Hospitals May Get More Than They Bargained For: Providing Services Under TRICARE Subjects Hospitals To OFCCP Jurisdiction

One thing has been pretty clear for the past several years: receipt of Medicare and Medicaid payments was a receipt of federal financial assistance and not a contract. This important but simple ruling became a mantra to health care providers, creating what felt like a safe harbor against the requirements that federal contractors must meet. On Monday, however, the DOL Office of Administrative Law Judges determined that just because something else walked like a duck and talked like a duck didn't mean it wasn't a federal contract or subcontract. (OFCCP v. Fla. Hosp. of Orlando, DOL OALJ, No. 2009-OFC-00002, 10/18/10) While nothing has changed about the "Medicare mantra," it turns out that providing health care services for TRICARE beneficiaries is more than a grant, and actually subjects hospitals to OFCCP's jurisdiction.

Since at least 2005, Florida Hospital had provided health care services for TRICARE beneficiaries under an agreement with Humana Military Healthcare Services Inc., ("HMHS"), which paid the hospital $100,000 or more annually for those services. That agreement did not contain any EEO clauses obligating the hospital to comply with Executive Order 11246, Section 503, or VEVRAA. HMHS had established networks of health care providers for military members under a contract with TRICARE since 2003. Under that agreement, TRICARE did not consider network health care providers to be subcontractors.

Because the clauses weren't in the contracts and TRICARE itself didn't feel the health care providers were subcontractors, it was likely a bit surprising when Florida Hospital received an OFCCP audit notice in August 2007. In response to the notice, the hospital did not provide the requested information and instead asserted that OFCCP lacked jurisdiction over it. OFCCP subsequently issued an administrative complaint against the hospital in December 2008.

Ruling in favor of OFCCP, Administrative Law Judge Jeffrey Tureck held that Florida Hospital is a federal subcontractor subject to the OFCCP's jurisdiction because it provides medical services to TRICARE beneficiaries, thus performing a portion of HMHS's obligations under its prime contract with TRICARE. The ALJ rejected the hospital's argument that TRICARE, like Medicare, qualifies as a program of federal financial assistance that falls outside the scope of OFCCP's jurisdiction. The ALJ determined that Medicare and TRICARE are "totally different programs" because the former only pays for medical services, while the latter actually provides them.

The hospital was equally unaided by the fact that a governmental right hand had told them they were not a subcontractor, while the left-hand of the OFCCP insisted they were. The ALJ dismissed Florida Hospital's reasoning that it was not a subcontractor because (1) the contract between HMHS and Florida Hospital did not include EEO clauses and (2) TRICARE did not consider HMHS network health care providers to be subcontractors. Instead, the ALJ found that EEO clauses not included in a federal contractor's subcontract are incorporated by law and that parties' contractual definition of a subcontractor cannot invalidate the provisions of federal law.

While this decision could still be challenged, it appears the legal analysis is sound and commentators in the area think a reversal is unlikely.

Bottom Line: More and more hospitals are participating in TRICARE and therefore, more and more hospitals will be subject to OFCCP audits and enforcement efforts. If a hospital provides services to TRICARE beneficiaries, it needs to comply with Executive Order 11246 and its companion laws requiring affirmative action with regard to veterans and the disabled. The actual scope of this development may actually be even more broad - it would appear that any health care or mental health provider that provides services (over the monetary threshold) to TRICARE beneficiaries would be subject to OFCCP jurisdiction.

Looking Ahead:
For those of you already schooled and familiar with OFCCP compliance, you know that for years we have counseled contractors that affirmative action is not about quotas, preferences, or hard number placement targets. In the realm of race, ethnicity, and gender, making those types of gender- and race-based decisions - even to the benefit of a minority - in almost all cases violates Title VII. However, something new may be on the horizon.

We are in an era where more and more focus is being placed on assisting veterans with entering and re-entering the workplace. The OFCCP has made clear this will be a major point of emphasis. John Fox of Fox, Wang & Morgan P.C. predicts that we should expect the OFCCP to issue regulations requiring federal contractors to establish actual goals for the hiring of veterans beginning in calendar 2011. While this may appear to go against everything you've worked so hard to communicate about affirmative action, remember that a hard preference for veterans would not violate any law; veterans are not of any particular race, color, age, national origin, or gender. Therefore, establishing a preference for hiring and advancing veterans is not discriminatory on any impermissible basis. Stay tuned for further developments.

If you have questions about this or any other matter of labor or employment law, please contact your LMV attorney at (205) 326-3008.