Washington Health Care Association

LIHllED STATES OF AMEWiCA
E D E R A L TRADE COMMISSION
WASHINGTON. D C 	25580
F e b r u a r y 	16, 1988
Stephen J. Maag
Director, Legal and Regiulatoq 	Affairs
Washington Health Care Association
2120 State Avenue, N . E .
Suite 102
Olppiap Washington 	9 8 5 8 6
Dear Mr. Maag:
This letter responds to your 	reweat 	f o r a staff a d v i s o q
opinion concerning possible a n t i t m s t 	issues raised by a proposal
by the Washington Health Care Association 	( " t h e Association") to
establish a Quality Validation Progrm to be used to evaluate t h e
rquality of c a f e provided by 	nursing homes operating in the s t a t e
of Washington*
According to the information you have p r o ~ i d e d , ~	the
Association is a meaership organization composed of most of the
nursing hom s and allied long tern health facilities in
@ 	WashingtonS4 	I t provides a variety of 	services that benefit its
mehers, including educational programs, an annual trade show,
replar publications, and t h e 	advice of 	its professional staff on
legal, business, govermental and public relations issues. 	Most
sf 	these serrvices are available to nonmedere, but at a higher
price than that charged to meders, 	The Association" 	sstalf
works with state and 	federal regulators and 	legislators on i s s u e s
of concern to long tern care 	facilities, 	I n addition, t h e
Association gffers a pension plan 	at 	a discounted rate open to
mehers o n l y 	and worhen" 	compensation progrms 	For mearbers 	and
nonnnernbers,
This respnee is Based on i n f o m a t i o n 	and 	d o c m e n t a t i o n
supplied with your 	June 	5, 1987, reqest for a staff advisoq
spinion, your 	letter dated Auwst 	3, 1989, and in telephone
conversations with the staff,
The Wesociation is the largest such organization,
having 	as meaers 	230 of 	the state" 	229 	4liensed proprietasy and
nsn-proprielany 	long tern health care facilities, 	There 	is
another aessoeiation with 58 to 60 nonprofit nursing home mehers.
Nomeaber nursing homes can obtain similar plans 	from
o t h e r 	sources at a slightly higher price,

Stephen 	J. Maag
Page two
The Association is developing a Quality Validation 	P r o g r m
that will attempt to establish objective criteria for evaluating
the vality 	of care provided by nursing homes. 	Assessment
standards are being developed by a cornittee eompoaed of
Association mehers, state replatory and legislative .
representatives, and consmer and insurer representatives,
Technical assistance is being provided by Association staff and
by the Joint Gomission on Weereditation of Healthcare
Organizations ( " J o i n t Comissi n m ) , fomerly the Joint Comission
on Accreditation of HospitalsSg Standards will be developed for
various components that go into nursing home care, 	ineluding
d i e t a q , 	infection control, 	nursing care, and 	active treatment.
0
S u m e y s 	designed to deternine each me&er 	home" 	compliance
w i t h 	the standards will be 	conducted by the Joint Comission.
Each facility" 	pgerfomance wifP be measured against a
predetemined 	standard, w i t h wmerical scores assigned according
to the degree of compliance with each standard, 	Ln order Lo
obtain a successful assessment, a nursing home would 	have to
attain a set overall score and receive at least a minimm 	score
in each broad area evaluated. 	Infomation about individual
nursing hones-perfomance 	on the assessment will be made
available to the public.
Participation in the Quality Validation Progrm will be a
condition of me&ership 	in the Association and also will be
available to nomernbers upon p a p e a t 	of a fee based on the cost
of the psogrm. 	Evaluations will begin in 2 9 8 8 . 	If 	a mernber
fails to attain a successful assessment within 6 months of its
second unsuccessful evaluation, its membership 	in the Association
will Be teminated, 	A teminated member will have the right to
obtain review of Its terntination and to present mitigating
factors or argments why 	it should be continued as a mentber.
There will be a procedure for reinstating teminated members,
The Association is also negotiating with a liability
insurance carrier to develop an insurance policy, to be available
to m e ~ e rand n o m e b e r nursing homes participating in the
Quality Validation Program, that would allow rebates of premims
4 	The Joint Comission, which accredits hospitals and
other health care institutions nationwide, has its own nursing
home accreditation progrm. 	It currently accredits about 20
nursing homes in Washington. 	The Joint Comission accreditation
program will continue, and participants in the Association's@ progrm 	will be able to apply for Joint Comission accreditation
at a reduced fee.

Stephen J. Maag
Page three
based on each 	facility" 	ppesfsmance on the quality assessment
s u m e y . 	T f 	this effort is successful, participants in the
Quality Validation P s o g r m would be able to purchase liability
insurance at Power sates 	than are currently available,
Based on the description of the Quality Validation 	Program
that you have provided, it. does not 	appear that the progrm 	as
proposed would be likely to restrain competition in violation
of the Federal Trade Comission h c t e 5 	However, as explained
below, the standards used, 	how they are applied, and the extent
6s which certification by the progrm 	~ C B ~ B S	a practical
necessity for nursing homes to compete in the market 	will
deternine whether in actual owsation 	the prsgrm 	will have an
unlawful anticompetitive purpose on effect. 	I discuss b l o w 	the
limited circ-caarstancesunder which such a grogrm would likely be
found 	to violate the anlitmst laws,
In essence, the Quality Malidateon Progrm is an
institutional accreditation program, 	and is similar in many
respects to product certification programs. 	In general,
certification and accreditation systems Rave the potential to
improve the perfomance of markets, 	Certification progrms can
provide infomation about the quality and perfomance of products
QP 	services that may be difficult or expensive for eonsmers 	to
obtain othemise, helping buyers make Better informed choices
mong competing offerings. 	Certification systems can also 	lead
to improvement in the quality standards of an industq,
increasing consmer confidence in product qality and thereby
increasing demand 	for the product.
The ability of product standards to improve market aperation
depends on the extent to which they convey accurate and useful
infomation, that 	is, on the extent to which the standards
applied actually identify pertinent product characteristics and
the extent to which certification decisions accurately reflect
compliance with the stated standards, 	if the standards are
This 	advissq opinion 	is limited to the proposed
progrm described in your letters. 	It does not constitute
approval for actions that are different from those described or
for those not specified in your reqest for 	an advisory 	opinion,
6 	However, this proposal differs from many accreditation
progrms 	in that participation in the As~ociation" progrm 	is a
condition of membership, and failure to achieve acceptable
perlomance 	leads not only 	to withholding 	sf the "seal of
approvalw but also to loss of mePnlsership in the Association and
its attendant benefits. 	This aspect 	of the proposed program 	is
discussed below.

Stephen J. Maag
Page four
reasonable and accurately applied, certification systems are
procompetitive, even if comptitars 	whose products do n o t 	meet
the standards are disadvantaged because consumers prefer
certified products, 	On the other hand, certification may distort
the operation of the market If 	I) the ~tandardsused do n o t
dietinwish reasonably accurately and objectively the produet
characteristics they purport to measure or if they are unduly
restrictive or unreasonably discriminatoq, or 2) certification
decisions do not fairly and objectively apply the slated
criteria, so that certification does not accurately reflect
compliance with the etandards.
Accreditation and eertlfieation schemes are often sponsored
and run by an 	association 	composed o f 	the p r s o n s 	at i ~ s t i t u t i s n s
who produce the products as eemiees 	La be certified, 	Although
control of the certification process by 	a group of competitors
can create potential a n t i t m s t problems, it does not 	itself
violate the a a t i k n s t 	laws. 	In antitrust parlance, a legitimate
certification or accreditation progrm 	i s a Business joint
venture established to provide a product or semiee that could
not or would not be 	supplied by 	f i m s acting individually. 	To
deternine their legality, the activities sf suck joint ventures
are subject to the antitrust rule of reason analysis dicussed
@ 	below,
Under 	the rvle of reason, joint action mong competitors is
illegal if it has a predominantly 	anticompetitive purpose or it
has a substantially restrictive effect on competition that is not
outweighed by the restraint" 	beneficial competitive e b f e c t ~ . A
certification progrm carried out by a competitor-controlled
group could violate the antitrust laws in the following
situations. 	First, particular standards would be subject to
challenge if they directly restrained significant competition
mong 	the accredited entities without a procompetitive
justification. 	For exmple, 	a standard that prohibited nursing
homes from advertising or providing senices desired by consuurers
would be treated as a suspect agreement mong the participating
institutions that 	they would not compete with each o t h e r 	in those
r e s p e t s . 	Second, a certification groqrm could in some
eircaunstancea h 	found to have 	an unreasonably anticompetitive
effect by exeluding 	from the market products or senices
desired by consunrers, 	If 	lack of certification by 	a competitor-
controlled entity substantially impairs the ability of f i m s to

Stephen 9. 	Maag
Page five
market their products or s e r v i c e s f 1 7a standard-setting
organization could be 	found 	liable for f a i l i n g to grant
certification if 	the standards it applied were designed to
reelrain competition by arbitrarily excluding a class sf
competitors or othemise were not reasonably related to the
legitimate purposes of 	the organization or if certification
decisions gid not accurately reflect compliance with the
standards,
Applying the foregoing analysis to the Association's
proposed Quality Validation Progrm, described above, there does
not appear to be any basis for concluding at this time that 	the
progrm 	i s 	likely to p s e 	a 	serious danger to c o m p t i t i s n 	m s n g
nursing homes, 	The prsgrm has the potential to stimulate
competition, because eonsmers could benefit 	from reliable
i n f o m a t i o n 	about the relative q a l i k y of competing nursing
homes, 	There is nothing in the i n f o m a t i o n you 	Rave supplied to
us that suggests that the progrm 	is intended to supprees nursing
home competition. 	On the eontraq, the Association appears to
have made a substantial effort to ensure that the standards have
a reasonable basis and that they 	are fairly applied. 	For
exmple, the Cornittee developing the standards is apparently not
controlled by 	industry memberst9 and the Association has
contracted with an 	independent third party -- the Joint
Comission on Accreditation of Healtheare Organizations -- to
evaluate nursing homes,
We cannot deternine at this time whether the progrm will
obtain the power to significantly influence eonsunrersQchoices
mong nursing homes. 	Without such power, it is unlikely that the
The availability of alternative sources of
certification and the ability of producers to establish a
separate certifying body are relevant to consideration of the
necessity of certification,
The antitrust laws do not repire that any particular
procedural ateps be 	followed in withholding certification, nor
does the presence sf procadural protections validate restrictions
that are substantively unreasonable. 	Procedural steps can,
however, P h i t antitrust exposure by making i% more likely the
rules and requirements of 	the certifying body are reasonable in
scope, and fairly applied,
9 	Of 	the 21 mernbers on the cornittee, 9 	are provider 	or
@ 	Association representatives, 4 	represent government agencies,
and 8 appear to represent consmer groups.

S t e p h e n J . 	Maag
Page six
progrm could restrain competition. 	We do not h o w 	to what
extent the progrm will be relied upon By third parties, and we
do not know to what extent alternative eources of certification
may be 	available to nu 	sing homes who do not obtain certification
from the Association.16 	Ye note that the Association is composed
of a substantial majority sf nursing homes operating in
Washington, raising the possibility that it may be able to wield
market 	p w e r . 	On the other hand, at least one other Association
of nursing homes currently exists in Washington. 	It wight 	be
able Lo establish its own certification progrm 	if there were a
demand for alternative sourees sf certification. 	I n 	addition, a
separate accreditation progrm, 	established by the J o i n t
Commission, is available to at Peast some Washington nursing
homes*
The Association" 	aegslirement that me&ers 	obtain
certification warrants some additional discussion, 	It is illegal
f a r a group of competitors to attempt to drive uncertified
products or services 	from the market through the use of a
boycott. 	Therefore, certified f i m s may 	not agree mong
themselves not to deal with uncertified fims, 	and they may 	not
orchestrate an agreement mong 	suppliers or customers not to deal
with such fims.
This does not necessarily mean, however, that the
Association may not condition membership on achievement of
certification, 	If access to a competitor-controlled entity is
necessary 	for f i m s to compete effectively in the market, the
entity may 	be limited in its ability 	to deny 	access to an
applicant. However, it does not 	appear that the Association is an
essential facility for nursing homes, 	Most of the benefits that
the Association provides Lo meders are available to nomewrbers,
either from the Association or 	from other sourees, at similar or
somewhat 	higher cost, 	In addition, there is no reason to
A 	l i b i l i l y 	insurance policy offering rebates tied to a
facility's 	pperlomance on the pality assessment would tend to
increase the attractiveness oh certification to nursing homes.
However, it would not be evidence that certification was an
hlportant factor in a nursing home" 	&ability to connpte
effectively unless the mount of the discount was enough to
eignificantly affect an institution" 	costs and similar insurance
policies were not reasonably available outside the Associationts
progrm.	-
II 	Issues relating to the need for, and 	alternative
sources of, certification itself, have already been discussed.

Stephen 9. Naag
Page seven
h l i e v e 	that excluded nursing homes could not establish a
separate association that could provide similar benefits to
mehers. 	The one exception may 	be the liability insurance policy
discussed 	above, about which the Association is currently
negotiating, which 	apparently will be available only through the
Quality Validation Progrm, 	However, t h e 	insurance pdckage, 	if
it is obtained, is tied to certification rather than to
Association membership as such. 	Therefore, its effect, if any,
would be to increase the attractiveness of 	certification, rather
than suggesting 	that Association me&ership 	is a competitive
necessity even for uncertihied nursing homes.
Based on t h e 	f a c t s 	presented, it does 	n o t 	appear that the
Quality Validation Pxogrm 	is likely to violate &he a n t i t n s t
P a w s * 	The Bureau of Competition retains the right to take such
action as may be in the public interest if in actual 	operation
the certification progrm 	i s used for improper purposes as
results 	in substantial anticompetitive effects. 	The above legal
advice is t h a t 	of the staff of the Bureau 0% Competition only.
Under Seetion 1.3(c) of the Comission" 	Rules sf Practice, the
Comission is not bound by this advice and reserves the right to	-
rescind it at a later time,
We are placing copies of your 	request and 	this response on
the public 	record pursuant to Section P,4 of the Comission@s
~ u l e bof Practice,- Pours truly,
M , 	~ l i z a b & h Gee
Assistant Director