accredited hospitals to be eligible for Medicare participation, the federal government has effec-

tively adopted JCAH standards as its own and then imposed them on hospitals through JCAH.

In this capacity JCAH is a person for whom the federal government is responsible. Under the

second branch of the

Lugar

test JCAH accreditation decisions are attributable to the federal

government because they are made by JCAH in concert with HHS, which accepts them for pur-

poses of making Medicare payments.

Cf.

Fitzgerald v. Mountain Laurel Racing Inc., 607 F.2d

589, 598 (3rd Cir. 1979) (holding action of a race track suspending driver and approved by racing

official exercising delegated state power to be state action);

lnd cf.

Northrip v. FNMA, 527 F.2d

23, 30-33 (6th Cir. 1975) (holding involvement of FNMA with federal government does not

July 1983]

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PRIVATE REGULATION OF HEALTH CARE



891

Whether or not JCAH is sufficiently a surrogate for the state or federal

government to subject it to the Constitution may rarely be of substantial conse-

quence. If hospitals are denied certification by JCAH they are protected by in-

ternal JCAH procedures that are at least as extensive as those minimally re-

quired by due process:

Fair review procedures for such denials may be re-

quired independent of the Constitution by general private organization law in

many states.

413

If, on the other hand, hospitals are improperly granted accredi-

tation and consumers or hospital employees and staff seek review, a substantial

barrier to review that in all likelihood will keep courts from reaching questions

of due process challenges will be raised by the lack of a casual relationship be-

tween the decision of JCAH and any injury to the employees or patients.

Thus due process as to JCAH quasi-judicial decisionmaking may seldom arise.

Only if the now nascent (or aborted) trend towards imposing due process re-

quirements on quasi-legislative rulemaking

" were to be considerably expand-

ed might due process obligations of JCAH become important. This seems

unlikely.

Even if a legal theory could be found for turning JCAH into a public enti-

ty, it is not wholly clear that this would radically improve the performance of

JCAH. While it might make JCAH more available for pursuing public policy

goals and more sensitive to consumer preferences and utility, it might also

make hospitals and physicians less cooperative with JCAH regulation. As

render its decisions not compelled by federal laws to be federal action). A similar analysis can be

applied to the JCAH role in some state licensure programs. Thus the intimate involvement of the

JCAH in administering federal or state government responsibilities might bring its actions within

the purview of the Fifth or Fourteenth Amendments.

See

Howard v. NCAA, 510 F.2d 213 (D.C.

Cir. 1975); Intercontinental Indus. v. American Stock Exchange, 452 F.2d 935 (5th Cir. 1971),

cert. denied,

409 U.S. 842; Stanley v. Big Eight Conference, 463 F. Supp. 920 (W.D. Mo. 1976);

Golden Rule Life Ins. v. Mathias, 86 Ill. App. 3d 323, 408 N.E.2d 310 (4th Dist. 1980).

The issue is, however, close and subject to debate. One case that has considered the

nature of JCAH has assumed in dicta that JCAH has acquired the character of a government ac-

tor. Sokol v. University Hosp. Inc., 402 F. Supp. 1029, 1031 (D. Mass. 1975). In a second case,

a motion to dismiss claiming JCAH was not a state actor was denied, Cospito v. Califano, 89

F.R.D. 374, 381, 382 (D. N.J. 1981). Subsequently, defendant's motion for summaryjudgment

was also denied, Cospito v. Califano, No. 77-869 at 22-23 (D. N.J. 1983). Finally, another case,

by contrast, identified JCAH as a private entity — though the question of JCAH state action was

not at issue. Slakoff v. Harrisburg Polyclinic Hosp., 375 F. Supp. 999, 1001, 1004 (M.D. Pa.

1974).

412

See

AMH,

supra

note 39, App. B, at 199-206.

4'3



Duby v. American College of Surgeons, 468 F.2d 364 (7th Cir. 1972); Pinsker v.

Pacific Coast Soc'y of Orthodontists, 12 Cal. 3d 541, 116 Cal. Rptr. 245, 526 P.2d 253 (1974);

Falcone v. Middlesex Co. Medical Soc., 34 N.J. 582, 170 A.2d 791 (1961).

414 See

O'Bannon v. Town Court Nursing Center, 441 U.S. 904 (1980). Under some

unusual circumstances it may, however, be possible to show causality.

See

Cospito v. Califano, 89

F.R.D. 374 (D. N.J. 1981) where JCAH disaccreditation of a psychiatric hospital led directly to

loss of federal benefits by the patients of the hospital.

4'S



Gellhorn & Robinson,

Rulernaking "Due Process": An Inconclusive Dialogue,

48 U.

CHI. L. REV.

201 (1981); Comment,

Due Process Rights of Participation in Administrative Rulemaking,

CALIF. L. REV.

886 (1975).

892

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BOSTON COLLEGE LAW REVIEW

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[Vol. 24:835

pointed out earlier,

JCAH can regulate efficiently because of its respon-

siveness to its constituency. To the extent the JCAH became a government

agency, it would in all likelihood function like a government agency, with

similar inefficiencies."' If the traditional constituencies of JCAH struggled to

retain control, it might become even less efficient and accountable than a

public agency. Salvation does not appear to lie this way.

V. SUPPLEMENTATION AND CONTROL OF JCAH

A final alternative is supplementation and control of JCAH. If JCAH is

anticompetitive it ought to be reined in through the antitrust laws. Insofar as it

exercises government power, it ought to be controlled and supplemented by the

government.

Control of Anticompetitive Conduct Through the Antitrust Law

The public policy of the United States favors free-market competition and

opposes unreasonable restraints on trade. This policy is articulated in sections

one and two of the Sherman Antitrust Act.'" Section one forbids "(e)very con-

tract, combination in the form of a trust or otherwise, or conspiracy, in re-

straint of trade or commerce among the several states, or with foreign

nations."" Section one is aimed at concerted activity — activity by two or

more persons or entities — that makes a market function less efficiently, usual-

ly by impeding competition. Section two deems it illegal for any person to

"monopolize or attempt to monopolize or combine or conspire with any person

or persons to monopolize any part of the trade or commerce among the several

states, or with foreign nations . "

" Section two is narrower than section

one in that it focuses on one particular kind of anticompetitive conduct,

monopolization, but is also of potentially broader application in that a single

person or entity can violate section two. As will be developed further below, in-

sofar as JCAH in concert with other persons or organizations impedes competi-

tion in the markets for physician, hospital or other medical services, it may

violate section one. Insofar as it monopolizes the market for accreditation serv-

ices, it may violate section two.

1. Antitrust: Preliminary Considerations

Before applying substantive antitrust law to JCAH it is first necessary to

consider antitrust jurisdictional requirements and antitrust defenses that might

exempt JCAH activities from scrutiny under the Sherman Act. These defenses

and immunities traditionally have precluded or severely limited application of

416



supra

text accompanying notes 358-60.

417

See supra

text accompanying and authorities cited at note 373.

419



U.S.C. SS 1, 2 (1976).

419

15 U.S.C.

1 (1976).

420

15 U.S.C.

2 (1976).

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PRIVATE REGULATION OF HEALTH CARE

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893

the antitrust laws in the health care context. To the extent that they retain their

former vitality, they may limit the usefulness of the antitrust laws in controlling

JCAH.

Establishing Sherman Act jurisdiction over JCAH should not be difficult.

First, JCAH's restraints on trade must be shown to affect interstate or foreign

commerce. The most frequent context in which antitrust challenges to JCAH

standards are mounted is denial of hospital staff privileges. Until the mid-

1970's, courts routinely dismissed antitrust challenges to denials of hospital

staff privileges, holding that such denials had no effect on interstate

commerce."' In 1976, however, the Supreme Court in

Hospital Building Com-

pany v. Trustees of Rex Hospital

422

liberally construed the interstate commerce re-

quirement as applied to hospitals, deciding that the interstate purchase of med-

ical supplies, receipt of insurance reimbursement, payment of management

fees, and arrangement of finance contracts provided sufficient interstate con-

tacts to ground an antitrust claim concerning the blocked expansion of a

hospital."'

The Court further limited the rigor of the interstate commerce require-

ment in

McLain v. Real Estate Board of New Orleans,

Inc. ,

424

which held that a

plaintiff need only show that a defendant's total activities have a substantial ef-

fect on interstate commerce, and need not show that a particular alleged viola-

tion will itself affect interstate commerce.

425

Recent antitrust cases concerning

hospital staff privileges have readily found interstate commerce jurisdiction.

425

If an antitrust action is brought directly challenging the anticompetitive

effects of a JCAH decision to refuse accreditation to a facility or class of facili-

ties — as opposed to a challenge to a JCAH standard — interstate commerce

jurisdiction may be found even more easily. Denial of JCAH accreditation to

the facility is likely to have, in itself, a significant effect on interstate

commerce.

427

421

See, e.g. ,

Wolf v. Jane Phillips Episcopal-Memorial Medical Center, 513 F.2d 684,

687, (10th Cir. 1975); Spears Free Clinic and Hosp. for Poor Children v. Cleere, 197 F.2d 125,

128 (10th Cir. 1952).

422

425 U.S.C. 738 (1976).

423

Id.

at 744.

424

444 U.S.C. 232 (1980).

422

Id.

at 242, 243.

426

See, e.g.,

Mischler v. St. Anthony's Hosp. Sys., 1981-2 Trade Cas. (CCH) I] 64,342

(10th Cir. Nov. 2, 1981); Crane v. Intermountain Health Care, Inc., 637 F.2d 715, 721-27 (10th

Cir. 1981); Feminist Women's Health Center Inc. v. Mohammed, 586 F.2d 530, 539-41 (5th

Cir. 1978),

(ed. denied,

444 U.S. 924 (1979); McDonald v. St. Joseph's Hosp. of Atlanta, 524

Supp. 122, 127-30 (N.D. Ga. 1981); Robinson v. McGovern, 521

Supp. 842, 876-77 (W.D.

Pa. 1981); Malini v. Singleton & Assoc's., 516

Supp. 440, 441-45 (S.D. Tex. 1981); Feldman

v. Jackson Memorial Hosp., 509 F. Supp. 815, 820, 821 (S.D. Fla. 1981); Denver v. Santa Bar-

bara Community Dialysis Center, 1981-1 Trade Cas. (CCH) i 63,946 (C.D. Cal. Feb. 26,

1981); Zamiri v. William Beaumont Hosp., 430 F. Supp. 875, 877 (E.D. Mich. 1977).

Contra

Capili v. Shott, 620 F.2d 438, 439 (4th Cir. 1980).

422

See also

Boddicker v. Arizona State Dental Ass'n, 549 F.2d 626, 629 (9th Cir. 1977)

(holding denial of membership in a national association may itself affect interstate commerce);

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Until less than a decade ago JCAH might have raised a second jurisdic-

tional barrier, arguing that professional, non-commercial activities were ex-

cluded from the coverage of the antitrust laws. Dicta in earlier Supreme Court

cases had left open the distinct possibility that professional self-regulatory ac-

tivities, even activities that intentionally restrained competition, were not sub-

ject to scrutiny under the antitrust laws, which, after all, applied only to trade

and commerce:

s An antitrust exemption for professional services was rejected

by the Supreme Court, however, in a series of cases beginning with

Goldfarb v.

The Virginia State Bar

429

in 1975. Following

Goldfarb,

a court has recently rejected

the professional exemption defense in a case challenging JCAH standards

limiting access of chiropractors to hospitals when the defense was raised by

the AMA and other codefendants.

" Other defenses, however, are more

troublesome.

Antitrust

Law and Freedom of Communication

Activity which would otherwise be proscribed by the Sherman Act may be

protected from antitrust sanctions by two doctrines developed in response to

first amendment concerns. The first doctrine protects certain concerted ac-

tivities intended to influence governmental action. The second protects com-

mercial speech.

In opposing antitrust challenges to its program, JCAH has argued that the

procompetitive policy of the antitrust law must be subordinated to the constitu-

tional policy protecting freedom of petition and expression."' Reconciliation of

the antitrust laws with the first amendment has been accomplished traditional-

ly through the

Noerr-Pennington

doctrine, developed by the Supreme Court in a

series of cases in the early 1960'5.

432

Noerr-Pennington

protects from antitrust

sanctions concerted attempts to influence public political opinion or legislative,

but see

Nara v. American Dental Ass'n, 526 F. Supp. 452, 455-57 (W.D. Wis. 1981) (finding no

effect on interstate commerce where dentist denied membership in A.D.A.).

428

See

United States v. Oregon State Medical Soc., 343 U.S. 326, 336 (1952); American

Medical Ass'n v. United States, 317 U.S. 519, 528 (1943).

See also

Marjorie Webster JuniOr Col-

lege Inc. v. Middle States Ass'n of Colleges and Secondary Schools, Inc., 432 F.2d 650, 653-655

(D.C. Cir. 1970)

cert. denied,

400 U.S. 965 (1970) (holding an educational accrediting association

exempt from the antitrust laws).

429

421 U.S. 773, 786-88 (1975).

See also

Arizona v. Maricopa County Medical Soc'y,

102 S. Ct. 2466, 2465-2478 (1982); National Soc'y of Prof. Eng'rs v. United States, 435 U.S.

679, 696 (1978). State antitrust laws, on the other hand, frequently do not apply to professional

activities:

see

Mohammed, 586 F.2d at 552, 553; Moles v. White, 336 So.2d 427, 429-30 (Fla.

Dist. Ct. App. 1976),

cert. dismissed,

355 So.2d 516 (Fla, 1978); People v. Roth, 52 N.Y.2d 440,

447-48, 420 N.E.2d 929, 930 (1981).

Health Care Equalization Comm. of the Iowa Chiropractic Soc'y v. Iowa Medical

Soc'y, No. 79-381-A943-6 (order Feb. 12, 1982) (earlier order at 501 F. Supp. 970).

See id.

at 12-13 (refusing to strike first amendment defense at pleading stage).

492

See

United Mine Workers of Am. v. Pennington, 381 U.S. 657, 669-71 (1965);

Eastern R.R. Presidents Conf. v. Noerr Motor Freight Inc., 365 U.S. 127, 137-38 (1961);

see also

Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 513-15 (1972) (applying the

Noerr-Pennington doctrine to a case where plaintiffs challenged defendant's allegedly anticom-

petitive use of administrative

agencies and the courts).

July 19831

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PRIVATE REGULATION OF HEALTH CARE

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895

executive, or judicial decision-makers, even if the efforts are meant to achieve

an anticompetitive result.

433

The

Noerr-Pennington

doctrine is based not only on

the first amendment but also on congressional intent that the antitrust laws not

constrain political advocacy.

434

The

Noerr-Pennington

doctrine is subject to an important exception, the

"sham" exception: "there may be situations in which a publicity campaign,

ostensibly directed towards influencing government action, is a mere sham to

cover what is actually nothing more than an attempt to interfere directly with

the business relationshlp of the competitor and the application of the Sherman

Act would be justified."

" In many cases extended consideration of the true

nature of concerted anticompetitive activities that resemble political advocacy

is necessary to determine whether they are protected by

Noerr-Pennington

or fall

within the sham exception.

The second defense stemming from the first amendment and limiting an-

titrust sanctions arises from recent Supreme Court cases limiting application of

the antitrust laws to commercial speech.

Virginia State Board of Pharmacy v.

Virginia Consumers Council

hic.,

436

a case considering statutory limitations on

drug advertising, held that the first amendment protects commercial speech,

defined as speech that does "no more than propose a commercial trans-

action."

437

A series of subsequent cases have further clarified the perimet-

ers of "commercial speech" and the extent to which it is subject to goverment

regulation.'"

Metro-Media Inc. a. City of San Diego,

139

a 1981 Supreme Court

case, set out a four point test for determining the permissibility of government

restrictions on commercial speech:

(1) The First Amendment protects commercial speech only if that speech

concerns lawful activity and is not misleading. A restriction on otherwise

protected commercial speech is valid only if it (2) seeks to implement a

substantial governmental interest, (3) directly advances that interest, and (4)

reaches no further than necessary to accomplish the given objective.

440

Although the first amendment

protections of commercial speech have not

yet been applied in the antitrust area, commentators have argued that com-

mercial speech doctrine should be applied broadly to protect medical accredita-

tion and standardization programs from antitrust scrutiny.

441

This is an un-

" See Noerr,

365 U.S. 135-38.

434

Id.

at 137, 138.

"' Id.

144.

See also

California Motor Transp., 404 U.S. at 511-16 (further elaborating

on the "sham" exception).

136

425 U.S. 748 (1976).

Id.

at 762 (citing Pittsburgh Press Co. v. Human Relations Comm'n., 413 U.S. 376,

385 (1973).

" Metromedia Inc. v. City of San Diego, 453 U.S. 490, 498-521 (1981); Central Hud-

son Gas & Elec. v. Public Serv. Comm'n, 447 U.S. 557, 563-66 (1980) (setting out four-part

test).

" 453 U.S. 490 (1981).

Id.

507, citing

Central Hudson,

447

U.S. at 563-66.

441

See

Kissam,

supra

note 284, at 677-80; Kissam,

Applying Antitrust Law to Medical

896

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BOSTON COLLEGE LAW REVIEW

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[Vol. 24:835

warranted extension of the commercial speech doctrine.

Virginia Pharmacy

and

its progeny explicitly protect only advertising, one of the many forms of non-

political speech "of an entirely private and economic character.

442

-munication

intended to facilitate anticompetitive coordination among. pro-

ducers occupying parallel positions in a production chain differs in significant

respects from advertising, i.e., communication between ultimate buyers and

sellers .

445

The Court based its decision in

Virginia Pharmacy

in part on the postulate

that society has a strong interest in free exchanges of information regarding

products and prices to preserve the free enterprise system and to assure proper

allocation of resources.*** Exchanges of information between coordinate sellers

could, in contrast to advertising directed at consumers, hamper the efficient

allocation of resources and threaten the free enterprise system.

445

Even speech

ostensibly directed at consumers might do more harm than good to the market

if its real purpose and effect were to coordinate anticompetitive activities.

446

Ac-

cordingly, antitrust law has long limited certain kinds of information ex-

changes, recognizing that the free exchange of information must bow to en-

forcement of the antitrust law where communication has been used to hamper

competition.

447

This is not to say that communication between competitors is not entitled

to some protection. Indeed, antitrust law has traditionally recognized the

beneficial aspects of dissemination and exchange of information.

448

But just as

first amendment doctrine concerning advertising has developed independently

of the law of political speech, with its own exceptions and subject to its own

unique balancing test,

449

so the law of communication between competitors has

Credentialing, 7

AM. J.

OF L. &

MED.

1, 18-25 (1981); Kissam,

Antitrust Law, the First Amendment,

and Professional Self-Regulation of Technical Quality,

in REGULATING THE PROFESSIONS,

supra

note

277, at 143 (hereinafter cited as Kissam,

First Amendment). See also W.

Lazarus,

supra

note 72, at

III 94-111 97 (discussing Kissana's commercial speech argument).

442

See

425 U.S. 763, n.17. For a comparison of the commercial speech doctrine with

first amendment doctrine as it,has developed in regard to another kind of economic speech,

see

Note,

Labor Picketing and Commercial Speech,

91 YALE L.J. 938 (1982).

W. Lazarus,

supra note 72, at III 95-111 96.

425 U.S. at 762-65.

' W. Lazarus,

supra

note 72, at III 95-111 96.

446

Id.

447

National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 697 (1978);

United States v. Container Corp. of Am., 393 U.S. 333, 337 (1969); American Column and

Lumber Co. v. United States, 257 U.S. 377, 392, 412 (1921); American Medical Ass'n

F.T.C., 638 F.2d 443, 451, 452 (2d Cir. 1980).

448.

This is especially true as to information exchanges through standardization pro-

grams,

see

FEDERAL TRADE COMMISSION,

supra

note 223, at 39-54, 86-87; C.

LAMB & C.

SHIELDS,

supra

note 298, at 78-80, 90, 95.

Cf. M.

POLLARD & R. LIEBENLUFT, ANTITRUST AND

THE HEALTH PROFESSIONS 34-37 (1981); Liebenluft & Pollard,

Antitrust Scrutiny

the Health Pro-

fessions: Developing a Framework for Assessing Private Restraints,

VAND.

L. REV. 927, 947-949

(1981) (discussing procompetitive effects of health care standardization).

449

See supra

text accompanying note 440.

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PRIVATE REGULATION OF HEALTH CARE

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897

developed and ought to continue to develop independent of the law of commer-

cial speech, subject to its own exceptions and its own balancing test. Specifical-

ly, if communication between competitors is intended to exclude coercively

other competitors from a market, it ought not to be protected speech.

The effect of the first amendment limitations on antitrust controls over

certification and standardization programs must, to a large extent, depend on

the nature of those programs. If standardization or certification programs are

accurately characterized as petitions for political action, as might be the case if

a trade association developed standards explicitly for government regulation or

advocated government adoption of its certification or accreditation program,

such programs may be protected by the

Noerr-Pennington

rule. If, on the other

hand, a standardization or certification program is aimed primarily at facilitat-

ing purchasing decisions by consumers, as may be true of the Good House-

keeping Seal of Approval, the program may be protected by the commercial

speech exception.

The analysis presented earlier in this article,

451

however, shows that the

JCAH standardization and accreditation programs are not aimed at ultimate

consumers of health care. Though JCAH does not conceal its standards from

the public, it has made few attempts to disseminate its standards to the public

or to educate the public as to the content of these standards."' Indeed, JCAH

officials have opined that the public has little ability to comprehend JCAH

standards

Neither are JCAH standards aimed at government. Although the federal

government and some state governments have in effect incorporated JCAH

standards into their regulations by granting deemed status for licensure or cer-

tification to JCAH accredited facilities, JCAH has not advocated government

adoption of its standards,

454

and indeed has self-consciously developed stand-

ards independent of government regulatory purposes.

455

JCAH standards are

only in the most attenuated sense advertising and are not significantly political

speech.

This is also true to a somewhat lesser extent of the JCAH accreditation

program. Although a list of accredited facilities is publicly available, JCAH

makes no effort to publicize this information.

456

Moreover, it is militantly pro-

° Although I am unaware of cases in which courts have squarely addressed this ques-

tion, there is no reason why the approach that courts have taken to communications between

competitors in other antitrust contexts

(see supra

at note 447) ought not to apply here.

' See supra

Section II.



•

452

The

ACCREDITATION MANUAL FOR

HOSPITALS,

for example, is only available from

the JCAH Chicago office at a cost of $20.00.

"' See

Lewis,

The Uncertain Future ofJCAH,

4 MODERN HEALTH CARE, Aug. 1975 at 20,

21.

45+

supra

note 51, at 8; Schlicke,

supra

note 72, at 385.

455 See

authorities cited

supra note 54.

456

See Hearings, supra

note 54, at 1900 (testimony of J. Porterfield, Director of JCAH);

Affeldt,

Confidentiality, supra

note 353, at 44.

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[Vol. 24:835

tective of the information on which its accreditation decisions are based.

Thus, JCAH accreditation programs should not be characterized as commer-

cial speech. Neither is it appropriate to characterize JCAH accreditation pro-

grams as petitions to government. JCAH does not affirmatively petition the

government to pay or to license accredited facilities; instead, when required by

statute, it merely informs the government of its decisions.

The main functions of the JCAH standardization and accreditation pro-

grams, according to the economic analysis developed earlier

458

are, first, to

enhance the acceptability of sellers of medical care services — hospitals and

other institutional medical care providers — and, second, to produce informa-

tion for the benefit of other medical care providers who are intermediate or

complementary producers of services — physicians or for other private enti-

ties with independent interests in the suitability of health care facilities — pro-

fessional associations.

459

This information may serve a useful societal function,

but it is no more political petitioning or commercial speech than was the data

dissemination held to be illegal in earlier trade association cases

° (or the price

information at issue in

Goldfarb).

If JCAH programs otherwise violate the anti-

trust laws, they ought not to be protected because they incidentally involve

communication.

Antitrust Law and Federal Preemption

JCAH has also argued that its standardization and accreditation program

is impliedly immune from federal antitrust scrutiny because of the role of

JCAH in the administration of the federal Medicare program."' Immunity

problems arise when antitrust laws come into conflict with other federal stat-

utes promoting other policies. The courts must then reconcile the conflict or ex-

plicitly choose one set of statutes and policies over the other.

Based on its Medicare role, JCAH can argue that: (1) the federal

Medicare law explicitly adopts JCAH standardization and accreditation,

thereby making JCAH a federal regulator, and immunizing JCAH from an-

titrust scrutiny; or (2) even if the Medicare law does not make JCAH a federal

regulator as such, it does compel JCAH to adopt and enforce anticompetitive

policies, again confering immunity. If JCAH is merely carrying out federal

policy, it would be unfair to punish JCAH for its anticompetitive effects.

National Gerimedical Hospital and Gerontology Center v. Blue Cross of Kansas

City,

462

is the most recent Supreme Court case considering antitrust immunity

457

See supra

text accompanying notes 353-54.

458

See supra

text accompanying notes 257-322.

459

See

authorities cited

supra

at notes 73-74.

See

cases cited

supra

note 447.

461

Memorandum of Defendant JCAH for Summary Judgment, at 10-37 (April 27,

1981); Reply Memorandum of Defendant JCAH in Support of Motion for Summary Judgment

(July 2, 1981) (hereinafter cited as Reply Memorandum); Ohio v. JCAH, No. C-2-79-1158

(S.D. Ohio filed Dec. 14, 1979).

#62

452 U.S. 378 (1981)._

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PRIVATE REGULATION OF HEALTH CARE

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based on implied exemption. The defendant Blue Cross, ostensibly to promote

the policies established by the National Health Planning and Resources

Development Act of 1974,

463

had refused to allow a hospital to participate in its

health insurance plan because the hospital had failed to obtain approval for

facility construction from the local Health Systems Agency (which was respon-

sible under the federal Health Planning Act for approving capital investment

by hospitals).

464

When the hospital sued under the antitrust law, Blue Cross

claimed that its decision was immune from antitrust scrutiny because the

Health Planning Act had impliedly repealed the antitrust laws as to its con-

duct.

463

In rejecting this contention, the Court stated that the antitrust law sets

out a fundamental national policy.

466

Under settled law on implied immunity

from the antitrust law, a party claiming exemption must show by convincing

evidence a clear repugnancy between the antitrust laws and a specific regula-

tory program.

467

According to the court, repeal will be implied only to the

minimum extent necessary to make the subsequent regulatory law work and

when clear congressional intent to repeal the antitrust laws is shown.

468

The

Supreme Court rejected the argument that extensive government regulation of

the health care industry in itself repealed the antitrust laws and held that the

National Health Planning Law was not so incompatible with the antitrust laws

as to repeal pervasively the Sherman Act.

469

The Court further held that as

Blue Cross' actions were not specifically compelled by the health planning law,

the mere fact that they were consistent with the policy of that Act did not pro-

tect them.

National Gerimedical

is relevant to both of JCAH's exemption arguments.

First, JCAH should not be able to claim that the incorporation of its standards

into federal law through the deeming process immunizes its standardization

and accreditation program from antitrust scrutiny.

National Gerimedical

noted,

"antitrust repeals are especially disfavored when the antitrust implications of

business decisions have not been considered by a governmental entity.

"471

Like the Blue Cross decision in

National Gerimedical,

JCAH standards are not

themselves specifically compelled by federal "regulatory coercion" but are in-

stead "governed in the first instance by business [or professional] judgment. "

472

463

42 U.S.C. $ 3001.. (1976 and Supp. III).

464

National Gerimedical,

452 U.S. at 381.

465

Id.

at 382.

466

Id.

at 388.

Id.

at 388. United States v. National Ass'n of Securities Dealers, 422 U.S. 694,

719-20 (1975); Gordon v. New York Stock Exchange, 422 U.S. 659, 682 (1975).

468

National Gerimedical,

452 U.S. at 389.

469

Id.

at 391-93.

47°

Id.

at 389-91.

See also

Otter Tail Power Co. v. United States, 410 U.S. 366, 374

(1973) (holding that Federal Power Commission regulation of power company did not immunize

the power company's actions from antitrust scrutiny if those actions were not coerced by the

FPC).

"' National Gerimedical,

452 U.S. at 390.

472

Id.

at 390, quoting

Otter Tail,

410 U.S. at 374.

900

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Moreover, it is difficult to argue that Congress considered and adopted specific

JCAH standards by merely permitting hospitals "deemed status" for

Medicare participation based on JCAH accreditation.'"

Second,

National Gerimedical

may weaken JCAH's argument that insofar as I

its standards are consistent with federal requirements, those standards are im-

mune from antitrust sanctions. This argument is currently being litigated in

Ohio v. The Joint Commission on Accreditation of Hospitals,

a case brougheby the

State of Ohio claiming that JCAH has conspired with its member organiza-

tions in violation of the Sherman Act to keep psychologists from competing

with doctors."' Ohio has claimed that JCAH has excluded psychologists from

hospital practice through its standards.'" JCAH in defense has argued that its

restrictions on the hospital staff privileges of psychologists in psychiatric and

general hospitals are immune from antitrust scrutiny because they are consist-

ent with and authorized by the Medicare law's definitions of hospital and

psychiatric hospital and with federal regulations that require hospital care to be

supervised by a physician and define physician to include doctors but to ex-

clude psychologists.'"

Ohio has raised two responses to this argument. First, it has argued that

JCAH's hospital staffing standards are more restrictive than those of the

Medicare statute and regulations."' This argument seems weak: while the

Medicare definition of physician is for some purposes broader than that of

JCAH,"" the federal and JCAH standards as to psychologists are in fact very

similar.'"

The state's second argument is that the Medicare program is an insurance

program rather than a regulatory program and, therefore, neither the JCAH

473

Another parallel to the authority accorded the medical industry by the federal

government to regulate itself in the context of federal financing programs through JCAH is the

extensive self-regulatory authority granted the stock exchanges. In both instances the federal

government has abstained from exerting the full potential force of its regulatory power, deferring

instead to self-regulation. Yet, the courts have held that statutes permitting self-regulation of the

stock exchanges do not immunize anticompetitive conduct of the stock exchanges from the an-

titrust laws. Silver v. New York Stock Exchange, 373 U.S. 341, 357-61 (1963);

Otter Tail,

410

U.S. 366, 372-375 (1973); California v. FPC, 369 U.S. 482, 485-90 (1962); United States v.

Radio Corp. of Am., 358 U.S. 334, 346-53 (1959).

474

No. C-2-79-1138 (S.D. Ohio filed Dec. 14, 1979).

473

See

Plaintiff's Memorandum in Opposition to Defendant's Motion for Summary

Judgment ( June 5, 1981), at 1-5 in Ohio v. JCAH, civ. No. 3-2-79-1158 (S.D. Ohio filed) (here-

inafter cited as Plaintiff's Memorandum).

" See

authorities cited

supra

note 461.

See

Plaintiff's Memorandum,

supra note 475, at 9-13.

478

Compare the definition of physician in 42 U.S.C. $ 1395x(r) (1976) and 42 C.F.R.

405.232a (1982) (including chiropractors, optometrists, podiatrists, dentists, physicians, and

osteopaths for some purposes) with the JCAH definition of physician, AMH,

supra

note 39, at

209 (including only medical doctors and osteopaths). 42 U.S.C. 5 1395x(e)(1) & (4) (1976) re-

quires that all patients in Medicare certified hospitals be under the supervision of a physician.

479

Psychologists are not defined as physicians under the federal Medicare law;

see id.

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PRIVATE REGULATION OF HEALTH CARE

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901

nor the hospitals are required to comply with Medicare conditions of participa-

tion.

° The state draws support for its second argument from

National Society of

Professional Engineers v. United States."' ,..The

Court held in

Professional Engineers

that just because the federal government as a purchaser may choose not to pur-

sue a competitive purchasing policy, a combination of sellers of services is not

thereby justified in pursuing an identical policy against competitive bidding.

482

The state has argued, similarly, that just because the Medicare program has

chosen to purchase services from certain kinds of providers, JCAH standards

favoring those same providers by suppressing competition from others are not

thereby permissible. JCAH has attached private consequences to government-

al policies, the potential effects of which go beyond the immediate consequen-

ces of governmental actions, just as Blue Cross did in

National Gerimedical.

JCAH

has stressed in response that as a practical matter virtually all hos-

pitals participate in the Medicare program, and most hospitals are forced to do

so economically, if not legally."' JCAH's argument here makes sense. Even

though neither JCAH nor the hospitals are legally compelled to comply with

anticompetitive Medicare standards, it is difficult to argue that anticompetitive

results of compliance with both JCAH and federal standards are proximately

caused by JCAH anticompetitive policies. Hence, JCAH may be able to de-

fend itself from antitrust claims where its standards parallel federal law — as

they seem to with regard to psychologists. Where JCAH standards are more re-

strictive of competition than is federal law, on the other hand, the status of ac-

creditation in the Medicare program ought not alone to be enough to protect

JCAH from antitrust scrutiny.

c. Antitrust Law and State Regulation

A final defense to antitrust complaints relevant to JCAH is the state action

exemption first articulated in and thus identified with,

Parker v, Brown.

484

Un-

der this exception, the courts have, in reliance on considerations of federalism,

statutory construction

485

and fairness to persons caught between the Syclla of

federal antitrust law and the Charybdis of state regulation, excused state re-

quired concerted anticompetitive actions from antitrust sanctions. JCAH could

argue that the

Parker Brown

exception immunized JCAH policies from antitrust

scrutiny in those states where JCAH accreditation plays a major role in licens-

ure decisions.

The state action exception, however, has been interpreted very

narrowly.

486

For private action to be immune from antitrust scrutiny, it must

480

Plaintiff's Memorandum,

supra

note 475, at 6-9.

481

435 U.S. 679, at 694 n.21 (1978).

See

Plaintiff's Memorandum,

supra

note 475, at

7-8.

482

Id,

483

Reply Memorandum,

supra

note 461, at 13.

" 317 U.S. 341, 351-52 (1943).

483

Congress did not intend the antitrust laws to preempt state regulatory policies.

Id.

486

See

Community Communications Co. v. City of Boulder, 102 S. Ct. 835, 841-44

902

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not only be compelled by state law but also be actively supervised by state

regulation."' Mere state reliance on JCAH standards and accreditation deci-

sions for licensing of health care institutions falls short of the state compulsion

and supervision standard, and thus would not exempt JCAH from antitrust

scrutiny.

488

Indeed, absent state regulatory oversight JCAH may not be pro-

tected even in pursuing legislatively articulated state policies.

469

Questions of

JCAH causation of anticompetitive effects, however, may arise in specific cases

when JCAH standards parallel state regulations. For example, if a state licens-

ing law forbids psychologists hospital admitting privileges, a psychologist can

hardly blame JCAH for a hospital's refusal of such privilege. But the state ac-

tion exemption itself is unlikely to prove an effective shield for anticompetitive

JCAH accreditation and standardization activities.

In summary, the defenses discussed above — the

Noerr-Pennington

doc-

trine, the commercial speech doctrine, federal preemption, and the state action

exemption — seem unlikely to protect JCAH activities from scrutiny under an-

titrust law to any significant extent. Thus, if JCAH activities violate antitrust

law, that law can be used to control the anticompetitive aspects of JCAH pro-

grams.

2. JCAH Restraints of Trade

Two elements are necessary to establish a violation of section one of the

Sherman Act. First, concerted activity must be shown. Second, it must be

established that such activity unreasonably restrains trade.

Proof of Concerted Activities

To establish a violation of section one of the Sherman Act the plaintiff

must first show the existence of an agreement between two or more persons.

It is not enough to show that the actions of one, or even several entities, acting

individually pursuing their independent interests are in fact anticompetitive.

An initial issue, therefore, is whether any anticompetitive effects of the JCAH

standardization or accreditation programs are the result of concerted activity.

The first and surest means of establishing the requisite concerted activity

is to show that the JCAH has in fact explicitly agreed with other persons or en-

tities to engage in anticompetitive conduct. It is not necessary, however, to

(1982); California Retail Liquor Dealers Ass'n v. Mid Cal Aluminum, Inc., 445 U.S. 97, 102-06

(1980); City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 394-97 (1978).

487

Mid Cal,

445 U.S. at 105.

488 Just as in

Mid

Cal, the state enforced private wine-pricing scheme was held invalid

because the prices were privately established and not reviewed by the state.

489

Id., but see

Kartell v. Blue Shield, 542 F. Supp. 782, 790 (D. Mass. 1982) (holding

legislation compelling a practice may make state supervision unnecessary).

See

15 U.S.C. 5 1 (1976); L. SULLIVAN, HANDBOOK OF THE LAW OF ANTITRUST

$ 108 (1977).

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PRIVATE REGULATION OF HEALTH CARE

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903

prove the terms of an explicit written or oral agreement,*" an agreement can

be implied from the conduct of the parties. If the existence of an explicit or im-

plicit agreement must be established by circumstantial evidence, there are

several factors the courts generally find persuasive: the uniformity of the par-

ties' conduct; whether the parties had meetings or other opportunities to form

an agreement; whether the conduct is in the interests of the the parties if they

act together but against their individual interests acting independently;

whether any party has sacrificed its individual interests in reliance on a similar

sacrifice by other parties, and whether any party has sufficient coercive power

to compel another to give up its independent decision making,

492

Proof only of

uniformity of conduct is generally insufficient to establish an agreement.'"

Thus, the mere fact that several organizations have similar standards limiting

the economic competitiveness of non-physicians might not be enough to

establish an unlawful restraint of trade. Where uniformity is accompanied by

other conduct, however, an agreement may be inferred from all the cir-

cumstances. Thus, in

Wilk v. American Medical Association,

the plaintiffs set out

to prove to a jury by circumstantial evidence the existence of an agreement

betweeen the JCAH, AMA, Illinois Medical Society, ACS, American

Academy of Orthopedic Surgeons, American College of Radiology, and ACP

to boycott chiropractors through,

inter alia,

the imposition of JCAH

standards."

A second method for meeting the concerted action requirement would be

to allege and prove that the JCAH is in itself an unlawful combination. In

Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia,

the court held

that the defendant, the Blue Shield Association of Virginia, in appearance a

discrete and independent corporation, was in fact a combination of par-

ticipating physicians who had conspired together through the Blue Shield to

boycott psychologists: "It is not sufficient to assert, as defendants do, that a

corporation cannot conspire with itself. We must look at substance rather than

form.

"195

In support of its analysis, the court cited

United States v. Sealy Inc."'

which the Supreme Court held that where a manufacturer was substantially

owned and controlled by its licensees, its action in allocating territories be-

491

See

L. SULLIVAN,

supra note 490, at

109.

492

See

Interstate Circuit Inc. v. United States, 306 U.S. 208, 227 (1939); C-0 Two Fire

Equip. Co. v. United States, 197 F.2d 489, 491-94 (9th Cir.)

cert. denied,

344 U.S. 892 (1952); L.

SULLIVAN,

supra

note 490, at S 110.

493

See

Theatre Enterprises v. Paramount Film Distributing Co., 346 U.S. 537, 541

(1954).

See

Preliminary Brief for Plaintiffs-Appellants at 11-52 (May 13, 1981); Wilk v.

AMA, No. 81-1331 (pending 7th Cir.) (hereinafter cited as Preliminary Brief).

495

624 F.2d 476 (4th Cir. 1980).

Id.

at 481.

497

388 U.S. 350 (1967).

See also

Marrese v. American Academy of Orthopedic

Surgeons, 496 F. Supp. 236, 240 (N.D. Ill. 1980) (enforcement of alleged anticompetitive by-law

through internal sanctions by an association of competitors sufficient to ground antitrust com-

plaint).

904

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tween them was in fact a horizontal agreement between the licensee stock-

holders. Applying this analysis, a court could hold that the JCAH was in fact

an ongoing conspiracy between the AMA, AHA, ACS, ACP, and ADA, and

find any of its standards or accreditation decisions arrived at by a common vote

of the members to be concerted action in restraint of trade. Evidence that

JCAH commissioners voted as directed by member organizations would sup-

port this theory.

498

Finally, the agreement between a hospital and JCAH for a hospital to sub-

mit to JCAH standards, and for JCAH to accredit the hospital could be a suffi-

cient basis for finding an illegal combination if it resulted in the hospital taking

anticompetitive actions that it might not have taken independently.

Because so many independent entities act together in the JCAH standard-

ization and accreditation process, it will probably be possible in many instances

to show concerted action. It is therefore necessary to decide whether any

aspects of the JCAH program are unreasonable restraints on trade.

Introduction to Substantive Analysis of Trade Restraints

Section one of the Sherman Act forbids all combinations in "restraint of

trade."

499

The courts recognized very early, however, that all contractual rela-

tionships to some extent restrain trade, and thus that the law cannot mean

what it seems to say.

" The Supreme Court, in the early case of

Chicago Board of

Trade v. United States,

set forth a distinction between reasonable and unreason-

able or undue restraints of trade which the courts continue to apply:

Every agreement concerning trade, every regulatidn of trade, restrains. To

bind, to restrain is of their

very

essence. The true

test

of legality is whether

the restraint imposed is such as merely regulates and perhaps thereby pro-

motes competition or whether it is such as may suppress or even destroy

competition. sot

Under "rule of reason" analysis the courts applying section one of the

Sherman Act examine concerted conduct to see if its purpose and effect is to

promote or restrain competition, that is, to increase or decrease allocative effi-

ciency.

502

Thus, agreements that on their face restrain trade may be permis-

sible because they expand a market, improve market functioning or achieve in-

tegrated efficiencies, thus ultimately making the market more efficient.'" For

498 Cf.

W. Lazarus,

supra

note 54, at IV-11, IV-12. This argument has been raised on

appeal in

Wilk.

See Preliminary Brief,

supra

note 494, at 78-81.

499

15 U.S.C. 5 1 (1976).

°° Standard Oil Co. v. United States, 221 U.S. 1, 59, 60 (1911).

°' Board of Trade v. United States, 246 U.S. 231, 238 (1918).

Professional Eng'rs,

435 U.S. at 688-92 (1979); Continental T.V., Inc, v. GTE

Sylvania Inc., 433 U.S. 36, 49, 50 n.16 (1977); Smith v. Pro Football, Inc., 593 F.2d 1173, 1183

(D.C. Cir. 1979).

See

R. BORK, THE ANTITRUST PARADOX, 107.60 (1978); Gerhart,

The

Supreme Court and Antitrust Analysis: The Near Triumph of the Chicago School,

1982 SUP. CT.

REV.

319

at 321, 330-32 (1982).

See

M. POLLARD &

LIEBENLUFT,

supra

note 448, at 31-39, Gerhart,

supra

note

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905

example, commodities exchanges have been permitted to limit trading to day-

time hours to focus the market and make it more competitive.

This mode of analysis, however, creates high administrative costs for the

courts that must apply it and high costs in accomodating uncertainty for indus-

tries that must anticipate its application.'" To avoid or limit these costs the Su-

preme Court has identified certain practices, that it considers to be manifestly

and per se anticompetitive. These practices include price fixing,

505

market di-

visions,

507

tying arrangements,'" and concerted refusals to deal — boycotts."

Once such activities are detected in a particular case, liability follows and fur-

ther analysis is unnecessary. Moreover, in a per se case, the plaintiff need not

establish evidence of actual public injury,

510

and the defendant may not rely on

the reasonableness, or even the procompetitiveness of its conduct for justifica-

tion.'"

Unfortunately, however, the Supreme Court's attempts at simplified per

se analysis have not been wholly successful. In many instances per se rules as

applied by the Supreme Court merely transfer the problem from one of analys-

is to one of characterization.'" This is particularly true for elusive categories

like group boycotts which can often be identified only after analysis that rivals

in complexity the analysis required to apply the rule of reason.

Rule of Reason Analysis

Lower court cases generally have held that rule of reason rather than per

se analysis is the appropriate form of antitrust analysis for certification or

standardization

activities.

513

Moreover, dicta in

recent

Supreme Court opin-

502, at 334-44, Liebenluft & Pollard,

supra

note 448, at 947-50.

Board of Trade of Chicago v. United States, 246 U.S. 231 (1918).

See

Arizona v. Maricopa County Medical Soc'y, 102 S. Ct. 2466, 2472, 2473 (1982).

See id.;

United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); Dr. Miles

Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

)

Market division entails competitors dividing up a market with each taking an ex-

clusive share, thus creating local monopolies. Timken Roller Bearing Co. v. United States, 341

U.S. 593 (1951).

Tying arrangements are discussed

infra

at text accompanying note 539. Northern

Pac. Ry. v. United States, 356 U.S. 1 (1958).

"' Klors, Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959);

Fashion Originators'

Guild of Am., Inc. v. FTC, 312 U.S. 4-57 (1941).

° Klors,

359 U.S.

213.

Maricopa Co. ,

102 S. Ct. at 2473.

See

Gerhart,

supra

note 502, at 323-25; Ponsoldt,

The Application of Sherman Act Anti-

boycott Law to Industry Self-Regulation: An Analysis Integrating Nonbotcott Sherman Act Principles,

55 S.

CAL. L. REV. 1, 17, 18 (1981).

Gunter Harz Sports v. United States Tennis Ass'n,

1981-82

Trade Cases (CCH)

64,243 (D. Neb. March 4, 1981),

aff'd

1981-82 Trade Cas. 64,381 (8th Cir. Dec. 2, 1981);

Note,

Trade Association Exclusionary Practices: An Affirmative Role for the Rule of Reason,

66 CoLum. L.

REV. 1486, 1487 (1966); Kissam,

First Amendment, supra

note 441 at 164;

see

Structural Laminates

Inc. v. Douglas Fir Plywood Ass'n, 399 F. Supp. 155, 155 (9th Cir. 1968).

906

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ions indicates that per se rules may not be appropriate for analyzing profes-

sional self-regulation of the quality of professional services.

" Thus, the JCAH

standardization and accreditation programs, considered alone, should be anal-

yzed under the rule of reason.

Under the rule of reason, anticompetitive effects of JCAH standards —

for example standards limiting hospital staff privileges of non-physician practi-

tioners — must be justified by the demonstrable procompetitive effects of those

policies.

515

Only procompetitive justifications may be considered: JCAH

policies could not be justified by health and safety benefits that do not in

themselves promote competition.

516

A court reviewing JCAH standards would

need to balance the likelihood and magnitude of injury to competition by those

standards, against the likelihood and magnitude of procompetitive effects of the

JCAH standards at issue. The court would need to consider the effects of

JCAH policies in the specific professional context in which they operate, recog-

nizing that different and perhaps more substantial procompetitive effects may

result from standardization or certification in professional settings than would

be true in commerce or industry.

517

Certification and standardization programs have been justified as procom-

petitive for reasons discussed earlier — they lower search and transaction costs,

permit economies of scale, and facilitate market entry.

5 8

These justifications

only apply, however, to the extent that certification standards are actually

related to quality and a certification program is fairly and objectively con-

ducted.

31'



v. Maricopa County, 102 S. Ct. 2466, 2475 (1982); National Soc'y of Pro-

fessional Eng'rs v. United States, 435 U.S. 679, 696 (1978); Goldfarb v. The Virginia State Bar,

421 U.S. 773, 787 n.17 (1975).

See also

Rigler,

Professional Codes of Conduct After Goldfarb: A Proposed

Method of Analysis,

29 ARK. L. REV. 185, 189-91 (1975) (distinguishing between professional

restraints that are commercial in nature, which should be subject to antitrust scrutiny, and those

that are not, which should not be).

" See

National Soc'y Professional Eng'rs v. United States, 435 U.S. 679, 687-91

(1978); Eliason Corp. v. National Sanitation Found., 614 F.2d 126, 130 (6th Cir. 1980); Hatley

v. American Quarterhorse Ass'n, 552 F.2d 646, 652 (5th Cir. 1977); Bridge Corp. of Am. v.

American Contract Bridge League, Inc., 428 F.2d 1365, 1370 (9th Cir. 1970); Deesen v. Profes-

sional Golfers Ass'n of Am., 358 F.2d 165, 170 (9th Cir. 1966).

316

See National Soc'y Professional Eng'rs,

435 U.S. at 690, 695, 696;

cf.

Health Care

Equalization Comm. of the Iowa Chiropractic Soc'y v. Iowa Med. Soc'y (S.D. Iowa, Ruling

order Feb. 12, 1982), striking defendant's public welfare defense in Sherman Act claim. The ad-

mission of evidence concerning non-economic justifications of exclusionary actions aimed at

chiropractors is also on appeal in Wilk v. American Medical Ass'n,

see infra

note 522.

517 National Socy Professional Eng'rs,

435 U.S. at 696;

Goldfarb,

421 U.S. at 787 n.17.

318

See supra

text accompanying notes 248-56.

See Eliason,

614 F.2d at 130;

Bridge Corp.,

428 F.2d at 1370;

Deesen,

358 F.2d

170;

POLLARD

LIEBENLUFT,

supra

note 448, at 34-37; Liebenluft & Pollard,

supra

note 448, at

947-49.

It is arguable that even a standardization or certification program using unreasonable

standards and unfair certification procedures, such as rules that forbid marketing of non-stand-

ard products, does not violate the Sherman Act. Absent ancillary enforcement mechanisms,

standardization and certification programs directed at consumers only operate to exclude prod-

ucts to the extent that independent consumers rely on the standards or certificates for making

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907

To assure a real relationship between certification and quality, antitrust

cases applying rule of reason analysis have required that certification programs

use clear, objective and reasonable standards directly related to quality charac-

teristics, and that the entity administering the program have fair procedures to

assure that standards are evenly applied,"° Under rule of reason analysis the

specific anticompetitive and procompetitive effects of JCAH policies would be

addressed on a case by case basis.

Insofar as JCAH standards apply to non-physician practitioners they have

been criticized as being irrational — as totally ignoring the contributions of

non-physician practitioners to health care — and as denying procedural

fairness — excluding non-physician practitioners as a class from hospital prac-

tice and providing no procedure to consider staff privileges for such practition-

ers on an individual basis."' JCAH has defended the standards, claiming they

contribute to hospital quality and are thus procompetitive. In the one case on

this question that has gone to trial, a jury applying rule of reason analysis has

concluded that JCAH standards excluding one group of non-physicians —

chiropractors — from hospitals are not violative of the Sherman Act.

522

Per Se Analysis

To this point we have considered standardization and accreditation pro-

grams as they function independently. JCAH, however, does not exist in a

vacuum, but is the trigger mechanism for a reticulate structure of private and

public programs for rewarding institutions that comply and sanctioning in-

their own purchasing decisions. If the standard or certification decisions are unreasonable, this

will in all likelihood eventually dawn on the consumers, who will find other means of choosing

products. Thus in the long run, such programs will not restrain trade. However, where a com-

plex product is involved, not readily subject to evaluation by independent consumer search or ex-

perience, an unreasonable or unfair standardization or certification program may substantially

damage competition over a prolonged period of time. Moreover, if a standardization or certifica-

tion program is not directed at ultimate consumers, but rather at controlling the production of in-

itial or complementary products for the benefit of intermediate or complementary producers, it

may control the production of initial procedures to the detriment of the competitors of those per-

sons directing the standardization or certification program or of consumers.

See

discussion

supra

text accompanying notes 323-47. Thus antitrust controls should apply.

52°

Hydrolevel Corp. v. American Soc'y Mech. Eng'rs, 635 F.2d 118, 126 (2d Cir.

1980),

aff'd,

102 S. Ct. 1935 (1982);

see

Silver v. United States Stock Exchange, 373 U.S. 341,

357-67 (1963); Blalock v, Ladies Professional Golf Ass'n, 359 F. Supp. 1210, 1267 (N.D, Ga.

1973); W. Lazarus,

supra

note 72, at III 90-III 93; Howe & Badger,

supra

note 253, at 381-84;

Ponsoldt,

supra note

512, at 47-50.

521

See generally

cases cited

supra

note 217; Lavine,

supra

note 315, at 20, 21;

but see

Kissam, et al.,

supra note 276, at 680.

522

Wilk v. American Medical Ass'n, No. 76-C-3777 (N.D. III. Jan. 30, 1981),

app.

pending,

No. 81-1331 (7th Cir.). This case is on appeal, however, with the plaintiffs contesting,

in-

ter alia,

the court's permitting the jury to consider non-economic justifications of the JCAH policy

— specifically the legitimacy of chiropractic health care. Preliminary Brief, supra

note 494, at

59-70.

See

Comment,

Professional Association Permitted to Raise Public Welfare just!fication in Defense of

Group Boycott,

60 WASH. U.L.Q. 249 (1982).

908

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[Vol. 24;835

stitutions that fail to comply with the JCAH standards."' Moreover, JCAH

standards require a form of hospital medical staff organization that is itself ex-

clusionary. Taking into account these coercive

elements, per

se analysis might

be appropriate both for analyzing the effects of JCAH on the competitors of its

physician constituency and the competitors of its hospital constituency.

i. Practices Suppressing Competition Against Physicians

An issue in most antitrust litigation brought against JCAH has been the

effects of the JCAH accreditation program on competition between physicians

and non-physician health care practitioners, specifically chiropractors, podi-

atrists, nurse anesthetists and psychologists.

524

There are two possible theories

under which such practitioners, excluded .from or limited in hospital practice

by JCAH hospital standards, could allege a per se illegal boycott by JCAH.

First, they could try to prove that physicians, perhaps acting through re-

presentative organizations like the AMA, have conspired together with hospi-

tals, through the link of the JCAH and perhaps other entities (like the AMA

Liaison Committee on Medical Education or Blue Cross Associations) to boy-

cott non-physician practitioners and their patients. The hospitals boycott the

non-physician practitioners by refusing to permit them admitting privileges

and boycott the patients of non-physician practitioners by refusing to allow

them admission, except under the supervision of doctors.

525

Characterized in this way, the accreditation program resembles the facts

in cases where retailers have conspired with wholesalers to deny other com-

peting retailers needed goods,

526

or where suppliers of goods and services have

conspired together to deny their competitors

access

to necessary facilities under

their control."' Insofar as the boycott is directed at patients, this characteriza-

tion of the JCAH accreditation program also resembles the facts in per se

cases

in which suppliers have boycotted buyers to

coerce

the buyers to cease dealing

with competitors of the suppliers."' Under this characterization, the JCAH ac-

creditation program can be classified as a boycott or a refusal to deal, a per se

violation of the antitrust laws."'

523

See supra

notes 58-74 and accompanying text.

524

See

cases cited

supra

note 217.

"' Cf.

Blue Shield of Va. v. McCready, 102 S. Ct. 3540 (1982) as to consumers' stan-

ding to sue for injuries resulting from such a boycott.

526

United States v. General Motors, 384 U.S. 127 (1966); Klor's Inc. v. Broadway-

Hale Stores, 359 U.S. 207 (1959); Dolan & Ralston,

supra

note 304, at 752-59.

527

See

Associated Press v, United States, 326 U.S. 1 (1945); United States v. Terminal

R. Ass'n of St. Louis, 224 U.S. 383 (1912); U.S. Dental Inst. v. American Ass'n of Orthodon-

tists, 396

Supp. 565, 580-81 (N.D. Ill. 1975);

but see

Kissam et al.,

supra

note 276, at 657, 659.

728

See

Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656 (1981);

Fashion Originators Guild of Am. v. FTC, 312 U.S. 457 (1941).

Cf.

Feminist Women's Health

Union v. Mohammad, 586 F.2d 530 (5th Cir. 1978),

cert. denied,

444 U.S. 924 (1979) (claiming

that doctors were refusing to treat patients of plaintiff's abortion clinic in effort to eliminate com-

petition from plaintiff).

529

This type of arrangement has also been criticized as a "private economic govern-

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909

Second, the JCAH accreditation program could be characterized as a con-

certed effort by physicians, the JCAH, and other professional organizations to

compel hospitals to refuse to deal with non-physician practitioners and their

patients. Here the hospitals would be co-victims of the conspiracy rather than

co-conspirators. Under this characterization the JCAH accreditation program

would somewhat resemble boycotts in which retailers have boycotted whole-

salers to eliminate competition.

° This characterization fits less comfortably

under the conventional definition of boycott as a concerted coerced refusal to

deal that directly excludes a competitor from a market."' Under the earlier

characterization the elements and direction of coercion and exclusion were

clear: non-physician practitioners and their patients were explicitly barred

from the market of hospital practice through the denial of staff privileges by co-

operating hospitals. Under the second characterization the element of coercion

is the denial of certification directed in the first instance against the hospital. In

general, whether denial of certification by a certification program is coercive is

a question of fact, and depends upon the actual power of a certification pro-

gram to bring to bear economic pressure to exclude from a market an entity

refused certification.

532

The coercive power of JCAH against hospitals is open

to question. There is no explicit professional requirement forbidding doctors

from cooperating with or practicing in hospitals not accredited by JCAH; in

fact, non-accredited hospitals do exist, are staffed by physicians and even par-

ticipate in Medicare.

533

Moreover, because the coercion in the second

characterization is aimed at hospitals in the first instance rather than at compe-

titors of the boycotting physicians, the courts may have difficulty characteriz-

ing the activity as a per se illegal group boycott.

534

On the other hand, the an-

cillary economic (and regulatory) consequences of a JCAH non-accreditation

decision exert substantial coercive force against non-accredited hospitals."

And the ultimate targets of this boycott are the non-physician practitioner corn-

ment." W. Lazarus,

supra

note 72, at 111-83.

'" See

Eastern States Retail Lumber Dealers Ass'n v. United States, 234 U.S. 600

(1914).

"' See

Note,

Restrictive Practices in Accreditation of Medical Schools: An Antitrust Analysis,

51 S.

CAL. L. REV. 657, 684, 685 (1978); Comment,

Boycott: A Specific Definition Limits the Applicability

of the Per Se Rule, 71

Nw. U.L. REV. 818, 823 (1977).

532

See

Paralegal Inst. v. American Bar Assoc., 475 F. Supp. 1123, 1130 (E.D.N.Y.

1979); W. Lazarus, supra note 72, at 111-91, 111-96.

533



percent

all the nation's hospitals are non-accredited. Affeldt,

supra

note

45, at 95.

534 Smith v. Pro Football, 593 F.2d 1173, 1179 (D.C. Cir. 1979); cf.

St. Paul Fire and

Marine Ins. Co. v. Barry, 438 U.S. 531, 542 and n.14 (1973) (in dicta leaving open the question

of whether a boycott must be intended to suppress competition to be a per se antitrust violation).

See also

Ponsoldt,

supra

note 500, at 59 (identifying a horizontal [competitive] relationship be-

tween plaintiff and defendants as a necessary element of a per se group boycott) and Marrese v.

American Academy of Orthopedic Surgeons, 692 F.2d 1083, 1093-94 (7th Cir. 1982) (stating

boycotts are not illegal per se unless they further other per se illegal anticompetitive agreements).

535

See supra

text accompanying notes 64-74.

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petitors of the perpetrators of the boycott. Thus even under this characteriza-

tion a court could find a per se illegal boycott.

ii. Practices Suppressing Competition Against Hospitals

JCAH may also be engaged in anticompetitive conduct favoring its other

constitutency, the institutional providers of health care. JCAH accredits not

only hospitals but also institutional health care programs such as long-term

care facilities, psychiatric hospitals, drug and alcohol treatment programs, and

facilities for the mentally retarded."

Though JCAH accredits principally

medical institutions, many of the programs carried on in these institutions

could be delivered equally well in a non-medical institution. For example,

some facilities for the mentally ill or developmentally disabled rely heavily on

psychology or social work, and utilize only minimally the medical services of

physicians or psychiatrists. Substance abuse could be addressed by communi-

ty-based social services providers rather than by hospital-based medical pro-

grams. Yet, where JCAH accreditation is required for government licensure or

participation in private insurance programs such as Blue Cross, substance

abuse programs that do not rely on a medical treatment model may be exclud-

ed. This exclusion will limit competition against hospitals and hospital-based

programs. This in turn may raise consumer costs.

557

The JCAH policies sup-

porting this exclusion might be found to violate the antitrust laws under rule of

reason analysis similar to that discussed earlier.

Two per se violation theories could be used to challenge exclusion of non-

medical programs from JCAH accreditation. First, these exclusions could

again be characterized as a concerted refusal to deal, a boycott, this time

directed by hospitals against their competitors. The coercive effects of JCAH

denial of accreditation when combined with the requirements of private insur-

ance programs or state licensing laws for accreditation may constitute sufficient

coercion to ground a per se challenge.

Second, JCAH's all-or-none policy

" could in some instances be

characterized as a tying arrangement, a per se violation of the antitrust law.

539

Through its all-or-none policy JCAH may be able to discourage some hospitals

from expanding and diversifying into more efficient and competitive non-

medical health care delivery programs, and thus protect other hospitals from

See supra

notes 40-43.

537

See M.D. Surplus Could Incite Opposition to Nurse Midw1fe Market Intrusion,

12 moo.

HEALTH CARE,

Nov. 1982 at 102, 103 (reporting that a midwife supervised delivery in a birthing

center costs only 405 of a normal inpatient delivery).

See supra

text accompanying note 319.

See

Northern Pac. Ry, v. United States, 356 U.S. 1, 5-6 (1958); Bogus v. American

Speech and Hearing Ass'n, 582 F.2d 277, 285-88 (3rd Cir. 1978); Dolan & Ralston,

supra

note

304 at 756-63.

A tying arrangement exists where a seller enjoying competitive advantages in the market

for a tying product requires buyers of that product also to buy an economically severable tied

product, thus restraining competition in the market for the tied product. Northern Pac. Ry. v.

United States, 356 U.S. at 5-6 (1958); L. SULLIVAN,

supra

note 490 at § 150. If JCAH carries out

July 1983]

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PRIVATE REGULATION OF HEALTH CARE

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911

competition. Certification of hospitals and of other health care delivery pro-

grams are clearly economically severable services. JCAH obviously controls

the market for the tying product, hospital accreditation. Indeed, in some

markets JCAH has been granted a monopoly over this product by law.'"

Therefore, the all-or-none policy which ties the purchase of the tied product —

accreditation of the non-hospital (e.g., substance abuse or developmental dis-

abilities) program — to the purchase of the tying product — hospital accredita-

tion — meets all the requirements of the classic definition of a tying arrange-

ment, a per se antitrust violation."'

3. JCAH Monopolization

The JCAH standardization and accreditation programs may also violate

Section two of the Sherman Act, forbidding monopolization.

542

To establish a

violation of Section two, a plaintiff would have to show that JCAH has unlaw-

fully monopolized the market in health care certification in the United States to

the exclusion of other certification agencies.

The first step in determining whether a monopoly in fact exists is to iden-

tify the arena for the defendant's market power in terms of both the geographic

and product market in which the seller competes.

543

The Supreme Court in

United States v. E. I. Dupont de Nemours & Co.

544

defined a product market as in-

cluding all goods and services that are reasonably interchangeable, i.e. goods

and services that may be substituted for those of the seller if the seller raises his

price. The courts have defined geographic market as the territory from which

competitors of the alleged monopolist's product are excluded by high transac-

tion costs."' To find that a monopoly exists a court need not find that the de-

fendant has taken over an entire product market within an entire geographic

market, but the court must find that the defendant controls a substantial pro-

portion of both markets.

546

JCAH accredits eighty percent of the nation's hospitals and has no com-

petition for the accreditation of non-osteopathic hospitals."' Its share of the

total health institution accreditation market in the United States is smaller, but

within this market JCAH has no substantial competition and arguable mono-

poly power.

its present plan to regulate evaluation of hospital based mental health facilities under the AMH,

the presence of an illegal tying arrangement would be even clearer.

See supra

note 320.

° Cf.

Blumstein & Calvani,

State Action as a Shield and Sword in a Medical Services

Antitrust

Context,

1978 DUKE L.J. 389, 435-36 (1978) (discussing the reliance on state created monopolies

to establish market power to ground tying arrangements).

341

See supra

note 539.

342

See

15 U.S.C. $ 2 (1976).

' Sce

L. SULLIVAN,

supra

note 490, at 55 12, 19.

544

351 U.S. 377, 393-95 (1956).

See

Robinson v. McGovern, 521 F. Supp. 842, 879 (W.D. Pa. 1981); Dolan &

Ralston,

supra

note 304, at 765, 766.

See

Dolan & Ralston,

supra

note 304, at 766 and n.278.

547

See

Affeldt,

supra

note 53, at 189.

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To establish Section two liability, it is not enough for a plaintiff to show

merely the existence of monopoly power. The plaintiff must also show that the

defendant willfully acquired the monopoly power, that it is not merely the

result of a "superior product, business acumen, or historical accident.

P548

JCAH could well argue that its dominance in the health care accreditation field

results from the quality of its work, from government recognition, or perhaps

from the fact that the service of information production through standardi-

zation and certification is a natural monopoly. Even if it could be demonstrated

that JCAH sought and obtained government sanction for its monopoly posi-

tion, such conduct would probably be protected by

Noerr-Pennington

549

and not

be vulnerable to a Section two charge. On the other hand, if it could be shown

that JCAH excluded competition from other accreditation bodies through or-

ganizing or cooperating in concerted refusals to deal — as by obtaining cooper-

ation from Blue Cross to refuse to reimburse facilities accredited by com-

petitors — or through tying arrangements, a violation of Section two could be

established.

If Section two litigation served no purpose other than to further illuminate

and sanction conduct already illegal under Section one, it would probably not

be worth the effort. Section two, however, might also serve as the basis for gov-

ernment litigation to compel JCAH to divest itself of its non-hospital accredita-

tion programs. This could result in the development of new accreditation pro-

grams which in turn might encourage greater diversity and competition in the

health care industry.

4. Effects of Antitrust Litigation on JCAH

JCAH has not been blind to the ramifications of antitrust law for its pro-

grams, nor has it failed to take note of the litigation against it. It appears that

JCAH in its most recent AMH rewrite, may be retreating from standards ex-

cluding non-physician health care providers from hospitals."' This move

seems to be largely attributable to antitrust litigation against JCAH, and

testifies to the potential of antitrust litigation to control the anticompetitive ef-

United States v. Grinnell Corp., 384 U.S. 563, 570-571 (1966); Eliason v. National

Sanitation Foundation, 614 F.2d 126, 130, 131 (6th Cir. 1980);

see also

Roof Fire Alarm Co. v.

Royal Indemnity Co., 202 F. Supp. 166, 168, 169 (F.D. Tenn. 1963),

aff'd,

313 F.2d 635 (6th

Cir. 1963),

cert. denied,

373 U.S. 949 (1963) (widespread acceptance of standard setting organiza-

tion because of its competence, not monopolization); Veizaga v. National Bd. for Respiration

Therapy, 1977-1 Trade Cas. (CCH) 61,274 (N.D. Ill., Jan. 27, 1977) (case dismissed against

health practitioner certifying organization as plaintiff failed to allege willful acquisition or main-

taining of monopoly power).

549

See supra

text accompanying notes 432-35.'

"° See

Sullivan,

supra

note 490, at SS 33-48.

551 See

Harrington,

/CAN Board Drops Medical Staff Requirement,

PSYCHIATR IR

Nrwc,

Jan. 7, 1983 at 1, 8, 9; Robinson,

Medical Staff Standards May Be Eased,

MOD,

HEALTH

CARE,

March, 1983 at 23;

AMA Acts on Doctors' Plight at Hospitals,

MED.

WORLD NEWS,

Jan. 10, 1982 at

35;

Revised Hospital Standards Threaten Roosts Long Ruled by Doctors and Denitsts,

MED. WORLD

NEWS,

July 19, 1982 at 33-34.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE

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913

fects of private standardization and certification efforts. JCAH earlier settled a

case brought against it by podiatrists by substantially expanding the recogni-

tion of the role of podiatrists in hospitals under JCAH standards.'" It may well

be that if JCAH is closely monitored by interested parties and by the Justice

Department, the anticompetitive effects of its programs may be reduced to an

acceptable level and the procompetitive effects strengthened.'"

Control of Inadequate Standards and Inspections Through Tort Law

An evaluation of JCAH must also take into account the fact that the

JCAH inspection and accreditation program is not the only, and indeed may

not be the most effective, means of assuring hospital compliance with JCAH

standards.

Following the Illinois Supreme Court's lead in

Darling v. Charleston Com-

munity Hospital,

551

courts

increasingly have relied on JCAH standards for eval-

uating whether or not hospital practices are negligent,

555

or for rejecting the

"locality rule," under which negligence is evaluated in terms of practice in the

community in which medical care is given, in favor of national standards like

those of JCAH.

556

Though hospitals may be able to deceive JCAH inspectors

as to compliance with JCAH standards, hospitals that attempt to do so may

eventually face substantial negligence judgments. Prudent hospitals will pur-

sue risk management programs structured around compliance with JCAH

standards to limit tort exposure.

Reliance on JCAH standards to define reasonable hospital behavior

could, of course, lower the quality of care rather than raise it. Some critics have

claimed that JCAH has purposely weakened its standards to protect hospitals

552

Levin v. JCAH, 354 F.2d.515 (D.C. Cir. 1965);

see

Shaw v. Hospital Authority of

Cobb County, 614 F.2d 646 (5th Cir. 1980); Hollowell,

The Growing Legal Contest — Hospital

Privileges for Podiatrists,

23 ST. LOUIS U.L.J. 491, 501 n.55 (1979).

An additional source of potential control over JCAH anticompetitive activities is the

Federal Trade Commission Act, 15 U.S.C. 55 41-58 (1976). After an extensive preliminary in-

vestigation,

see

Schlicke,

supra

note 180, at 27, the FTC decided that it did not have jurisdiction

over JCAH. Telephone interview with Joan Moreland, FTC (July 27, 1982);

see

15 U.S.C.

(1976).

"' 33 Ill. 2d 326, 211 N.E.2d 253 (1965),

cert. denied,

383 U.S. 946 (1966).

"' Steves v. United States, 294 F. Supp. 446, 454, 455 (D.S.C. 1968); Fox v. Cohen,

84 III. App. 3d 744, 750, 406 N.E.2d 178, 182 (1980); Silkret v. Annapolis Emergency Hosp.

Ass'n, 276 Md. 187, 349 A.2d 245, 254 (1975);

cf.

Hunsaker v. Bozeman Deaconess Found.,

588 P.2d 493, 502 (Mont. 1976) (JCAH standards accepted into evidence by trial court as part of

plaintiff's cases).

Kapuschinsky v. United States, 248 F. Supp. 732, 744 (D.S.C. 1966); Rucker v.

High Point Mem. Hosp., 285 N.C. 519, 524, 206 S.E.2d 196, 201, 202 (1974); Durling v.

Bluefield Sanatorium, Inc., 149 W. Va. 567, 142 S.E.2d 754, 765 (1965); Lundlam,

The Impact

of the Darling Decision Upon the Practice of Medicine & Hospitals,

11 THE FORUM 756, 757, 758

(1976).

See

Dalton,

Reducing Risks Through Compliance with Accreditation Standards,

QUALI-

TY REV. BULL. 3.4 (1980); Passett,

The "Systems Approach" to Patient Safety: An Update,

9 LEGAL

ASPECTS MED. PRAC. Apr. 1981 1, 1-3.

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from tort liability.

558

Moreover, some hospitals are now relying on compliance

with JCAH standards to defend the reasonableness of their practices against

claims that the hospital's care was inadequate.

555

Nevertheless, the role of

JCAH standards in tort litigation probably encourages better quality care and

treatment.

Tort actions are also a potential means of getting directly at the problem of

inadequate JCAH standards and inspections. In a number of recent hospital

negligence cases, plaintiffs have added the JCAH as an additional defendant,

claiming that JCAH is a guarantor of the quality of care in and responsible for

the negligence of accredited hospitals.'" The barriers facing a plaintiff in such

a lawsuit are readily apparent. As the major function of JCAH is to serve as a

consultant to the hospital, it may be hard to show a duty owed by JCAH to in-

dividual patients. It may also be difficult to establish that JCAH proximately

caused any particular negligence by a hospital or physician. The general ignor-

ance of JCAH accreditation would make it difficult for any plaintiff to claim

that JCAH could foresee actual reliance on its accreditation as a guarantor of

quality. Finally, establishing that JCAH standards or inspections were

negligent will not be easy.

The use of tort litigation against JCAH is also questionable from a policy

standpoint. If the purpose of tort litigation is to spread risks,

' JCAH is a poor

candidate. JCAH is not only not a "deep pocket," but it is also a poor insurer.

If the purpose is to encourage expenditure of resources to prevent an injury

commensurate with the likely extent of the injury ,

552

JCAH is again an inap-

propriate defendant. Medical injuries normally are caused by the failure of a

hospital or physician to take adequate precautions by the expenditure of ade-

quate resources rather than by a failure of JCAH. But, in other contexts some

courts have held independent certifying or testing agencies liable under a

negligent misrepresentation theory to ultimate consumers for injuries caused

by approved products,

" and such litigation may be on the increase against

JCAH.

Ultimately, such cases may do more harm than good to the quality of care

hospital patients as a group receive. If JCAH became a routine defendant in

53°

See Hearings, supra

note 54, at 1954, 1972 (testimony of Fred Hiestand).

559

See

Elam v. College Park Hosp., 132 Cal. App. 3d 332 (1982); Moreaux v. Argonaut

Ins. Co., 350 So.2d 240, 246 (La. Ct. App. 1977),

cert. denied,

351 So.2d 776 (La. 1977).

See also

Pelphrey v. United States, 674 F.2d 243 (4th Cir. 1982) (JCAH accreditation of hospital cited as

fact supporting granting of summary judgment to defendant in malpractice action).

36°

See

cases cited

supra

note 219.

"' See

C. Morris & C. R. Morris, Jr., Morris on

Torts,

232-37 (2d Ed. 1980).

562

Posner,

Economic Analysis of Law,

122-25 (1977).

563

See

Hempstead v. General Fire Extinguisher Corp., 269 F. Supp. 109 (D. Del. 1967)

(Underwriters Laboratories may be liable, if negligent, for injuries caused by explosion of ap-

proved fire extinguishers); Hanberry v. Hearst Corp., 276 Cal. App. 2d 820, 81 Cal. Rptr. 519

(1969) (plaintiff states cause of action under negligent misrepresentation theory against Hearst

Corp. for injury caused by shoes covered by Good Housekeeping Seal of Approval).

July 19831

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PRIVATE REGULATION OF HEALTH CARE

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915

hospital negligence actions, its exposure for legal fees alone, even if it con-

sistently won the lawsuits, would for a time be staggering.'" The result might

well be to eliminate JCAH, and its beneficial effects.

Federal Supplementation

The 1972 amendments to the Social Security Act provide another means

for improving the quality of care in JCAH accredited facilities. These amend-

ments, described earlier,

565

permit the Secretary of HEW (now HHS) to prom-

ulgate standards in excess of those required by JCAH standards; to validate

JCAH accreditation with inspections by state agencies on a random and

substantial complaint basis; and to decertify accredited facilities if they are

found not to be in substantial compliance with HEW certification standards.

Implementation of these amendments has been largely inadequate: the state

validation program has been characterized by a GAO report as inconsistent

and ineffective.

566

Furthermore, recent validation regulations issued by the

Department of Health and Human Services"' require state survey agency

monitoring of accredited facilities with substantial deficiencies only if JCAH

refuses itself to monitor deficiencies or HHS otherwise determines state review

necessary. As of the 1978 GAO report, HHS had never decertified an ac-

credited hospital."' Finally, HHS has never in fact promulgated any standards

higher than JCAH standards, and has committed itself not to promulgate

higher standards without first consulting JCAH.

569

Nevertheless, the 1972 amendments permit HHS to take a more active

role in the standardization and certification process. While the arguments

made earlier

570

demonstrate that it is unwise for HHS to duplicate JCAH

regulatory efforts, an HHS role is particularly appropriate for filling the gaps

left by JCAH regulation of hospital quality and for encouraging competition.

In particular, HHS should focus its standard setting authority on quality of

36+

Of course, if JCAH consistently won, plaintiffs would cease suing it. If the idea of su-

ing JCAH became popular, however, it might take some time for the law to become dear, and

JCAH could encounter substantial expenses in the interim.

563

See supra

text accompanying notes 185-87.

566

GAO REPORT,

supra

note 207, at 16-21.

367

45 Fed. Reg. 74, 826 (1980) (codified at 42 C.F.R. §§ 405.1901, 405.1902 (1981)).

368

GAO REPORT,

supra

note 207, at 14.

569

Telephone interview with Spencer Colburn, Hospital Services Branch, Health

Standards and Quality Bureau, Health Care Finance and Administration, Department of

Health and Human Services (Sept. 17, 1982). In 1978, HEW issued regulations concerning

quality control and proficiency testing standards for laboratories in Medicare hospitals that

would have exceeded JCAH standards, but delayed full implementation for nine months.

See 43

Fed. Reg. 7984 (1978). By the time the rule was to be fully operational JCAH standards were

upgraded to equivalency; thus, independent surveys were never begun.

See

44 Fed. Reg. 3288

(1979). A general revision of hospital certification standards proposed by HHS on January 4,

1983 does not propose standards exceeding those of JCAH. In fact, it is an attempt to comply

with a proposed JCAH revision of its standards. 48 Fed. Reg. 299, 300 (1983).

"° See supra

text accompanying notes 369-75.

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hospital care output and on health care inputs not directly of interest to physi-

cians. It should also encourage the availability of alternatives for patient care

where appropriate. Finally, HHS should use the validation process to assure

enforcement where JCAH has been clearly remiss in its efforts.

Government Review of JCAH Accreditation

Finally, JCAH ought to be subject to government review in its exercise of

delegated authority. This is not only good policy, but is required by the con-

stitutionally based nondelegation doctrine which restricts the delegation of au-

thority from the government to private entities. Early nondelegation cases pri-

marily addressed the issue of delegation of policy-making authority from the

legislative to executive or judicial branches."' This application of the

nondelegation doctrine rests on the principle that in a representative

democracy the responsibility to make policy ultimately resides with the legisla-

ture — there is an irreducible minimum of responsibility that it cannot dele-

gate.'" The appropriate function of the executive branch as articulated in early

nondelegation cases is to make subordinate rules, attend to details, and deter-

mine facts.

573

Subordination of the executive to the legislature is not only

necessary to preserve representative government, but also to provide criteria

for judicial review of executive decisions and actions."

Despite doctrinal limits on delegation of power from Congress to the exec-

utive branch, actual attempts to limit such delegation have largely failed. The

complex and highly technical nature of problems faced by government, as well

as its need to act rapidly and flexibly in changing situations, requires concen-

tration of considerable policy-making authority in the executive branch.

575

Moreover, the legislative branch is subject to political pressures from which ad-

ministrators are more insulated by anonymity and the civil service laws. These

pressures render it more difficult for the legislature to make controversial pro-

grammatic decisions and encourage abandonment of such decisions to the ex-

ecutive.

576

" See, e.g.,

Hampton & Co. v. United States, 276 U.S. 394 (1928); Buttfield v.

Stranahan, 192 U.S. 470 (1904); Field v. Clark, 143 U.S. 649 (1892); Wayman v. Southard, 23

U.S. 1 (1825).

572

BARBER, THE CONSTITUTION AND THE DELEGATION OF CONGRESSIONAL

POWER 18 (1975); Note,

Rethinking the Nondelegation Doctrine,

62 B.U.L. REV. 257, 260-64, 314-23

(1982).

See, e.g.,

Buttfield v. Stranahan, 192 U.S. 470 (1904) (Congress can delegate power

to administer law to bring about result Congress sets out); Field v. Clark, 143 U.S. 649, 691-94

(1892) (Congress can delegate authority to determine

facts); cf.

Wayman v. Southard, 23 U.S. 1

at 42, 43 (1825) (Congress can delegate to courts power to 611 up the details of legislation to

regulate practice).

576

See Note,

B.U.L.

REV.,

supra

note 572, at 295, 296.

See

Amalgamated Meat Cutters & Butcher Workers v. Connelly, 337 F. Supp. 737,

746, 747

(D.D.C.

1971).

But see

Aranson, Gellhorn & Robinson,

A Them)) of Legislative Delegation,

68 CORNELL

REV. 1, 21-24 (1982) (arguing that managerial explanations are not fully ade-

quate to explain the phenomenon of delegation).

See

Barber,

supra

note 572, at 3-4.

July 1983]

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PRIVATE REGULATION OF HEALTH CARE

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917

Delegation is particularly likely if sharp conflict between groups with vary-

ing interests makes it politically attractive for the legislature to maintain an am-

biguous position on an issue and delegate responsibility to act to the

executive."' The legislative branch is also likely to delegate authority to the ex-

ecutive if it can thereby confer benefits on politically focused groups, thus gain-

ing their approbation, while at the same time shifting responsibility — and the

risk of public disapproval — to the executive.

Though the principle of limit-

ing delegation from the legislature to the executive continues to show signs of

lingering vitality,

579

courts have long recognized the practical need for allowing

delegation of extensive discretionary power to the executive

580

and having

bow to pressure from the legislature permitted a. steady weakening of this

branch of the non delegation doctrine."'

Delegation of legislative authority to a private entity rather than to a coor-

dinate branch of government threatens more directly the ideal of represen-

tative democracy that grounds the non delegation doctrine. Even though the

executive may be less directly answerable to the people than the legislature, it is

still accountable through election of major officials, legislative approval of

significant appointed officials, and laws requiring fair and open executive rule-

making and adjudicatory procedures. Substantial dangers arise when legisla-

tive or executive power is transferred to private bodies neither accountable nor

responsible to the people.

582

These problems are most acute when the private

policymaker is responsible to private groups whose interests potentially are in

conflict with those of the public. It is particularly offensive for the government

to transfer authority to a private body to not only make policy but also quasi-

judicial decisions affecting the rights of specific persons. Such private applica-

tion of policy raises serious fairness and due process problems.

583

Again, this is

Aranson, Gellhorn & Robinson,

supra

note 575, at 59-62.

Id.

at 556-59.

See

Industrial Union Dept. v. American Petroleum Inst., 448 U.S. 607, 672-76

(1980) (Rehnquist, J., concurring).

° United States v. Grimaud, 220 U.S. 506, 516 (1911); Buttfield v. Stranahan, 192

U.S. 470, 496 (1904). ,

See

FPC v. New England Power Co., 415 U.S. 345, 352, 353 n.1 (1976) (Marshall,

J. concurring); Quincy College v. Burlington N. R.R., 328 F. Supp, 808, 811 (N.D. I11. 1971),

aff'd.,

405 U.S. 906 (1972).

See

Carter v. Carter Coal Co., 298 U.S. 238 (1936);

see generally,

discussing delega-

tion to private groups: Jaffe,

Law Making By Private Groups,

HARV.

REV.

201

(1937); Lieb-

man,

Delegation to Private Parties in American Constitutional Law,

IND.

L.J.

650 (1975); Wirtz,

Government by Private Groups,

13 LA. L.

REV.

440 (1953); Note,

The State Courts and Delegation of

Public Authority to Private Groups,

HARV.

REV.

1398 (1954) (hereinafter cited as Note,

The

State Courts and Delegation).

3B3

See, e.g. ,

Carter v. Carter Coal Co., 298 U.S. 238, 311-12 (1936); Group Health Ins.

of N.J. v. Howell, 40 N.J. 436, 193 A.2d 103

(1963);

Fink v. Cole, 302 N.Y. 216, 97 N.E.2d 873

(1951); Farias v. City of New York, 101 Misc. 2d 598, 421 N.Y.S.2d 753 (1979); United Chiro-

practors of Washington, Inc. v. Washington, 90 Wash. 2d 1, 578 P.2d 38

(1978);

Liebman,

supra

note 582, at 659-61; Note, The State Courts and Delegation,

supra note 582, at 1401-04.

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particularly true if the interests of the private decision-maker conflict with the

interests of those subject to it or of the public.

584

Government may, however, delegate its power to private parties under

certain conditions. In fact, such delegation is common: through private civil

law the government extensively delegates its authority by affording private par-

ties its power to enforce private agreements, remedy private injuries, or recon-

cile conflicting private property claims, often on the basis of the public interest.

It even creates enforceable private rights as a means of effectuating public pol-

icy."' Moreover, whether or not they are explicitly granted power to make

public policy, private entities exert significant influence over governmental de-

cisions at both the policy determination and implementation leve1.

586

Where

private groups possess specific expertise or unique administrative resources, or

where public problems affect primarily a small cohesive group, it may be rea-

sonable for the government to delegate some power to private bodies to make,

or even enforce, policy."'

Delegation of public authority to a private entity is a particularly rational

legislative strategy if the legislature confronts simultaneously a focused private

interest group — the constituency of the private entity — and an apathetic or

ignorant public, that may be harmed by the delegation but is unlikely im-

mediately to respond. By delegating authority to the private entity, the

legislature can gain the private group's support while risking little public

blame.

588

If the public subsequently becomes aware of the private entity acting

contrary to its interests, there is nothing to stop the legislature turning on

See, e.g.,

State Bd. of Dry Cleaners v. Thrift-D-Lux Cleaners, 40 Cal. 2d 436, 254

P.2d 29 (1953); People v. Pollution Control Bd., 83 Ill. App. 3d 802, 404 N. E.2d 352 (1980);

Johnson v. Michigan Milk Marketing Board, 295 Mich. 644, 295 N.W. 346 (1940); Group

Health Ins. of N.J. v. Howell, 40 N.J. 439, 193 A.2d 103 (1963); United Trust Co. v. Simmons,

116 Utah 422, 211 P.2d 190 (1949).

585

Hanslowe,

Regulation by Visible Public and Invisible Private Government,

40 TEX . L. REV.

88, 92-113 (1961); Jaffe,

supra

note 582, at 212-21; Note,

The State Courts and Delegation, supra

note

582, at 1399.

° Wirtz,

supra

note 582, at 457-60.

"' See, e.g. ,

Packer v. Bd. of Behavioral Science Examiners, 52 Cal. App. 3d 190, 125

Cal. Rptr. 96 (1975) (licensing requirement of degree from accredited college upheld); Natural

Milk Producers Ass'n v. City and County of San Francisco, 20 Cal. 2d 101, 124 P.2d 25 (1942)

(municipal reliance on milk standard established by medical experts approved); Colorado

Polytechnic College v. State Bd. of Community Colleges and Occupational Educ., 173 Colo. 39,

476 P.2d 38 (1970) (professional training and experience of educational accounting body justifies

legislative reliance); Florida Welding and Erection Service v. American Mut. Ins. Co. of Boston,

285 So. 2d 386 (Fla. 1973) (permissible to rely on private insurance rating service where

guidelines and standards' established by legislation); Cities Serv. v. Koeneke, 137 Kan. 7, 20

P.2d 460 (1933) (statute exempting from regulation securities listed with New York, Boston and

Chicago stock exchanges approved because of standing and responsibility of those bodies);

Humane Soc'y of United States N.J. Branch v. New Jersey State Fish & Game Council, 70 N.J.

565, 362 A.2d 20 (1976) (no conflict of interest); Morgan v. N.Y. Racing Ass'n, 72 A.D.2d 740,

421 N.Y.S.2d 249

(1979) (state reliance on preexisting register of thoroughbred pedigrees ap-

proved).

'a°

See

Aranson, Gellhorn & Robinson,

supra

note 575, at 56-59.

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919

and criticizing the entity, thereby gaining public approval."

Delegation to

private entities, like delegation to the executive, has frequently been upheld by

the courts. Indeed, federal courts have increasingly accepted delegation to

private parties subject to certain safeguards and rarely hold such delegations

improper.

° Courts are particularly likely to find delegation unobjectionable

where the circumstances of the delegation provide some assurances of account-

ability and fairness.

First, courts consider it more appropriate for the legislature to adopt ex-

isting articulations of private policy than to delegate prospectively to a private

body continuing power to make policy for the government. A number of cases

have approved government adoption of preexisting private product or profes-

sional service certification standards."' Here accountability is assured by in-

dependent government review of the standards before adoption. Adoption of a

body of private standards, however, including all future changes to those

standards has been held improper, since this effectively delegates unreviewable

discretion to private entities to modify government policy thereafter at their

own initiative.

592

Second, a number of courts have upheld legislation permitting private en-

tities the option of participating in a government regulation program once that

program has been established. For example, the Supreme Court has on several

occasions upheld legislation permitting industries to accept or reject legislative

industry codes, holding that the legislature's actions were proper both in mak-

ing the policy articulated in the code and in providing for optional implementa-

tion

593

Third, courts have been more hospitable towards delegation of power

where articulated legislative standards canalize the scope of the private discre-

tion.

594

Here the standards assure that the legislature has made basic policy

589

Id.

at 58.

"° See

Corum v. Beth Israel Medical Center, 373 F. Supp, 550, 553 (S. D. N.Y. 1974);

Quincy College and Seminary Corp. v. Burlington N. R. R., 328 F. Supp. 808, 811 (N.D. Ill.

1971),,aff'd, 405 U.S. 906 (1972).

59'

See, e:g.,

Noblecraft Indus. Inc. v. Secretary of Labor, 614 F.2d 199, 203 (9th Cir.

1980); Attwood v. State

Newman, 53 So. 2d 825 (Fla. 1951); Spencer v. Hunt, 109 Fla.

248, 147 So. 282 (1933); City of Warren v. State Construction Code Comm'n., 66 Mich. App.

493, 239 N.W.2d 640 (1976); Allen v. State Bd. of Veterinarians, 72 R.I. 372, 52 A.2d 131

(1947).

592

See, e.g.,

City of Tucson v. Stewart, 45 Ariz. 36, 40 P.2d 72 (1935); State v.

Crawford, 104 Kan. 141, 177 P. 360 (1919); State

ex rel

Kirschner v. Urquhart, 50 Wash. 2d 131,

310 P.2d 261 (1957).

593

United States v. Rock Royal Coop., 307 U.S. 533, 577-78 (1939); Currin v.

Wallace, 306 U.S. 1, 15 (1939).

See also

Brock v. Superior Court, 9 Cal. 2d 291, 71 P.2d 209

(1937); Palmer Oil Corp. v. Phillips Petroleum, 204 Okla. 543, 231 P.2d 997 (Okla. 1951) (state

court cases similarly upholding industry codes).

594

See, e.g.,

Mount Vernon Mem. Park v. Board of Funeral Directors and Embalmers,

79 Cal. App. 3d 874, 145 Cai. Rptr. 275 (1978); Florida Welding and Erection Service, Inc. v.

American Mut. Ins. Co. of Boston, 285 So. 2d 386 (Fla. 1973); Superintending School Comm'n

v. Bangor Educ. Ass'n, 433 A.2d 383 (Me. 1981); In re Garrison, 44 N.C. App. 158, 260 S.E.2d

920

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BOSTON COLLEGE LAW REVIEW

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[Vol. 24:835

decisions. Similarly, courts have been more willing to permit delegation where

there are external safeguards to assure the proper exercise of authority.

595

This

may be true where standards have a scientific basis or were developed for pur-

poses independent of the governmental program at issue by experts unlikely to

be affected by improper influences such as conflicts of interests.

596

Finally, courts are more willing to approve delegation of authority to

private entities, even authority to make quasi-judicial determinations, where

the private entity is subject to procedural safeguards imposed by the govern-

ment, or to direct government agency review of its decisions."' Private quasi-

judicial decision-making is less objectionable if there is an articulated formal

and fair procedure for decision-making within the entity and access to a

government body that can fully review the private decision. In all of these cases

a common theme is discernible: delegation to private entities is permissible on-

ly if there are assurances of fair private decision-making and ultimate control

by accountable government entities.

Judged by these standards the current extent of delegation of federal

authority to JCAH under the Medicare program is highly questionable. The

law does not merely adopt pre-existing JCAH accreditation standards, but

rather permits hospital accreditation to serve as a basis for Medicare certifica-

tion of general hospitals,

598

and further, requires accreditation for psychiatric

hospitals under some circumstances,

599

regardless of future changes by JCAH

in its standards. The Medicare legislation not only allows the hospital industry

the choice of accepting or rejecting FIHS certification standards but also per-

mits the industry, as an alternative, to comply with standards established by

itself through JCAH. The Medicare statute provides no standards to guide

JCAH in creating its standards and imposes on JCAH no internal procedural

safeguards to protect persons applying for or contesting the grant of accredita-

tion.

445 (1979),

appeal dismissed,

299 N.C. 545, 265 S.E.2d 404 (1980).

see also

earlier decision at 89 F.R.D. 374 (1981).

608

See

Cospito v. Califano, No. 77-869 at 18-22 (D.N.J. 1983).

600

See supra

note 61.

See supra

note 66.

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Challenges to delegation may also be more successful at the state level because

the delegation doctrine has retained more vitality there than it has in the fed-

eral courts.'"

Though the delegation question has not yet arisen at the state level in re-

gard to licensing, it has been raised in another context. In the late 1960's and

early 1970's many state statutes outlawing abortion were amended to permit

abortions but only in JCAH accredited facilities. This legislation was chal-

lenged in a number of cases raising the question of the legality of state govern-

ments delegating to JCAH the authority to determine whether or not a facility

was appropriate to perform abortions. In

Poe v. Menghini

612

the Kansas abor-

tion statute was held to delegate legislative policy-making authority to JCAH

unconstitutionally.

People v. Barksdale,

613

on the other hand, found the same

delegation in the California statute to be unobjectionable.

Doe v. Bolton

614

held

the JCAH accreditation requirement unconstitutional on equal protection

grounds rather than on delegation grounds: the court decided states could not

limit abortions to JCAH accredited facilities if they imposed no such limita-

tions on other similar medical procedures.'''

Though the 1972 amendments to the Medicare law brought about the dis-

missal of the

Self-help

case and rendered the delegation of federal certification

authority to JCAH less suspect, certain specific changes could be made within

the Medicare program that would address the concerns of accountability and

fairness that support the non-delegation doctrine, and thus render the delega-

tion of authority to JCAH less subject to constitutional attack. These changes

would also clarify JCAH's status under the APA and assure due process for

those affected by the JCAH. First, HHS ought to take seriously its authority to

create standards in excess of those promulgated by JCAH. Second, the valida-

tion process ought to be restructured to focus on monitoring closely, and where

necessary decertifying, substandard accredited hospitals. This would largely

remedy the problem of the absence of any direct review mechanism for ques-

tionable accreditation decisions. Finally, the Social Security legislation ought

to be amended to permit direct administrative and judicial review of accredita-

tion decisions affecting psychiatric hospitals to eliminate JCAH's unreviewable

discretion in this area.'" Direct review of accreditation decisions affecting the

Medicare or Medicaid status of general hospitals, which could be initiated by

affected hospital staff or employees or patients ought also to be considered.

611

Note,

The State Courts and Delegation, supra

note 582, at 1398.

612



F. Supp. 986 (D. Kan. 1972).

613



Cal. 3d 320, 503 P.2d 257, 105 Cal. Rptr. 1 (1972).

614



U.S. 179 (1973).

614

Id.

at 193-95.

616

This is a change JCAH has itself advocated, telephone interview with Eleanor

Wagner, Daniel Schuyler and Paul Mullen of JCAH (December 10, 1982).

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CONCLUSION

We began by considering the two models currently being debated as

means for protecting the public's interest in health care: market reform to pro-

mote competition and command and control government regulation. It may

come as a surprise that JCAH, the entity that has actually developed for pro-

tecting the public's interest in institutional medical care quality, is a private

non-government regulator and fits neither of these models. Yet, considering

the economic interests of its constituencies, it is

quite

easy to understand why

JCAH exists, and why it functions as well (and as poorly) as it does in protect-

ing the public interest.

The JCAH, as a private regulator, has had a significant impact on the

development of institutional medical care in America, and continues to play a

major role in determining the nature of that care. Private standardization and

certification as means of regulation have received strong support from the cur-

rent administration. The potential, and problems, of private standardization

and certification are illuminated by the JCAH experience. This article's anal-

ysis of that experience suggests that private entities be used as regulators only

with the utmost care, with consideration of the nature and interests of the

private regulator and of the adequacy of legal remedies for the problems that

private regulation may cause.