Hunton Employment & Labor Perspectives

The Administrative Review Board (“ARB”) has issued its decision in OFCCP v. Florida Hospital of Orlando, ruling that Florida Hospital is not a federal subcontractor and therefore not subject to the jurisdiction of the Office of Federal Contract Compliance Programs (“OFCCP”). The OFCCP is a federal agency that enforces equal employment opportunity and affirmative action laws. Entities subject to its jurisdiction have numerous affirmative action obligations. The ARB’s decision addresses whether the OFCCP can establish jurisdiction over hospitals and other health care entities based solely on their contracts to provide medical services for beneficiaries of TRICARE.

This ruling comes as good news for hospitals and other health care institutions who are concerned that they may be subjected to the OFCCP’s jurisdiction, as a result of their participation in TRICARE. Although several judges concurred but dissented from the plurality, possibly leaving open the door for the OFCCP to find another avenue to attempt to assert jurisdiction based on TRICARE contracts, it unclear as to whether the OFCCP will seek to do so.

Details of the Decision

TRICARE is a federal health care program for active and retired members of the military and their family.  It is administered by TRICARE Management Activity (“TMA”). TMA contracted with Humana Military Healthcare Services, Inc. (“HMHS”) to provide networks of health care providers to the beneficiaries of TRICARE. HMHS in turn contracted with Florida Hospital and other hospitals to provide health care services to individuals eligible to receive benefits under the agreement between HMHS and TMA.

As we discussed previously, the OFCCP originally brought suit after Florida Hospital refused to respond to a compliance audit. The OFCCP has jurisdiction over entities that have specific contacts or subcontracts with executive branch agencies. Florida Hospital argued that regardless of its contract with HMHS, it was not a subcontractor and not subject to the OFCCP’s jurisdiction. The regulations governing the OFCCP state that a subcontract is:

Any agreement or arrangement between a contractor and any person . . . : (1) For the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts; or (2) Under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed.

41 C.F.R. § 60-1.3, 60-250.2, 60-741.2. Applying this definition, the ALJ granted summary judgment for the OFCCP finding that Florida Hospital was a subcontractor. The ALJ determined that under Florida Hospital’s contract with HMHS, Florida Hospital provided some of the medical services to TRICARE’s beneficiaries that HMHS had agreed to provide pursuant to its contract with TMA. As a result, Florida Hospital undertook a portion of a contractor’s obligations under any one or more contracts. Florida Hospital filed exceptions to this ruling with the ARB.

ARB Decision

The ARB reversed the ALJ’s decision. The ARB based its opinion on the National Defense Authorization Act for Fiscal Year 2012 (“NDAA”). The NDAA was enacted following issuance of the ALJ’s decision. Section 715 specifically addresses the OFCCP’s jurisdiction’s over TRICARE providers, stating:

(3) In establishing rates and procedures for reimbursement of providers and other administrative requirements, including those contained in provider network agreements, the Secretary shall, to the extent practicable, maintain adequate networks of providers, including institutional, professional, and pharmacy. For the purposes of determining whether network providers under such 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.

10 U.S.C.A. § 1097b(a)(3).

The ARB found that Florida Hospital’s contract with HMHS fell within the NDAA’s scope and therefore the OFCCP was precluded from asserting jurisdiction. The ARB reasoned that per the NDAA, when deciding whether Florida Hospital was a subcontractor, the contract between HMHS and TMA could not be considered to be a contract for the performance of health care services or supplies. Simply put the ARB found that under the NDAA, Florida Hospital’s subcontract with HMHS was no longer a subcontract within the regulatory definition “because the element of the contract that is ‘necessary to the performance of any one or more contracts’ involved the provision of health care network provider services to TRICARE beneficiaries.”