DOL ARB Rules for Tricare Providers, But OFCCP Appeals

First some background --- As we first reported in an Alert dated August 4, 2011, an ALJ ruled in favor of OFCCP and concluded that Orlando Hospital is a federal “subcontractor” subject to OFCCP audit and enforcement actions in OFCCP v. Florida Hospital of Orlando, ALJ [Case No. 2009-OFC-0002]. But that was before President Obama signed the National Defense Authorization Act (NDAA) in to law on December 31, 2011 (see Alert dated January 11, 2012). As noted in that Alert, Section 715 of the NDAA exempts TRICARE providers from coverage as federal contractors (see link below).


TRICARE is the healthcare program that covers active duty soldiers, retired veterans, as well as their families. ALJ Jeffrey Tureck found that Florida Hospital was a subcontractor subject to OFCCP jurisdiction because it was “performing, assuming or undertaking” part of Humana’s prime contract with TRICARE beneficiaries (see link below)


Previously, (in December, 2010) OFCCP Directive 293 stated “certain” arrangements with TRICARE constituted government contracts subject to OFCCP jurisdiction. The Directive also provided guidance for assessing when healthcare providers and insurers were federal contractors or subcontractors.


The NDAA seemed to reverse both ALJ Tureck’s ruling as well as Directive 293 based on plain language in Section 715. Accordingly:

[F]or 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 [e.g. federal contractors subject to OFCCP jurisdiction], 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.”


And now for the updates --- The headline reads that on October 19, 2012, a DOL ARB panel ruled, based on the NDAA, that Florida Hospital is not a subcontractor, but let’s examine this more closely. The 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 an employer and an employee)”, and uses two prongs to defines subcontractor (

(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.

In the October 19 ruling, two of the five judges on the ARB panel found that the NDAA removes OFCCP control over Florida Hospital under both prongs. The other three judges agreed as relates to Prong 2, but not Prong 1. Indeed, two of these judges ruled that the OFCCP still has jurisdiction based on Prong 1 and the third judge ruled that the Prong 1 issue was not properly before the panel. Thus, it was 5-0 that OFCCP lacks control under Prong 2, but 2-2 with one abstention on whether it still has control based on Prong 1.


Fast forward now to November 13, 2012 --- the OFCCP is now appealing the October 19 ruling arguing that the NDAA does not impair its control of Florida Hospital under Prong 2. And so, the drama continues. Stay tuned.


by Art Gutman Ph.D., Professor, Florida Institute of Technology

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