In a highly anticipated decision, a Labor Department Administrative Law Judge (ALJ) has found that a Florida hospital’s TRICARE contracts trigger affirmative action obligations under federal law. OFCCP v. Florida Hospital of Orlando, DOL OALJ, No. 2009-OFC- 00002 (October 18, 2010). In so holding, the ALJ upheld the position of the Office of Federal Contract Compliance Programs (OFCCP) that the hospital was a government subcontractor.

TRICARE is a federal health care program for active and retired military personnel that contracts with both health care providers and regional administrators to provide health care services to TRICARE participants. Florida Hospital of Orlando (Florida Hospital) is an acute care hospital that provides health care services to TRICARE participants through a care network managed by Humana Military Health Services (HMHS). Florida Hospital has no direct federal contracts, but receives more than $100,000 annually in federal reimbursement pursuant to a managed care contract between HMHS and TRICARE.

In August 2007, the OFCCP initiated a desk audit of Florida Hospital, which contested the OFCCP’s jurisdiction on the grounds that its TRICARE agreements were neither federal contracts nor subcontracts under federal law. The OFCCP disagreed and initiated compliance proceedings against Florida Hospital that resulted in the ALJ decision.

Why are health care providers with TRICARE contracts now required to develop an Affirmative Action Plan?

The Florida Hospital of Orlando holding addresses the complicated issue of what constitutes a federal subcontract in the health care industry for affirmative action purposes. The ALJ determined Florida Hospital was a covered subcontractor because it provided medical services to TRICARE’s beneficiaries, and these services were necessary to the performance of TRICARE’s contract with HMHS. The ALJ found irrelevant the fact that Florida Hospital’s agreement with HMHS contained no indication that the hospital would be deemed a federal subcontractor; the ALJ also ignored TRICARE’s assertion that it never intended for Florida Hospital to be a federal subcontractor.

Further, the ALJ rejected Florida Hospital’s argument that TRICARE was the functional equivalent of Medicare, which the OFCCP has consistently deemed to be a “grant” and not a federal contract. Consequently, health care providers receiving only Medicare and Medicaid reimbursements have not been subject to federal contractor obligations. The ALJ distinguished Medicare by stating TRICARE “brings together the health care resources of the uniformed services and supplements them with networks of civilian health care professionals . . .” and is a “totally different program” from Medicare.

Why haven’t health care providers put Affirmative Action Plans in place before now?

Prior to the Florida Hospital of Orlando decision, case law was not altogether clear on the import of TRICARE contracts. In 2003, the Administrative Review Board issued a decision in OFCCP v. Bridgeport Hospital, ARB No. 00-034, 2003 WL 244810 (Jan. 31, 2003), which led the health care community to believe that providing health care for government employees would not trigger affirmative action obligations. In that case, Bridgeport Hospital had an agreement with Blue Cross/Blue Shield (BCBS) to provide medical services to persons eligible to receive health care benefits under any BCBS plan. This agreement provided for preferred rates at the hospital for all BCBS members. BCBS contracted with the U.S. Office of Personnel Management (OPM) to provide federal employees with health insurance. Bridgeport Hospital received over $300,000 in payments from BCBS for services provided to federal employees and their dependents. The OFCCP argued that, by providing services to federal employees and their dependents, Bridgeport Hospital was providing a service necessary to the effectuation of BCBS’s federal contract and that the hospital was therefore a subcontractor. The Administrative Review Board disagreed and found that BCBS actually provided insurance, not medical services. Therefore, Bridgeport Hospital was not deemed a covered subcontractor.

Six years after the Bridgeport Hospital decision, the Administrative Review Board substantially narrowed the effect of that holding. In OFCCP v. UPMC Braddock, ARB Case No. 08-048 (May 29, 2009), the University of Pittsburgh Medical Center (UPMC) had an HMO contract with the University of Pittsburgh Medical Center Health Plan to provide medical products and services to government employees pursuant to a contract between the Health Plan and OPM. This opinion stated that, unlike BCBS, the UPMC Health Plan was more than an insurer - it was an HMO. By its nature, an HMO arranges and provides for medical services through providers such as UPMC. UPMC was therefore found to be a federal subcontractor.

The holdings of Bridgeport Hospital and UPMC Braddock were difficult to reconcile and left the health care community with little guidance on which types of agreements would subject providers to affirmative action requirements. The OFCCP and the Florida Hospital of Orlando case responded with a resounding call for greater coverage of health care institutions.

What is required of federal contractors and subcontractors?

Executive Order 11246, as amended, Section 503 of the Rehabilitation Act of 1973, as amended, and the Vietnam Veterans’ Readjustment Assistance Act of 1974, as amended, impose certain requirements on government contractors and subcontractors. Specifically, federal contractors and subcontractors are required to develop a written Affirmative Action Plan (AAP) for each of their establishments within 120 days from the start of a federal contract, if the contract is worth $50,000 or more annually.

In addition to developing an AAP, federal contractors and subcontractors may also be subject to the following requirements:

  • Conducting adverse impact analyses for hires, promotions and terminations;
  • Engaging in outreach activities;
  • Performing compensation analysis;
  • Ensuring nondiscrimination in employment;
  • Filing an EEO-1 report;
  • Filing a Vets 100/100A report;
  • Participating in E-Verify;
  • Complying with certain record-keeping responsibilities;
  • Allowing OFCCP access to the contractor’s/subcontractor’s facilities and records;
  • Posting of certain notices;
  • Including a non-discrimination statement in job postings;
  • Posting job vacancies with the state unemployment agency;
  • Providing reasonable accommodations; and
  • Prohibiting retaliation.

What steps do health care providers need to take and when?

The OFCCP recently began contacting health care providers to assert that TRICARE contracts subject them to affirmative action and non-discrimination obligations. Hospitals, skilled nursing facilities, residential or special treatment centers or other health care providers should conduct an immediate review of contracts and consult with legal counsel to determine whether they may now be deemed federal contractors or subcontractors under federal law. If qualifying contracts are discovered, employers should consult their attorneys as soon as possible to begin building affirmative action plans and complying with other affirmative action obligations.

Given the OFCCP’s recent increase in funding and hiring of scores of new compliance officers, coupled with the Department of Labor’s focus on health care, developing a timely plan for achieving compliance is essential for all health care employers.