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OFCCP: “TRICARE Providers Are Subject to Affirmative Action Requirements”

on Tuesday, 19 November 2013 in Labor & Employment Law Update: Sarah M. Huyck, Editor

For years, we have been tracking the Department of Labor’s Office of Federal Contract Compliance Programs’ (“OFCCP”) efforts to expand its jurisdiction to health care employers. Generally, the OFCCP enforces regulations that require employers with at least 50 employees, who hold a single contract or subcontract of at least $50,000 to provide services to the federal government, to comply with certain affirmative action obligations including maintaining an affirmative action program (“AAP”).


Health Care Institutions As Federal Contractors/Subcontractors

Many health care organizations have a direct contract with the federal government and therefore have affirmative action obligations by nature of that contract. For instance, a hospital may be a covered contractor as a result of a contract with the Department of Veterans’ Affairs or the Department of Defense, requiring the provision of medical services to active or retired military personnel.


On the other hand, an organization may have obligations if it has a “subcontract” to an entity with a federal contract. In relevant part, a “subcontract” is any agreement between a contractor and any person (1) for the purchase, sale, or use of non-personal services that in whole or in part, are necessary to the performance of any contract, or (2) under which any portion of the contractor’s obligation under any contract is performed, undertaken, or assumed. Whether a health care provider’s subcontracts bring it under the OFCCP’s jurisdiction is a difficult inquiry, as it depends upon the nature of the underlying prime contract and the terms of the subcontract. We have addressed the subcontractor issue in more detail in prior Labor & Employment Update publications.


TRICARE Network Participants

Many health care organizations do not have direct contracts or subcontracts with the federal government, but they do participate in a TRICARE network. In 2010, an Administrative Law Judge (“ALJ”), in OFCCP v. Florida Hospital of Orlando, held that a hospital that subcontracts to provide medical services to TRICARE beneficiaries was a federal subcontractor subject to affirmative action laws. In that case, Humana Military Healthcare Services, Inc. (“HMHS”), held a contract with TRICARE Management Activity of the Department of Defense (“TRICARE”) to establish a healthcare provider network for beneficiaries under the program. Florida Hospital of Orlando (“Florida Hospital”) was a “participating hospital” in that network. The ALJ concluded that TRICARE was a program to provide actual medical services, and the hospital was engaged to provide those services. Consequently, by providing medical services to TRICARE’s beneficiaries, the hospital was deemed to be a subcontractor because its services were necessary to the performance of TRICARE’s contract with HMHS.


In light of the Florida Hospital decision, most healthcare institutions were considered federal subcontractors because of their TRICARE subcontracts. On December 15, 2011, however, Congress passed Section 715 of the National Defense Authorization Act (“NDAA”), which provides, in relevant part:


For the purpose of determining whether network providers under [TRICARE] provider network agreements are subcontractors for purposes of the Federal Acquisition Regulation or any other law, a TRICARE managed care support contract that includes the requirement to establish, manage, or maintain a network of providers may not be considered to be a contract for the performance of health care services or supplies on the basis of such requirement.


President Obama signed this legislation into law on December 31, 2011.


But wait!!!

Despite this legislation, the OFCCP persisted in asserting that it had jurisdiction over Florida Hospital. The Department of Labor’s Administrative Review Board (“ARB”) initially rejected the OFCCP’s argument for jurisdiction, citing the NDAA legislation. The OFCCP, however, was not deterred, and asked the ARB to reconsider.


In a July 22, 2013 ruling, the ARB switched its position and ruled that Florida Hospital and other TRICARE providers do meet the definition of a federal subcontractor, despite the NDAA legislation.


The OFCCP claimed that in the definition of “subcontract,” the two prongs are separated by an “or,” meaning that the prongs are read exclusively from one another. Under that interpretation, the first prong—that defines a subcontract as an agreement “for the purchase, sale, or use of non-personal services that in whole or in part, are necessary to the performance of any contract”—does apply to TRICARE network providers. In reaching this ruling, the ARB reviewed legislative history and determined that the NDAA “simply clarifies that a Medical Network Clause does not translate into a duty to perform healthcare services.” In other words, the OFCCP argued that the NDAA only made the second prong of the “subcontract” definition ineffective, but that the first prong was still applicable.


The ARB therefore determined that Florida Hospital’s TRICARE arrangement qualified as a purchase of non-personal services and that the purchase was necessary for the performance of the direct contract. In so ruling, it concluded that the OFCCP has jurisdiction over the hospital. (Notably, the two dissenting judges took the position that the NDAA plainly precludes jurisdiction under both prongs of the definition of subcontractor.)


Before you panic…

The decision leaves open the question of whether TRICARE payments could be considered federal financial assistance, which the OFCCP has conceded does not subject an organization to its jurisdiction. The ARB remanded the case for further inquiry into this issue, where Florida Hospital will argue that TRICARE represents federal financial assistance similar to Medicare parts A and B.


Likewise, the ARB’s decision will also likely be appealed.


What do we do now?

Considering the OFCCP will undoubtedly use the ARB’s decision as its “permission slip” to exert its jurisdiction over health care institutions, health care employers with only TRICARE arrangements (and no other federal contracts or subcontracts) are again faced with the quandary of deciding whether to go ahead and comply with affirmative action obligations when they are uncertain such obligations apply. We encourage employers uncertain about their status to seek legal counsel to discuss options in more detail. As is evident by the continued back and forth on this issue, it is even more clear that the OFCCP will not rest until it brings health care employers under its jurisdiction.

Kelli P. Lieurance

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