As outlined in several client alerts over the past four years, the Office of Federal Contract Compliance Programs (“OFCCP”) has pursued jurisdiction over health care providers that receive more than $50,000 in reimbursements from the Department of Defense’s TRICARE program. Recently, a divided Department of Labor (“DOL”) Administrative Review Board (“ARB”) agreed to reconsider a split ruling that dismissed a complaint for lack of jurisdiction. The complaint was brought by the OFCCP against Florida Hospital because it was a TRICARE network provider that did not have an affirmative action plan. (OFCCP v. Fla. Hosp. of Orlando, DOL ARB, No. 11-011, 7/22/13 [released 7/29/13]).

In October 2012, a two-judge plurality found that Section 715 of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2012 removed the OFCCP’s jurisdiction over Florida Hospital of Orlando under both prongs of the agency’s definition of a “subcontract” (205 DLR AA-1, 10/23/12).  

The OFCCP disagreed with the ruling and argued that Section 715 of the NDAA removed OFCCP’s jurisdiction over “subcontracts” based on only the second prong of the definition of the term and did not bar it from asserting jurisdiction over “subcontracts” based on the first prong of the definition of the term. The OFCCP regulations at 41 C.F.R. § 60-1.3 define “subcontract” as an agreement 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” (prong one), or “under which any portion of the contractor’s obligation under any one or more contracts is performed or undertaken or assumed” (prong two).

In the July 2013 ARB decision, a three-judge majority agreed with the OFFCP and held that Congress enacted Section 715 only to divest the OFCCP of its “prong two” jurisdiction over TRICARE participants. However, the judges could not agree with the ruling by an administrative law judge (“ALJ”) that TRICARE payments were not federal financial assistance and that recipients of the payments were subject to the same regulatory obligations (i.e. affirmative action plans) as federal contractors and subcontractors. Accordingly, the ARB sent the matter to the ALJ to obtain more information on the issue of federal financial assistance.

Based on the tenacity of the OFCCP, it appears that it will be several more years before the issue of the OFCCP’s jurisdiction over TRICARE participants is resolved. Therefore, the possibility still exists for the OFCCP audits of healthcare providers that receive more than $50,000 in TRICARE reimbursements. We will continue to monitor this case and report on future developments as they occur.

Members of the Labor and Employment practice group routinely assist client with affirmative action plans. If you have any questions regarding this issue, be sure to contact your employment counsel at Smith, Gambrell & Russell, LLP.