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U.S. Department of Labor Administrative Review Board Rules that OFCCP Lacks Jurisdiction Over Hospital that Is a TRICARE Network Provider
November 14, 2012
After four years of litigation, the U.S. Department of Labor Administrative Review Board (ARB) issued its decision in OFCCP v. Florida Hospital of Orlando. In this much anticipated decision, the ARB reversed the decision of the Administrative Law Judge (ALJ) for the Office of Federal Contract Compliance Programs (OFCCP) and ruled that the OFCCP lacked jurisdiction over Florida Hospital on the basis of its TRICARE network provider agreement. This favorable decision has potential significance for TRICARE network providers across the nation.
Background of the Case
This case arose in connection with the OFCCP's efforts to assert jurisdiction for the first time over health care providers based solely on their agreement to serve as TRICARE network providers. The case began in 2007, when the OFCCP initiated a review of Florida Hospital to determine compliance with various federal laws, such as Executive Order 11246, which require nondiscrimination and affirmative action in employment by federal contractors and subcontractors. The OFCCP alleged that Florida Hospital was a federal subcontractor subject to OFCCP jurisdiction based on the Hospital's participation in a TRICARE provider network pursuant to an agreement with Humana Military Health Services (HMHS), a federal contractor that contracts with TRICARE Management Activity, a U.S. Department of Defense field activity, to provide administrative support to the TRICARE program.
Based upon the OFCCP's lack of jurisdiction, Florida Hospital refused to participate in the OFCCP's review, and in December 2008, the OFCCP filed an administrative complaint against Florida Hospital.
Federal Subcontract Definition
Under OFCCP regulations, a "subcontract" is "any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of an employer and an 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 obligations under any one or more contracts is performed or undertaken or assumed." These two parts of the subcontract definition have become known as "prong 1" and "prong 2."
Decision of the ALJ
In October 2010, the ALJ issued a Summary Decision and Order in favor of the OFCCP finding that Florida Hospital was a federal subcontractor subject to OFCCP jurisdiction pursuant to prong 2 of the subcontract definition because Florida Hospital performed a portion of HMHS' obligations under its contract with the federal government. Specifically, the ALJ determined that HMHS was obligated to provide health care services to TRICARE beneficiaries and that Florida Hospital performed those obligations pursuant to the agreement between HMHS and Florida Hospital. Although the OFCCP and the ALJ acknowledged that federal financial assistance is not a federal contract, the ALJ summarily dismissed Florida Hospital's additional argument that TRICARE is a federal financial assistance program. Florida Hospital timely filed exceptions to the ALJ's decision with the ARB.
Section 715 of the NDAA
On December 31, 2011, while Florida Hospital's appeal was pending before the ARB, President Obama signed into law the National Defense Authorization Act for Fiscal Year 2012 (NDAA), which, among other things, authorized appropriations for military activities of the Department of Defense. Included in the NDAA was Section 715, entitled "Maintenance of the Adequacy of Provider Networks Under the TRICARE Program," which amended the TRICARE law. On January 9, 2012, Florida Hospital filed a motion to dismiss with the ARB, arguing that Section 715 precluded OFCCP jurisdiction over TRICARE network providers and rendered the pending case moot.
The ARB's Decision
The decision by the five-member ARB included a plurality opinion by two of the judges, and three concurring and dissenting opinions. All of the judges agreed that the ALJ's decision should be reversed because Section 715 precluded OFCCP jurisdiction under prong 2 of the subcontract definition; three judges concluded that the case should be dismissed.
The two judges who joined in the plurality opinion ruled that Section 715 of the NDAA precluded OFCCP jurisdiction over TRICARE network providers, like Florida Hospital, because it removed the network provider agreements from the definition of subcontract under both prongs. While not agreeing that Section 715 precluded jurisdiction based upon prong 1, the third judge refused to consider the OFCCP's prong 1 argument since it was raised for the first time on appeal. As a result, all three judges agreed that the ALJ's ruling must be reversed and the case dismissed. The other two concurring/dissenting judges would have allowed the ARB to address the OFCCP's prong 1 arguments.
In view of the dismissal, the ARB did not substantively address Florida Hospital's argument that the OFCCP lacks jurisdiction over Florida Hospital because TRICARE is a federal financial assistance program, not a federal subcontract. Although the plurality was silent, the three concurring/dissenting judges chose to admonish the ALJ for his cursory dismissal of Florida Hospital's argument without an appropriate and proper legal analysis.
The ARB's decision dismissing this case positively impacts TRICARE network providers nation-wide. As the OFCCP evaluates its next steps, the OFCCP is likely considering not only the judges' divergent opinions in this case, but the overriding question whether TRICARE is federal financial assistance barring jurisdiction by the OFCCP. Bracewell & Giuliani will continue to follow the OFCCP in its steadfast efforts to expand its jurisdiction beyond health care providers with direct federal contracts.