Hospital Jurisdiction Revisited—ARB Finds Florida Hospital Is Subject to OFCCP Jurisdiction

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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In another chapter in the long-running saga of Florida Hospital of Orlando and the Office of Federal Contract Compliance Programs (OFCCP), the U.S. Department of Labor’s Administrative Review Board (ARB) recently released an en banc opinion deciding an issue concerning the agency’s jurisdiction. The ARB held, by a three-to-two vote, that Florida Hospital of Orlando is subject to OFCCP jurisdiction under the firstprong of the agency’s definition of a subcontractor. OFCCP v. Florida Hospital of Orlando, ARB No. 11-011, ALJ No. 2009-OFC-2 (ARB July 22, 2013).

Although this is a significant victory for OFCCP in its long campaign to assert jurisdiction over health care providers, it is not likely to be the end of the story. New appeals of this controversial ruling could extend the battle for years to come. Also, the case has been remanded to an administrative law judge for further proceedings on the key issue of whether the TRICARE payments at issue are actually federal financial assistance and thus not subject to OFCCP’s jurisdiction. (TRICARE is a health care program of the U.S. Department of Defense, which pays for the medical benefits of active duty and retired military personnel and their families.) In light of this uncertainty, health care providers should continue to carefully consider any decision to enter into an arrangement with TRICARE.

Background

OFCCP regulations define a subcontract as:

any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of the employer and employee):

  1. 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; or
  2. Under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed.

For many years, OFCCP has vigorously pursued jurisdiction over health care providers that participate in the TRICARE program. The story began when OFCCP scheduled a compliance review on October 14, 2007. Florida Hospital declined to participate and OFCCP initiated enforcement actions in 2008. Taking a “whatever theory works” approach, OFCCP made alternative arguments in multiple proceedings before the ARB. The agency argued that either the hospital’s contract with Humana Military Health System (HMHS) under TRICARE was a federal subcontract because the contract was necessary for the performance of HMHS’s direct contract with TRICARE (thus satisfying prong one of the subcontract definition) or that the hospital’s contract with HMHS required the hospital to perform a portion of HMHS’s obligation under its direct contract with TRICARE (thereby satisfying prong two of the subcontract definition).

Many observers thought that the issue was laid to rest in December of 2011 when President Obama signed the National Defense Authorization Act (NDAA) for fiscal year 2012. Section 715 of the NDAA states that TRICARE-managed care contracts that include the requirement to “establish, manage, or maintain” a provider network may “not be considered”  contracts for the performance of health care services or supplies for determining whether such entities are subcontractors for the purposes of Federal Acquisition Regulations “or any other law.”

This conclusion was reinforced when a divided ARB panel subsequently ruled in favor of the hospital based on Section 715. ARB Case No. 11-011 (October 19, 2012). The ARB determined that Florida Hospital’s agreement with HMHS fit the regulatory exemption in the NDAA.  However, commentators noted that separate opinions by three of the administrative law judges suggested that OFCCP might still be able to assert jurisdiction under prong one of the subcontract definition.

In the most recent ARB decision, the majority easily determined that Florida Hospital provides “… nonpersonal services necessary to the performance of the HMHS contract” and is thus subject to prong one OFCCP jurisdiction. In reaching this conclusion, the ARB stated:

providing medical services is clearly TRICARE’s goal, and HMHS’s role as an intermediary is an essential means to that goal. Indeed, it is hard to understand how HMHS could fulfill its contract to create an integrated health delivery system without the services from network providers like Florida Hospital.

Nonetheless, the ARB remains deeply divided, with two dissenting judges arguing that Section 715 plainly precludes both prong one and prong two jurisdiction over Florida Hospital.

In a move that may benefit Florida Hospital, the new decision leaves open the question of whether TRICARE payments might be considered federal financial assistance. Historically, OFCCP has conceded that entities receiving federal financial assistance, as opposed to federal contracts and subcontracts, are not subject to OFCCP’s jurisdiction. Although Florida Hospital has not prevailed on this argument, it has repeatedly taken the position that TRICARE constitutes federal financial assistance similar to Medicare parts A and B and is thus not a government contract. Whether TRICARE is a federal financial assistance program, the ARB found, requires further inquiry into Congress’s legislative intent. The ARB remanded the case to an administrative law judge for further findings and legal arguments on the issue of congressional intent and for determination of the issue of federal financial assistance.

Conclusion

Time will tell whether OFCCP will refrain from scheduling compliance reviews based on TRICARE participation or whether it will renew its enforcement efforts. When faced with a scheduling letter, health care providers should promptly seek guidance and carefully consider whether to participate in the audit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

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