On July 22, 2013, the Administrative Review Board (ARB) of the Department of Labor (DOL) held that a network participation agreement entered into by Florida Hospital with Humana Military Health Services (HMHS) for the provision of health care services to TRICARE beneficiaries constitutes a federal subcontract and, therefore, the DOL’s Office of Federal Contract Compliance Programs (OFCCP) has jurisdiction over Florida Hospital to assess the hospital’s compliance with the affirmative action and equal employment opportunity requirements of the Federal Acquisition Regulations (FAR).  The issue of jurisdiction, however, is not yet settled.  To the extent that TRICARE payments constitute federal financial assistance, OFCCP’s jurisdiction would be barred.  The ARB concluded that the record was insufficient to render a decision on this issue and, therefore, remanded the case back to an Administrative Law Judge for further factual and legal findings.

The decision arises from a request for reconsideration by the OFCCP of the ARB’s October 19, 2012 decision in which it held that the Florida Hospital / HMHS agreement was not a federal subcontract.  Under applicable regulations, a “subcontract” includes any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship between employer and an employee):

Prong One: 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 contracts;

Prong Two: under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed.

In its prior decision, the ARB found that the Florida Hospital / HMHS agreement did not constitute a federal subcontract under prong two and could not independently qualify under prong one.

At issue on reconsideration was whether the two prongs of the regulatory definition of the term “subcontract” are necessarily tied, or whether each prong may stand alone as a basis for concluding that an agreement or arrangement constitutes a federal subcontract for purposes of determining OFCCP jurisdiction.  During the course of the proceedings, the OFCCP conceded that it did not have jurisdiction under prong two; however, it argued that prong one provides an independent basis for asserting that the agreement constitutes a federal subcontract.  The ARB, on reconsideration, agreed and proceeded to analyze the Florida Hospital / HMHS agreement under prong one alone.

The ARB’s analysis under prong one focused first on whether the health care services furnished by Florida Hospital constituted “nonpersonal services” purchased by HMHS.   The ARB determined that nonpersonal services are the type of services that are not subject to kind of supervision and control that usually exists between an employer and employee.  The key, therefore, to determining whether the Florida Hospital services were “nonpersonal” would depend on the “degree of control resulting from the terms of a service contract or the manner in which the contract is administered.”  Finding that neither HMHS nor TRICARE had any involvement, direction or control over the provision of health care services by Florida Hospital, the ARB concluded that such services were “nonpersonal services.”

The ARB then proceeded to conclude that Florida Hospital performed medical services that were essential to (i.e., necessary to the performance of) the prime HMHS / TRICARE contract because the provision of such services was clearly TRICARE’s goal in creating (through its contract with HMHS) an integrated health care delivery system.

Left unresolved for now is the issue of whether OFCCP jurisdiction is barred because the TRICARE payments received by Florida Hospital constitute federal financial assistance.  Important to the analysis, which will need to be developed on remand, are whether or not (1) the TRICARE programs, medical services, beneficiaries and corresponding federal funding source(s) relate to the medical services furnished by Florida Hospital; and (2) Congress intended TRICARE payments to be federal financial assistance.

A copy of the reconsideration decision is available here.