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Increasing Coverage by OFCCP – Hospital That Agreed to be TRICARE Network Provider Found to be Federal Contractor

Health Law Alert Pamela M. Ploor, Ely A. Leichtling

The Office of Federal Contract Compliance Programs (known as "OFCCP") is a federal government agency that enforces equal employment opportunity and affirmative action laws that apply to companies that sell products and services to the federal government. The OFCCP is widely reported to be assessing its key enforcement tools and looking for ways to more effectively enforce those laws. Hospitals have been in the crosshairs of OFCCP. A recent decision by a judge in the Department of Labor ("DOL") held that participation in the TRICARE referral network makes a hospital a federal subcontractor. The decision to pursue this case to litigation demonstrates OFCCP's efforts to exercise jurisdiction over health care entities.

In OFCCP v. Florida Hospital of Orlando, TRICARE, the Department of Defense's ("DOD") worldwide health care program for active duty and retired military and their families, contracted with Humana Military Healthcare Services, Inc. ("HMHS") to provide networks of health care providers. 2009-OFC-02 (10/18/2010). Florida Hospital of Orlando ("Hospital") had a hospital agreement with HMHS to become a participating hospital and provide health care services for covered persons under the HMHS-TRICARE agreement. The Hospital received more than $100,000 per year from HMHS for medical services provided as a network member directly to individuals who were beneficiaries of TRICARE.

In August 2007, OFCCP tried to audit the Hospital, which objected. The OFCCP filed an administrative complaint against the Hospital before an administrative law judge of the DOL. The Hospital countered that it did not enter into any covered subcontract, and its participation in TRICARE was nothing more than the receipt of federal financial assistance, like Medicare. The receipt of federal financial assistance does not create OFCCP coverage.

The DOL's Office of Administrative Law Judges ("ALJ") held the Hospital was a subcontractor because it performed a portion of HMHS' obligations under HMHS' contract with DOD by providing some medical services to TRICARE's beneficiaries that HMHS contracted to provide. The opinion does not directly address whether receipt of TRICARE reimbursement alone is a basis for coverage as a federal contractor. The ALJ rejected the Hospital's argument that TRICARE and Medicare are indistinguishable. He held that Medicare is an insurance program and provides no medical services to beneficiaries.

He found TRICARE to be a program to optimize the delivery of health care services and benefits through the military's own health care resources combined with its provider network, not just insurance to pay for those benefits, and thus was distinguishable from Medicare. The judge's analysis was based on the existence of a contractual relationship, however. He recited OFCCP's policy statement that "a hospital or other health care provider may be a covered contractor because of other contractual arrangements, such as providing health care to active or retired military under a contract with the Department of Veterans' Affairs or the Department of Defense." 2009-OFC-02, p. 6. An appeal by the Hospital is expected because, among other things, the ALJ reached his conclusion even though DOD has itself designated TRICARE as a federal financial assistance program.

When a hospital has not entered into any agreement with the federal government or a TRICARE administrator, such as HMHS, to be a member of the TRICARE network and simply provides treatment to a person covered under TRICARE, a strong argument exists that there is no coverage by OFCCP.

This case is the latest example of OFCCP's push into coverage of the health care arena. We have seen the OFCCP during recent compliance reviews assert that hospitals are federal contractors based on nothing more than the receipt of TRICARE reimbursement - even when no written agreement exists with the federal government, with TRICARE or with one of its network administrators such as HMHS. In such a situation, the hospital needs to decide whether to contest jurisdiction or allow the compliance review to proceed.

Florida Hospital of Orlando is important because being a covered subcontractor results in a hospital's having to comply with the obligations of being a federal contractor. One of the obligations is to prepare written affirmative action plans if the contract is above a certain amount, which starts at $50,000. Those plans are subject to audit by OFCCP. The compliance obligations and recordkeeping burdens are steep for federal contractors, as is the potential back pay obligation if, as a result of a compliance review, the contractor is found to have discriminated in its hiring, promotion, termination or compensation practices.

Recommendations for Health Care Entities

Health care entities need to re-assess their direct and indirect agreements with the federal government and any related entities, like TRICARE, the Veterans Administration, Bureau of Indian Affairs and the like. Health care entities often wrongly conclude they are not covered contractors, when they are. Health care entities need to take a hard look at their relationships, and then decide whether they intend to come into compliance or plan to object to OFCCP jurisdiction, if they are audited. Like all contractors, they also need to assess their annual EEO-1 reports for accuracy and their corporate organizational structure.

Health care entities that plan to comply need to allocate resources to compliance. Becoming a contractor almost always requires revision of an employer's employment process and recordkeeping practices as well as additional training of managers. The problem is not solved by copying a form plan and keeping it on the shelf. Because OFCCP is an agency undergoing transformative change, it is critical that health care entities develop a strategy and work to implement it with experienced team members who can guide them to the best decision.

If you have any questions about OFCCP v. Florida Hospital of Orlando or OFCCP in general, please contact Pam Ploor at (414) 277-5661 /, Ely Leichtling at (414) 277-5681 /, Adrianne Mazura at (312) 715-5213 / or your Quarles & Brady attorney.