Over the past several years, the U.S. Department of Labor's Office of Federal Contractor Compliance Programs has engaged in ongoing efforts to assert jurisdiction over hospitals and the healthcare industry based on its assertion that these entities are government subcontractors within the meaning of 41 C.F.R. § 60-1.3. The OFCCP is the federal agency responsible for enforcing the contractual promise of affirmative action and equal employment opportunity required of those who do business with the federal government.
Pursuant to 41 C.F.R. § 60-1.3, a subcontract constitutes any agreement between a contractor and a third party for either: 1) the purchase, sale or use of personal property or non-personal services, which is necessary for the performance of any one or more contracts (prong one); or 2) under which any portion of the contractor's obligation under any one or more contracts is performed, undertaken or assumed (prong two).
The OFCCP has argued that hospitals are subcontractors under both of these prongs when they became involved in TRICARE networks or accepted reimbursement payments from TRICARE. TRICARE is a healthcare program of the Defense Health Agency under the guidance of the Assistant Secretary of Defense that provides civilian health benefits for military personnel, military retirees and their dependents.
The OFCCP has been pressing this issue in OFCCP v. Florida Hospital of Orlando, 2009-OFC-0002 (Oct. 18, 2010). In this case, a Department of Labor Administrative Law Judge held that the hospital was a covered subcontractor, in part because it had contracted with Humana Military Healthcare Services to be a network provider for TRICARE beneficiaries. Humana had contracted with the U.S. Department of Defense to provide medical services to TRICARE beneficiaries. As such, the judge found that the hospital had an agreement with Humana to assume some of its responsibility to provide healthcare services to TRICARE beneficiaries. Thus, it deemed the hospital a subcontractor and subject to OFCCP jurisdiction.
However, the OFCCP suffered a setback when the Department of Labor's Administrative Review Board ruled on Nov. 13, 2012, that the OFCCP did not have jurisdiction over Florida Hospital, as a subcontractor, simply because it provided medical services to TRICARE beneficiaries as part of HMHS' integrated healthcare delivery system based on Section 715 of the National Defense Authorization Act. Section 715 of the NDAA, in relevant part, 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 to be a contract for the performance of health care services or supplies on the basis of such requirement."
Unfortunately, on July 22, 2013, the review board heard the OFCCP's motion for reconsideration in OFCCP v. Florida Hospital of Orlando and reversed its initial decision. In doing so, the board found that while Section 715 of the NDAA precludes the OFCCP from asserting jurisdiction over hospitals where they have merely performed, undertaken or assumed a portion of a federal contractor's obligation to provide medical services to TRICARE beneficiaries (prong two of the subcontractor definition), it did not prevent the OFCCP from demonstrating that a hospital had otherwise entered into a subcontractor relationship with the government under prong one. Specifically, the Administrative Review Board stated that Section 715 of the NDAA did not create a blanket prohibition of OFCCP jurisdiction over hospitals, and a separate analysis must be performed to determine if Prong One jurisdiction still exists.
Under the facts and circumstances of Florida Hospital, the court found that "prong one" jurisdiction still applied because the hospital's contract with HMHS was for the performance of non-personal services, and the purchase of the hospital's services was necessary for the managed care support contract between HMHS and TRICARE.
The analysis of OFCCP jurisdiction did not end there, however. The Administrative Review Board recognized the hospital's argument that TRICARE may qualify as a federal financial assistance program, thereby falling within another exception to the OFCCP's jurisdiction. As such, the ARB remanded the case back to the administrative law judge for additional fact-finding on the issue as to whether Congress intended for TRICARE to be a federal financial assistance program. If the judge finds that TRICARE is a federal financial assistance program, then the hospital will not be subject to OFCCP jurisdiction.
As the OFCCP has been attempting to assert jurisdiction over the healthcare industry and hospitals based on their acceptance of TRICARE reimbursement payments, these entities should continue to monitor the OFCCP v. Florida Hospital of Orlando case because its outcome could turn them into a federal contractor/subcontractor, thereby creating significant new compliance issues for them in the future.
Now is also a good time for healthcare providers to consider proactively performing a self-audit, searching for the following documents:
- Any current agreement, or modification of same, or bill of lading in excess of $50,000 that the provider has entered into directly with either: a) a federal agency or department, or b) TRICARE, Medicaid Parts C or D or the Federal Employee Health Benefits Program for the purchase, sale or use of personal property or nonpersonal services;
- Purchase orders or other paperwork received from any federal agency or department or federal program that meets the minimum dollar value threshold;
- Reimbursement forms submitted by the provider to any federal agency or department or federal program to be paid for services rendered that meet the minimum dollar threshold;
- Documents or agreements indicating: a) that the provider participates in any federal agency’s or department’s or federal program's provider network, b) any reimbursement guidelines that were issued by a federal agency or department or federal program, and/or c) the reimbursement rates paid to the provider for participating in said network; and
- Subcontracts or subcontractor relationships that the provider has with another company that meet the minimum dollar threshold and demonstrate a direct contract with either a federal agency or department or federal program in which the provider is either: a) in whole or in part, providing necessary services or products to enable the performance the prime contractor’s contract, or b) under which any portion of the prime contractor's obligation under any one or more contracts is performed, undertaken or assumed.
Hospitals or healthcare providers that have any questions about the potential implications regarding this case or steps they can take to determine their potential exposure should consult with legal counsel for specific guidance.
Kenneth Rosenberg is a partner at Fox Rothschild LLP and is a member of the Labor and Employment Department. He can be reached at krosenberg@foxrothschild.com. Jordan Kaplan is an associate at the firm and can be reached at jkaplan@foxrothschild.com.