In an important case that addresses which entities can be considered federal “subcontractors” under federal affirmative action regulations, the U.S. Department of Labor’s Administrative Review Board (ARB) rejected the argument of the Office of Federal Contract Compliance Programs (OFCCP) that a hospital’s participation in the Department of Defense’s TRICARE program made the hospital a subcontractor subject to OFCCP jurisdiction. Florida Hosp. of Orlando, ARB Case N0. 11-011 (2012).

OFCCP has been aggressive across all industries in recent years in broadly defining covered subcontractors who are subject to its affirmative action program requirements. This case and others concerning subcontractor status are of interest beyond the healthcare industry.

The issue resolved by the ARB first arose in 2008, when Florida Hospital of Orlando (Florida Hospital) refused to participate in a compliance review initiated by OFCCP under Executive Order 11246, Section 503 of the Rehabilitation Act, and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act. Florida Hospital asserted it did not qualify as a federal contractor or subcontractor and OFCCP lacked jurisdiction. OFCCP initiated an action with the Department of Labor’s Office of Administrative Law Judges, which determined Florida Hospital was a federal subcontractor because it provided healthcare services for members of the military and their families pursuant to a contract it had with Humana Military Healthcare Services (HMHS), which in turn had a contract with TRICARE, the U.S. Department of Defense’s healthcare program. Florida Hospital appealed the decision to the ARB.  

While the case was pending before the ARB, President Obama signed into law the National Defense Authorization Action for Fiscal Year 2012 (NDAA). A provision of the NDAA provided that for purposes of determining whether an entity is a federal subcontractor, a TRICARE managed care support contract with a requirement to provide a network of healthcare providers may not be considered a contract for the performance of healthcare services. This provision was widely read to foreclose OFCCP jurisdiction over a healthcare provider based solely on its participation in TRICARE. Yet, even after the NDAA was passed, OFCCP continued to assert jurisdiction, making a very technical argument based on an alternative definition of “subcontract” in its regulations that it did not believe was covered by the NDAA provision.

OFCCP conceded it could not rely on the part of the subcontract definition that applies if “any portion of the contractor’s obligations under any one or more contracts is performed, undertaken, or assumed.” 41 C.F.R. § 60-1.3. OFCCP acknowledged that, because of the NDAA, the HMHS contract with TRICARE could not be construed as a contract to perform healthcare services. However, OFCCP argued that it could still rely on the alternative part of the subcontract definition that applies if an agreement to render services “is necessary to the performance of any one or more contracts.” Id. Under OFCCP’ s logic, Florida Hospital’s agreement was necessary for HMHS to provide networks of healthcare service providers under its contract with TRICARE, even if HMHS did not have a contract to perform healthcare services itself.

In its 19 October decision, a plurality of judges in the ARB case found that the NDAA exception for TRICARE contracts removed OFCCP’s jurisdiction over Florida Hospital under both prongs of the subcontract definition. Because the ARB decision was a plurality decision, in which several judges wrote separate opinions suggesting that an argument based on the alternate definition could be resurrected in a future case, the door on this issue may not be entirely shut. OFCCP recently asked the ARB to reconsider its decision, but the ARB has not acted on the request.

A similar case, involving whether another hospital is a covered subcontractor for different reasons, is currently pending in federal district court. In OFCCP v. UPMC Braddock, the ARB ruled that when a health benefits company offers an HMO health plan to federal employees through a contract with the Office of Personnel Management (OPM), a hospital that agrees to provide services through the HMO is a federal subcontractor. UPMC Braddock, ARB Case N0. 08-048 (2009). This case has been pending on motions for summary judgment since November 2010. UPMC Braddock v. OFCCP, No. 1:09-cv-01210 (D.D.C. filed June 30, 2009).