A LABOR AND EMPLOYMENT UPDATE: DOL RULES THAT HOSPITAL PARTICIPATING IN TRICARE IS A FEDERAL CONTRACTOR SUBJECT

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1 LABOR EMPLOYMENT e-alert October 2010 A LABOR AND EMPLOYMENT UPDATE: DOL RULES THAT HOSPITAL PARTICIPATING IN TRICARE IS A FEDERAL CONTRACTOR SUBJECT TO OFCCP JURISDICTION On this topic: Implications of the Ruling 2 Background 2 Florida Hospital Case 3 ast week, an Administrative Law Judge ( ALJ ) for the Department of Labor ( DOL ) issued a long-anticipated ruling addressing the issue of whether a health care provider s participation in TRICARE 1 rendered it a federal subcontractor subject to the Office of Federal Contract Compliance ( OFCCP ) jurisdiction. In upholding an earlier ruling, the ALJ held that a Florida hospital is a federal subcontractor because it participates in a health care provider network established by Humana Military Healthcare Services, Inc. ( HMHS ), which has a federal contract with the Department of Defense ( DOD ) to provide medical services to individuals eligible for TRICARE coverage. 1 TRICARE f/k/a Champus is the health care program of the United States Department of Defense that provides civilian health benefits for military personnel, military retirees, and their dependents, including some members of the Reserve Component. KANSAS CITY ST. LOUIS CHICAGO DENVER PHOENIX WASHINGTON DC NEW YORK WILMINGTON DE OVERLAND PARK ST. JOSEPH SPRINGFIELD JEFFERSON CITY TOPEKA EDWARDSVILLE

2 October 2010 Labor Employment Law e-alert Implications Of The Ruling Health care providers should immediately determine whether they have contracts with health care maintenance organizations, insurers or HMOs in which they have agreed to provide medical services (i.e., as a participating hospital, network member) to administer TRICARE. If so, the health care provider should have legal counsel evaluate the contracts to determine whether, and to what extent, the health care provider is required to comply with the extensive and arduous requirements of Executive Order 11246, Section 503 of the Rehabilitation Act and the Vietnam Era Veterans Readjustment Assistance Act of 1974 ( VEVRAA ). Background In 2003, an Administrative Review Board ( ARB ) issued a decision in OFCCP v. Bridgeport Hospital, 97-OFC-1, ARB Final Decision and Order (January 31, 2003). In Bridgeport, a health insurer had contracts with the office of Personnel Management (OPM) to provide reimbursement to federal employees for their medical care costs in exchange for premiums. The insurer contracted with a hospital (Bridgeport) to provide medical services. The OFCCP attempted to assert jurisdiction over the hospital on the grounds the hospital was a subcontractor because it was providing services that the insurer contracted with the federal government to provide. The Administrative Review Board ruled against the OFCCP finding it did not have jurisdiction over the hospital. The Board based its decision on the fact that the contract between the insurer and the hospital did not require the hospital to provide any of the actual products or services that the insurer contracted with the federal government to provide. In other words, the insurer agreed to provide reimbursement for covered services, but did not agree to provide or guarantee the services themselves. Until 2009, many hospitals relied on the Bridgeport decision to avoid the OFCCP s jurisdiction for providing medical services through TRICARE. In 2009, however, the ARB issued its opinion in OFCCP v. UPMC Braddock, 2007-OFC-00001, , , ARB Final Decision and Order (May 29, 2009). In this case, an HMO contracted with the Office of Personnel Management to provide medical services and supplies to federal employees in exchange for payment of premiums. The HMO then contracted with hospitals, including UPMC, for the hospital to provide those medical services and supplies. The Board reached a different result in UPMC because unlike in Bridgeport, the HMO had contracted with the federal government to provide medical services and then contracted with the hospital to provide that same obligation medical services. In contrast, the insurer in Bridgeport contracted with the federal government to provide reimbursement for medical expenses, but the insurer s contract with the hospital was for something else the provision of medical services. In of 6

3 October 2010 Labor Employment Law e-alert UPMC, the Board specifically distinguished Bridgeport and focused on the difference between insurers who contract for reimbursement for medical services and HMOs who contract for the actual medical services. Florida Hospital Case HMHS, a wholly owned subsidiary of Humana, contracted with TRICARE to provide networks of health care providers to active duty and retired US military service members, their survivors and their families. Under this contract, HMHS is required to establish provider networks through contractual arrangements. The Florida Hospital has a Hospital Agreement with HMHS whereby it agreed to become a Participating Hospital of HMHS and to provide health care services for beneficiaries designated as eligible to receive benefits under HMHS and TRICARE. HMHS paid the Florida Hospital over $100,000 or more annually for medical services that the Hospital provided directly to individuals who were beneficiaries of TRICARE. The Hospital Agreement between HMHS and the Florida Hospital neither indicates that the Hospital will be considered a federal subcontractor as a result of entering the agreement nor contains written provisions obligating the Hospital to comply with equal opportunity clauses under EO or section 503 of the Veterans Act. In 2007, the OFCCP sent the Florida Hospital an audit notice and required that it provide its written affirmative action plan and other materials required to be maintained by a federal subcontractor. The Florida Hospital objected on the grounds that the OFCCP did not have jurisdiction over it because the Hospital was not a federal contractor. The OFCCP filed an administrative complaint against the Florida Hospital. In the proceedings, TMA from the Department of Defense testified that it does not consider healthcare providers under network agreements with HMHS to be federal subcontractors. TMA s specific position to the OFCCP is that it would be impossible to achieve the TRICARE mission of providing affordable health care for our nation s active duty and retired military members and their families if onerous federal contracting rules were applied to more than 500,000 TRICARE providers in the United States ; and it was never the agency s intent to do so. 3 of 6

4 October 2010 Labor Employment Law e The Florida Hospital attempted to rely on a Bridgeport Hospital opinion rendered in 2003 by the DOL. The DOL had little trouble, however, distinguishing the facts of this case from Bridgeport. Specifically, the DOL found that in Bridgeport the contract at issue was between Blue Cross and Blue Shield and the Government to provide federal policy holders with health care insurance not to provide medical services. In contrast, HMHS contract with TMA is to provide medical services to TRICARE recipients. Accordingly, the DOL held in the current case it could not be clearer that [the Florida Hospital] is a subcontractor under HMHS contract with TMA because it performs a portion of the contractor s obligations by providing some of the medical services to TRICARE s beneficiaries which HMHS was contracted with the government to provide. The DOL also rejected the Florida Hospital s alternative argument that the OFCCP lacks jurisdiction because participation in TRICARE should be treated like federal financial assistance. The Florida Hospital argued that TRICARE and Medicare are essentially indistinguishable and receipt of neither should trigger affirmative action responsibilities. The DOL rejected this argument finding that Medicare is an insurance program and does not provide medical services to its beneficiaries it simply pays for such services. In contrast, TRICARE is the direct care system for all military beneficiaries. The DOL also noted that it is irrelevant that the Department of Defense does not consider the providers to be subcontractors because the Secretary of Labor s regulations implementing EO take precedence over contrary regulations and contractual provisions from other agencies. The DOL also noted that the fact the Florida Hospital was not specifically advised it was a federal contractor in the participation agreement is irrelevant because the duties are mandated by law. The OFCCP was determined to have jurisdiction over the Florida Hospital and the Hospital was ordered to grant OFCCP access to its facilities and to otherwise comply and participate in the compliance review. FOR MORE INFORMATION If you have any questions about this topic, contact: Monica Fanning, Labor and Employment mfanning@polsinelli.com Mary Beth Blake, Health Care mblake@polsinelli.com The Labor and Employment practice group will provide these e-alerts as developments warrant to keep you informed. Page 4 of 6

5 October 2010 Labor Employment Law e Labor and Employment Attorneys W. Terrence Kilroy Practice Area Chair tkilroy@polsinelli.com Anthony J. Romano Practice Area Vice-Chair aromano@polsinelli.com Carol C. Barnett cbarnett@polsinelli.com Andrea C. Bernica abernica@polsinelli.com Jon A. Bierman jbierman@polsinelli.com Jack L. Campbell jcampbell@polsinelli.com Jay M. Dade jdade@polsinelli.com Monica M. Fanning mfanning@polsinelli.com Sean R. Gallagher sgallagher@polsinelli.com Karen R. Glickstein kglickstein@polsinelli.com Mark B. Grebel mgrebel@polsinelli.com Elizabeth T. Gross egross@polsinelli.com Robert J. Hingula rhingula@polsinelli.com JoAnne Spears Jackson jjackson@polsinelli.com Jamie Zveitel Kwiatek jkwiatek@polsinelli.com Sang-yul Lee slee@polsinelli.com Gretchen E. Lipman glipman@polsinelli.com Eric E. Packel epackel@polsinelli.com Holly M Perkins hperkins@polsinelli.com Elisa B. Reinsmith ereinsmith@polsinelli.com William S. Robbins, Jr brobbins@polsinelli.com Erin D. Schilling eschilling@polsinelli.com James C. Sullivan jsullivan@polsinelli.com Christopher C. Swenson cswenson@polsinelli.com Michael H. Talboy mtalboy@polsinelli.com Eric M. Trelz etrelz@polsinelli.com Judy Yi jyi@polsinelli.com Brian J. Zickefoose bzickefoose@polsinelli.com About Polsinelli Shughart s Labor and Employment Group Employers, whether large or small, face an ever-growing web of workplace regulations and potential entanglements with employees. At Polsinelli Shughart PC, our Labor and Employment attorneys understand the complexity and sensitivity of employee relations and workplace issues. As exclusively management counsel, our attorneys have extensive experience providing employers with cost-efficient advice and aggressive defenses on employment and labor law matters. We have represented Fortune 500 corporations and locally owned entrepreneurial firms. We have a broad range of experience, ranging from Affirmative Action to Wage and Hour issues, through Labor Relations and Union Avoidance. With employment litigation and advocacy experience as our strength, preventing legal problems from arising is our goal. We provide practical advice based upon the law and a careful analysis of your employment policies and business philosophy. Our attorneys can often anticipate problems and assist to avoid potential litigation. To learn more about our services, visit us online at Page 5 of 6

6 October 2010 Labor Employment Law e If you know of anyone who you believe would like to receive our updates, or if you would like to be removed from our e-distribution list, please contact Therese O Shea via at toshea@polsinelli.com. Polsinelli Shughart PC provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship. Polsinelli Shughart is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements. Polsinelli Shughart is a registered trademark of Polsinelli Shughart PC. About Polsinelli Shughart PC With more than 500 attorneys, Polsinelli Shughart PC ( is a national law firm that is a recognized leader in the areas of business law, financial services, real estate and business litigation. Serving corporate, institutional and individual clients, Polsinelli Shughart is redefining the business of law by sharing ideas, goals and outcomes with its clients. The firm builds enduring relationships by creating value beyond legal services with passion, ingenuity and a sense of urgency. The firm has offices located in Kansas City; St. Louis; Phoenix; Chicago; Denver; Washington, D.C.; New York; Wilmington; Overland Park; St. Joseph; Springfield; Jefferson City; Topeka and Edwardsville. Page 6 of 6