A Department of Labor Administrative Law Judge held in OFCCP v. Florida Hospital of Orlando, 2009-OFC-2 (Oct. 18, 2010) that a hospital that participated in and received more than $50,000 in reimbursement from the Department of Defense's TRICARE program was a federal government subcontractor and, as a result, was required to comply with the affirmative action regulations promulgated by the Department of Labor's Office of Federal Contract Compliance Program's.

TRICARE is the Department of Defense's program that pays for the medical benefits of active duty and retired military personnel and their families through contracts with large insurers or HMOs. In this case, TRICARE contracted with Humana Military Healthcare Services, Inc. (HMHS), one of the largest health insurance companies in the country, and HMHS then contracted with hospitals, such as Florida Hospital of Orlando, and other medical providers to provide medical care and supplies to military personnel and their family members covered by TRICARE.

In order to determine whether Florida Hospital was a federal government subcontractor, the ALJ considered:

1. whether the hospital's contract with HMHS under the TRICARE program was either necessary to the performance of HMHS's direct contract with TRICARE or required the hospital to perform any portion of HMHS's obligation under its direct contract with TRICARE and thus made the hospital's contract with TRICARE a federal subcontract; and
2. whether the Department of Defense's assertion that TRICARE payments to a hospital are federal financial assistance, which would not subject a hospital to OFCCP regulation, trumped the Department of Labor's opinion that the payments were a component of a contract for the provision of medical services.

The ALJ concluded that Florida Hospital was a federal subcontractor because it undertook the performance of part of HMHS's contractual obligation with the Department of Defense to provide healthcare. While acknowledging that federal financial assistance, such as payments by Medicaid or Medicare, did not subject a healthcare provider to OFCCP regulation, the ALJ also concluded that TRICARE payments were not federal financial assistance and thus Florida Hospital was subject to the OFCCP regulatory obligations applicable to federal contractors and subcontractors.

In reaching this conclusion, the ALJ distinguished this case from a prior decision in OFCCP v. Bridgeport Hopsital, ARB case No. 00-034 ( Feb. 4, 2003),  which held that Bridgeport Hospital was not a subcontractor despite the fact that it provided medical service to federal employees for which it received payments from Blue Cross/Blue Shield (Blue Cross) under Blue Cross’s contract with the federal Office of Personnel Management (OPM) to provide health insurance to such employees. The Blue Cross contract in Bridgeport Hospital was only for the provision of insurance, not medical services, the ALJ stated in Florida Hospital, whereas the TRICARE contract under which Florida Hospital was a subcontractor, was for the provision of medical services. In this regard, the ALJ analogized Florida Hospital to the hospitals in OFCCP v. UPMC Braddock, ARB Case No. 08-048 (May 29, 2009). In that case, UPMC Health Plan (UPMC), an HMO, had contracted with OPM to provide medical services to federal employees. The defendants were hospitals that had subcontracted with UPMC to provide medical products and services to federal employees. The Department of Labor’s Administrative Review Board (ARB) concluded that the hospitals were federal subcontractors because they subcontracted with UPMC to provide some of the medical services that UPMC, as an HMO, was required to provide and therefore they were performing a portion of the contractor’s obligations under its contract with OPM. Thus, the ARB held, they were required to comply with the OFCCP’s regulations. UPMC Braddock is on appeal to the U.S. District Court for the District of Columbia.

The consequences of a finding that a healthcare employer is a federal government subcontractor are significant. Compliance with OFCCP regulations will require the preparation of annual affirmative action plans for women and minorities, certain veteran categories, and individuals with disabilities; impose extensive and complicated record keeping obligations for applicants and hires; and require all non-executive vacancies being filled with external candidates to be listed with state workforce agencies, among other obligations. The OFCCP also conducts random compliance audits of covered government contractors, which often take years to complete.

This entry was written by Alissa Horvitz and Joshua Roffman.

Photo credit: Ed Brown