United States: Healthcare Provider Does Not Have OFCCP Affirmative Action Obligations Arising Out Of TRICARE

David J. Santeusanio is a Partner in our Boston office and Kenneth Jenero is a Partner in our Chicago office.

On October 19, 2012, the Department of Labor's Administrative Review Board concluded that Florida Hospital of Orlando did not have federal contractor affirmative action obligations arising out of its participation in TRICARE (the Department of Defense's healthcare program for the military). (OFCCP v. Florida Hospital of Orlando, DOL ARB No. 11-011.) The board concluded that Section 715 of the National Defense Authorization Act precluded the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) from asserting jurisdiction over Florida Hospital, and the board therefore dismissed OFCCP's complaint. The ruling is a win for healthcare providers that have received increased scrutiny from the OFCCP because of their participation in TRICARE.

Background

For the past several years, OFCCP has consistently asserted the position — as a matter of policy and in litigation — that a healthcare provider's participation in TRICARE triggers federal contractor affirmative action obligations.

In December 2010, OFCCP issued a policy directive ("Coverage of Health Care Providers and Insurers") stating OFCCP's position that a healthcare provider's or an insurer's participation in TRICARE gave rise to affirmative action obligations. (See Holland & Knight's alert, "Affirmative Action Developments: OFCCP Issues New Directive on Coverage of Healthcare Providers and Insurers,"February 24, 2011.) A year later, in December 2011, President Obama signed the National Defense Authorization Act, which included a provision addressing whether a healthcare provider in TRICARE was a "subcontractor." The act provided, in relevant part, that for the purpose of determining whether a healthcare provider is a "subcontractor" under any law, "a TRICARE managed case 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." (See Holland & Knight's alert, "National Defense Authorization Act: Healthcare Provider's TRICARE Participation Does Not Trigger Affirmative Action Obligations," January 30, 2012.)

In response, in April 2012, OFCCP rescinded its December 2010 directive because of "recent legislation and related developments in pending litigation," and OFCCP advised that it would "continue to use a case-by-case approach to make coverage determinations." (See April 25, 2012, OFCCP Notice of Rescission.)

OFCCP's Definition of "Subcontract" and the National Defense Authorization Act

The issue before the board involved the interpretation of OFCCP's definition of "subcontract" (at 41 C.F.R. §60-1.3) and Section 715 of the National Defense Authorization Act.

A healthcare provider with a federal "subcontract" of $50,000 or more is subject to OFCCP's affirmative action requirements and must develop a written affirmative action program. OFCCP regulations (41 C.F.R. § 60-1.3) define "subcontract" as

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 one or more contracts; or (2) Under which any portion of the contractor's obligations under any one or more contracts is performed, undertaken or assumed.

The National Defense Authorization Act addresses whether a healthcare provider participating in TRICARE is a "subcontractor" under any law. Section 715 of the National Defense Authorization Act states, in relevant part:

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

In the Florida Hospital case, the board was presented with interpreting the definition of "subcontract" in OFCCP's regulation at 41 C.F.R. §60-1.3 in light of this recent legislation.

Board's Decision

The Florida Hospital case arose out of the relationship between TRICARE, Humana Military Healthcare Services ("Humana") and Florida Hospital. TRICARE contracts with Humana, which provides managed care support for the TRICARE system. Humana, in turn, entered into a contract with Florida Hospital, which agreed to be a participating hospital in the network of providers in TRICARE.

In 2007, OFCCP sent Florida Hospital a scheduling letter stating that it has been selected for a compliance review. Florida Hospital took the position that it was not subject to OFCCP's jurisdiction because it was not a federal contractor or subcontractor. In 2008, OFCCP filed an administrative complaint against Florida Hospital in which OFCCP sought an order to compel Florida Hospital to be subjected to the compliance review. In 2010, the administrative law judge ruled in OFCCP's favor and Florida Hospital appealed. While the case was on appeal, Section 715 of the National Defense Authorization Act was enacted. Florida Hospital moved to dismiss the case on the grounds that, as a result of the enactment of Section 715, Florida Hospital was not a subcontractor subject to OFCCP's jurisdiction.

On appeal before the board, OFCCP argued that Section 715 did not apply retroactively. If Section 715 did, in fact, apply to this case, OFCCP conceded that Section 715 removed jurisdiction under the provision in 41 C.F.R. §60-13 that defined "subcontract" to include an agreement "under which any portion of the contractor's obligations under any one or more contracts is performed, undertaken or assumed." But OFCCP argued that under the other provision of 41 C.F.R §60-1.3, the contractual relationship between Humana and Florida Hospital constituted an agreement "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."

As an initial matter, the board concluded that notwithstanding the general presumption against the retroactive applicability of a law, Section 715 applied retroactively to Florida Hospital because Section 715 did not "increase any party's liability, impair any rights, or impose new duties on any party."

The board then rejected OFCCP's argument that jurisdiction was appropriate because Florida Hospital's contact was "necessary to the performance" of the TRICARE/Humana contract under 41 C.F.R. §60-1.3. Instead, the board accepted Florida Hospital's argument that Section 715 prevented the OFCCP from asserting jurisdiction. The board stated that the nature of the prime contract between TRICARE and Humana "involves an agreement between the parties that [Humana] will provide a 'managed, stable high-quality network or networks of individuals and institutional health care providers.'" The board further noted that the contract between Humana and Florida Hospital is "designed to effectuate the terms" of the TRICARE/Humana contract. The board concluded:

Applying Section 715 to the subcontract in this case, and under the definition of 'subcontract' as set out under 41 C.F.R. §60-1.3, the fact that [Humana/Florida Hospital] (subcontract) involves the provision of health care providers pursuant to a managed care prime contract between TRICARE and [Humana] that includes the requirement to maintain a network of providers, OFCCP's jurisdiction is removed. Under Section 715, the subcontract is no longer a 'subcontract' under Section 60-1.3 because the element of the contract that is 'necessary to the performance of any one or more contracts' involves the provision of health care network provider services to TRICARE beneficiaries.

The board dismissed OFCCP's complaint.

In addition to the plurality's decision, there were three separate opinions, each concurring in part and dissenting in party. The concurrences and dissents generally addressed whether the "necessary to the performance" issue was properly presented before the board on appeal and whether that issue should have been remanded to the administrative law judge.

Conclusion

The board's decision and the National Defense Authorization Act further bolster the position of healthcare providers fending off OFCCP's attempts to assert jurisdiction over them based on participation in TRICARE. OFCCP, however, may continue to assert jurisdiction over healthcare providers based on other factual grounds (such as other federal contracts or subcontracts) or legal arguments that were not fully presented before the board in this case. Healthcare providers should continue to monitor OFCCP's response and evaluate the specific terms of any TRICARE-related agreements and review other federal contracts and subcontracts that may trigger affirmative action obligations.

www.hklaw.com

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