Hospitals That Participate in TRICARE No Longer Considered Federal Subcontractors Simply by Participation in TRICARE Network

April 2012Newsletters Staying Well Within the Law

Although the holiday season may be over, hospitals and other healthcare providers received a belated but generous gift from the federal government on Dec. 31, 2011, when President Obama signed The National Defense Authorization Act (NDAA)1 into law. The enactment of the NDAA is significant to all hospitals because Section 715 of the law provides that a federal subcontractor relationship will not be created merely because of one’s participation in a TRICARE2 provider network. Specifically, Section 715 of the NDAA provides:

For the purpose of determining whether network providers under such provider network agreements are subcontractors for purposes of the Federal Acquisition Regulation or any other law, a TRICARE managed care support contract that includes the requirement to establish, manage, or maintain a network of providers may not be considered to be a contract for the performance of health care services or supplies on the basis of such requirement.

This provision ostensibly overturns the U.S. Department of Labor’s Office of Federal Contract Compliance Programs’ (OFCCP)3 recent attempts to assert jurisdiction over hospitals that have entered into TRICARE network provider support contractsI4 even if they have not contracted directly with the federal government or have attempted to avoid OFCCP jurisdiction through explicit contract language. Importantly, the NDAA seemingly makes clear that a hospital that enters into a support contract is not a federal subcontractor for purposes of the Federal Acquisition Regulations or “any other law.” The importance of the phrase “or any other law” cannot be overstated because the OFCCP has taken the position that hospitals are “federal subcontractors” due to their participation in TRICARE and thus are subject to the myriad of EEO and affirmative action statutes and regulations that it enforces. Based on this alleged jurisdiction, the OFCCP has notified hundreds of hospitals that they must submit a written affirmative action plan and supporting documents or risk being audited and fined.

Where hospitals have challenged the OFCCP’s assertion, they have often been subjected to OFCCP enforcement actions as in OFCCP v. Florida Hospital of Orlando, 2009-OFC-00002 (Oct. 18, 2010). There, the OFCCP asserted that Florida Hospital was a covered subcontractor, in part, because it had contracted with Humana Military Healthcare Services (Humana) to be a network provider for TRICARE beneficiaries. Humana had contracted with the U.S. Department of Defense to provide medical services to TRICARE beneficiaries. In ruling in favor of the OFCCP, the Department of Labor’s Administrative Law Judge reasoned that Florida Hospital had assumed some of Humana’s responsibility to provide healthcare services to TRICARE beneficiaries and thus was a federal subcontractor subject to OFCCP jurisdiction.

Accordingly, Section 715 of the NDAA appears to overturn the Florida Hospital decision because the OFCCP can no longer assert that Florida Hospital is a federal subcontractor simply due to its TRICARE participation. This is a welcomed gift indeed not only for Florida Hospital, but also for all similarly situated hospitals.

However, notwithstanding the passage of Section 715 of the NDAA, there are many other ways in which a healthcare provider can become a federal subcontractor and thus subject to the OFCCP’s jurisdiction.

In fact, despite the plain language of the legislation, the OFCCP has not conceded that it no longer has jurisdiction over healthcare providers under TRICARE. Director of the OFCCP Patricia Shiu has publicly stated, “Section 715 of the NDAA seeks to exempt certain TRICARE providers from complying with civil rights laws that – for nearly a half a century – have prohibited employment discrimination and ensured affirmative action for vulnerableworkers. Our commitment to enforcing those laws is unwavering. This isn’t over yet.”5 As such, while the NDAA is a positive development regarding TRICARE, issues still remain as Section 715 only refers to TRICARE contractors and does not address contracts that hospitals enter into with administrators of other healthcare programs, such as the Federal Employees Health Benefits Program or Medicare Parts C and D.

Thus, all hospitals should immediately take proactive steps to ensure they are in compliance with any applicable affirmative action obligations in light of the OFCCP’s unwavering desire to assert jurisdiction over the healthcare industry. Specifically, hospitals should determine whether their contracts with the federal government or federal contractors could result in them being deemed federal contractors or subcontractors and thus subject to OFCCP jurisdiction. Failing to do so could result in a hospital unnecessarily incurring monetary penalties and/or having to engage in costly and time-consuming litigation with the OFCCP.

For more information about this topic, please contact Kenneth A. Rosenberg.

This article previously appeared in Becker’s Hospital Review and is reprinted here with permission.

  1. The National Defense Authorization Act for Fiscal Year 2012, Pub. Law No. 112-81 (December 31, 2011) is more than 1,200 pages in length and covers a multitude of legislative topics.
  2. TRICARE is the federal healthcare program serving active-duty military service members, members of the National Guard and Reserve, military retirees and their families. TRICARE is administered by TRICARE Management Activity, a program of the U.S. Department of Defense. TRICARE includes insurance and supplemental insurance, direct healthcare services, managed/coordinated care and special needs plans.
  3. The OFCCP is the governmental agency responsible for enforcing the federal affirmative action and equal employment opportunity obligations mandated by: (i) Executive Order 11246, (ii) Section 503 of the Rehabilitation Act of 1973, and (iii) the Vietnam Era Veteran’s Readjustment Assistance Act of 1974. See Exec. Order No. 11,246, 3 F.F.R.330 (1964-1965), reprinted in 42 U.S.C. § 2000e app. at 28-31 (1982); The Rehabilitation Act of 1973, Pub. L. No. 93-112, 87 Stat. 355 (codified as amended at 29 U.S.C. § 793 (1988)); Vietnam Era Veteran’s Readjustment Assistance Act of 1974, 38 U.S.C. §§ 4211-4215 (2002), as amended.
  4. Over the past year, the OFCCP has taken an expansive position regarding its authority over healthcare providers based on contracts for services under the TRICARE program and other relationships with the federal government. This aggressive stance was buttressed by Executive Order 11246. Pursuant to the Order and related statutes, an entity such as a hospital can be deemed a “federal contractor” or “subcontractor” not only for having a direct arrangement or contract with the United States government, but also where it enters into a subcontract with a United States government contractor.
  5. Jay-Anne B. Casuga, Shiu Says OFCCP Will Assess Its Policies In Light of Subcontractor Provision in NDAA, BNA Daily Labor Report, 245 DLR A-11, Dec. 21, 2011.