U.S. Department of Labor Administrative Review Board Reverses Prior Ruling and Holds that a Tricare Network Provider is a "Subcontractor" Under OFCCP Regulations

On July 22, 2013, the U.S. Department of Labor (DOL) Administrative Review Board (ARB) granted a motion for reconsideration filed by the Office of Federal Contract Compliance Programs (OFCCP) and held that Florida Hospital of Orlando (Florida Hospital) is a federal subcontractor under OFCCP regulations based on its TRICARE provider agreement with Humana Military Healthcare Services (HMHS). Office of Federal Contract Compliance Programs v. Florida Hospital of Orlando, ARB Case No. 11-011 (A.R.B. July 22, 2013) (en banc). The ARB remanded the case to the Administrative Law Judge (ALJ) for further proceedings to determine whether the TRICARE payments received by Florida Hospital constitute federal financial assistance and therefore bar OFCCP jurisdiction.

THE TRICARE PROGRAM

TRICARE is a Department of Defense (DOD) program that provides healthcare services to active and retired service members and their dependents. 10 U.S.C. § 1071. TRICARE is administered by the TRICARE Management Activity (TMA), a field office of the DOD. TMA contracts with entities such as HMHS to provide managed care support. Among other things, managed care support contractors establish networks of providers to provide healthcare services to TRICARE beneficiaries.

Florida Hospital has had a provider agreement with HMHS since at least April 2005, and is part of its TRICARE provider network.

FEDERAL EQUAL OPPORTUNITY LAWS AND OFCCP JURISDICTION

The OFCCP is authorized by statute and by regulation to ensure that all eligible federal contractors and subcontractors comply with federal equal opportunity laws and affirmative action requirements. See Section 503 of the Rehabilitation Act of 1973, as amended § 793 (Rehabilitation Act), Section 402 of the Vietnam Era Veterans' Readjustment Assistance Act of 1974, 38 U.S.C § 4212 (VEVRAA), and Executive Order 11246, 30 Fed. Reg. 12319 (Sept. 24, 1965), as amended by Executive Order 11375, 32 Fed. Reg. 14303 (Oct. 13, 1967), and Executive Order 12086, 43 Fed. Reg. 46,501 (Oct. 5, 1978) (collectively the "EO Laws").    

The OFCCP enforces compliance, primarily through compliance evaluations (audits) and investigations. During OFCCP audits and investigations, government contractors and subcontractors must permit access to their records and sites of employment and supply information as required by the Executive Order and by the rules, regulations, and orders of the Secretary of Labor (the "Secretary"). 

Implementing regulations issued by the Secretary define a "subcontract" as any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of an employer and an employee):

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

21 C.F.R. §60-1.3. In these proceedings the parties and the ARB refer to Section 60-1.3(1) as "Prong One" and Section 60-1.3(2) as "Prong Two."

PROCEDURAL HISTORY

In 2008, the OFCCP brought an enforcement action against Florida Hospital based on the hospital's refusal to comply with an OFCCP audit notice. Florida Hospital maintained that it was not a federal government contractor or subcontractor subject to OFCCP jurisdiction. Crowell & Moring acted as counsel for the TRICARE managed care support contractors HMHS and Health Net Federal Services, who filed amicus curiae briefs in support of Florida Hospital.

On October 18, 2010, an ALJ issued an order granting summary judgment in favor of the OFCCP. Florida Hospital appealed the determination to the ARB. 

On December 31, 2011, while the case was pending, President Obama signed into law the National Defense Authorization Act for Fiscal Year (2012) (FY12 NDAA). Section 715 of the FY12 NDAA states that a TRICARE managed care support contract that includes the requirement to "establish, manage, or maintain" a network of providers may "not be considered a contract for the performance of healthcare services or supplies" for purposes of determining whether network providers are subcontractors under federal acquisition regulations "or any other law." 

On January 9, 2012, Florida Hospital moved to dismiss the case as moot based on Section 715. 

On October 19, 2012, the ARB, sitting en banc, unanimously held that FY12 NDAA Section 715 precluded OCFFP jurisdiction over Florida Hospitals under "Prong Two" of the "subcontract" definition at 41 C.F.R. § 60-1.3(2). The panel was divided as to whether the OFCCP retained jurisdiction over Florida Hospital under "Prong One" at 41 C.F.R. § 60-1.3(1).   

On November 13, 2012, the OFCCP filed a motion for reconsideration of whether it retained "Prong One" jurisdiction over TRICARE network providers despite FY12 NDAA Section 715.

THE ARB GRANTS THE OFCCP'S MOTION FOR RECONSIDERATION

On July 22, 2013, the ARB issued an order granting the OFCCP's motion for reconsideration and vacated the ARB's October 19, 2012 decision. A majority of the ARB concluded that reconsideration was appropriate because it previously bypassed the issue of Prong One jurisdiction on procedural grounds and failed to appreciate the extent to which the OFCCP raised an independent basis for Prong One jurisdiction. The majority held that reconsideration was warranted "to avoid the manifest injustice that would … otherwise result." 

Two ARB judges dissented from the majority's decision to reconsider the earlier decision, stating that the OFCCP failed to show any new legal or factual developments since the ARB's October 19, 2012 decision.

THE ARB CONCLUDES THAT SECTION 715 DOES NOT ELIMINATE PRONG ONE JURISDICTION 

Turning to the merits of the appeal, a majority of the ARB concluded that the OFCCP retained jurisdiction over Florida Hospital as a TRICARE network provider under Prong One of the "subcontract" definition, 41 C.F.R. § 60-1.3(1). 

The ARB rejected Florida Hospital's argument that Section 715 eliminates Prong One as a basis for OFCCP jurisdiction. The ARB noted that the language of Section 715 does not specifically remove TRICARE network providers from the definition of "subcontractor." Nor does the language categorically eliminate OFCCP jurisdiction over TRICARE network providers. Instead, Section 715 provides that "a TRICARE managed care support contract that includes the requirement to establish, manage or maintain a network of providers may not be considered a contract for the performance of health care services or supplies on the basis of such requirement." 10 U.S.C. § 1097b(a)(3) (emphasis in opinion). The ARB held that this language created "a singular and narrow limitation" that applies to the Medical Network Clause (i.e., the requirement to establish, manage, and maintain a network of providers) of the TRICARE-managed care support contracts. The ARB concluded that under the language of Section 715, network providers might still be considered subcontractors in certain instances. 

ARB CONCLUDES THAT THE TRICARE PROVIDER AGREEMENT SATISFIED THE "SUBCONTRACT" DEFINITION UNDER PRONG ONE OF OFCCP REGULATIONS

The ARB then compared Section 715 with Prong One of the OFCCP regulations and concluded that "Prong One's reach extends beyond Section 715's reach" as shown by an analysis of Prong One's definition of "subcontracts." 

The ARB noted that Prong One's "subcontract" definition includes, inter alia, two specific conditions: (1) the agreement must be for the purchase, sale or use of "personal property or non-personal services" (the "Purchase Condition"); and (2) the personal property and/or non-personal services must be "necessary to the [prime contractor's] performance of" the prime government contract (the "Necessary for Performance Condition"). The ARB concluded that the Florida Hospital provider agreement with HMHS satisfied both conditions of Prong One.

The ARB determined that Florida Hospital's provider agreement satisfied Prong One's Purchase Condition because Florida Hospital provides "nonpersonal services." The ARB noted that EO Laws do not define "nonpersonal services." Instead, the ARB concluded that the definition of "nonpersonal services" for purposes of EO Laws was settled by its decision in UPMC Braddock v. Harris, ARB NO. 08-048 (May 29, 2009), aff'd UPMC Braddock v. Harris, __ F. Supp. 2d. __ (D.D.C. Mar. 30, 2013), appeal docketed No. 13-5158 (D.C. Cir. June 4, 2013). 

In UPMC Braddock, the ARB applied the definition of "nonpersonal services" set forth in federal acquisition regulations 48 C.F.R. §§ 22.801, 37.101 and 37.104. Specifically, 48 C.F.R. § 37.104(a) defines a "nonpersonal services" contract as an agreement "under which the personnel rendering the services are not subject … to the supervision and control usually prevailing in relationships between the Government and its employees." The ARB concluded that the HMHS contract with Florida Hospital is for the "purchase of nonpersonal services" because neither "HMHS or TRICARE has any involvement, direction, or control over the provision of health care services/supplies by Florida Hospital."

The ARB also found that Florida Hospital's provider agreement with HMHS was "necessary to the performance" of the prime contract under Prong One. The ARB distinguished the case from OFCCP v. Bridgeport Hosp., ARB No. 00-024 (Jan. 31, 2003), in which the Office of Personal Management contracted with Blue Cross and Blue Shield (BCBS) to provide health insurance, and then BCBS contracted with Bridgeport Hospital to provide medical services. Instead, the ARB found that HMHS's duties as an insurer and administrator were incidental to the overall purpose of the TRICARE-HMHS-Florida Hospital arrangement -- to provide medical services to TRICARE beneficiaries at negotiated rates. TMA's managed care support contract obligates HMHS to establish and maintain a network of providers to ensure that members actually received medical care. Florida Hospital's network provider agreement with HMHS was therefore "necessary to" the performance of the managed care support contract with TMA.

THE ARB REMANDS THE CASE FOR FURTHER PROCEEDINGS ON WHETHER TRICARE IS A FEDERAL FINANCIAL ASSSISTANCE PROGRAM

Finally, the ARB remanded the case to the ALJ for further consideration of whether the OFCCP is barred from asserting jurisdiction over Florida Hospital because the TRICARE payments the hospital receives constitute federal financial assistance. 

The ARB noted that congressional intent determines whether a particular program qualifies as a federal financial assistance program. Neither Florida Hospital nor the OFCCP had analyzed whether Congress intended funding under the TRICARE statutes to be federal financial assistance or a part of military compensation or entitlements that TRICARE would provide through military medical providers and/or private medical providers. Accordingly, the ARB remanded the matter to the ALJ for additional factual findings.

BROADER IMPLICATIONS FOR HEALTHCARE PROVIDERS

The Florida Hospital determination is part of a larger OFCCP effort to establish jurisdiction over healthcare providers. 

The Florida Hospital case is on a parallel track with the OFCCP enforcement action in UPMC Braddock. As noted above, UPMC Braddock involved hospitals that contracted with a health maintenance organization (HMO) to provide medical services and supplies to plan beneficiaries under the Federal Employees Health Benefits Program (FEHBP). The HMO contracted with the Office Personnel Management to provide coverage for federal employees under the FEHBP. On March 30, 2013, the United States District Court for the District of Columbia issued an order affirming the ARB's determination that the hospitals were federal subcontractors based on their agreement with the HMO. The case is currently on appeal before the United States Court of Appeals for the D.C. Circuit.

Also, on December 16, 2010, the OFCCP issued Directive No. 293, an internal memorandum entitled "Coverage of Health Care Providers and Insurers" (Directive 293). Directive 293 set forth the OFCCP's views and provided examples of whether certain healthcare providers are subject to OFCCP jurisdiction and enforcement of EO Laws based on their participation in federal healthcare programs. Under the directive, the OFCCP claimed jurisdiction over direct contracts and any subcontracts that a direct contractor enters into in order to meet its prime contract obligations. Directive 293 also announced, for the first time, that "the OFCCP may have jurisdiction over a health care provider receiving Medicare reimbursements if the health care provider also holds a separate covered Federal contract or subcontract. Potential covered contracts may include contracts related to Medicare Advantage (Part C) or Part D program... ." The OFCCP reiterated that reimbursements pursuant to Medicare Parts A/B (or Medicaid) are federal financial assistance, and are not contracts subject to OFCCP jurisdiction.

On April 25, 2012, the OFCCP announced that it was rescinding Directive 293 based on the pending appeal in Florida Hospital and the recent enactment of Section 715 (Notice of Recission). Nevertheless, the OFCCP said that it would continue to use a "case-by-case approach to make coverage determinations in keeping with its regulatory principles applicable to contract and subcontract relationships and OFCCP case law." Directive No. 301, "Notice of Recission." The Notice of Recission was silent on the OFCCP's position regarding Medicare Part C and Medicare Part D.

Based on the recent developments, healthcare providers should expect more aggressive action by the OFCCP to assert jurisdiction over providers and enforce EO Law compliance. Healthcare providers and their counsel should carefully review all current contracts and subcontracts to determine whether they could be considered federal contractors or subcontractors. Providers that participate in TRICARE, in the FEHBP, and in Medicare Part C and Medicare Part D in particular, may now be targets of OFCCP audits.