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TRICARE contracts can bring affirmative action requirements
Ruling: TRICARE contracts can subject hospitals to affirmative action
In this economy, every health care provider wants to say yes to a managed care contract that promises more revenue. A recent court ruling, however, shows that the money may come with strings attached.
A Labor Department Administrative Law Judge (ALJ) has found that a Florida hospital's TRICARE contracts trigger affirmative action obligations under federal law, handing down a ruling that is sending risk managers scrambling. This means that hospitals that are not otherwise required to have an affirmative action obligation must now develop one if they have a TRICARE contract.
The ruling came in OFCCP v. Florida Hospital of Orlando, DOL OALJ, No. 2009-OFC-00002. The ALJ upheld the position of the Office of Federal Contract Compliance Programs (OFCCP) that the hospital was a government subcontractor, explains Stephanie Dodge Gournis, JD, a partner with the law firm of Drinker Biddle in Chicago.
The case involves TRICARE, a federal health care program for active and retired military personnel that contracts with both health care providers and regional administrators to provide health care services to TRICARE participants, and Florida Hospital of Orlando, an acute care hospital that provides health care services to TRICARE participants through a care network managed by Humana Military Health Services (HMHS).
"This case is very significant to health care providers, because it provides us a definitive conclusion by an administrative law judge saying that, yes, this is sufficient to trigger affirmative action coverage," Gournis says. "It changes the landscape pretty significantly for a lot of health care employers, because they have historically, largely believed they were exempt."
After the ruling, the OFCCP began contacting health care providers to assert that TRICARE contracts subject them to affirmative action and non-discrimination obligations, Gournis says.
"Hospitals, skilled nursing facilities, residential or special treatment centers, or other health care providers should conduct an immediate review of contracts and consult with legal counsel to determine whether they may now be deemed federal contractors or subcontractors under federal law," Gournis says. "If qualifying contracts are discovered, employers should consult their attorneys as soon as possible to begin building affirmative action plans and complying with other affirmative action obligations."
Gournis says the need for action is particularly acute given the OFCCP's recent increase in funding and hiring of scores of new compliance officers, along with the Department of Labor's focus on health care.
"The case is under appeal; but I don't think health care providers should wait to assess their liability under this case, because I don't think the appeal is going to come out in the hospital's favor," she says.
If the health care provider is only providing services pursuant to a subcontract for insurance, it might still fall into a very narrow exception spelled out in earlier rulings, Gournis says, but that will be the rare exception. More than 500,000 health care providers with TRICARE contracts are probably going to be providing medical services pursuant to a contract for providing medical services, which will make them subject to the affirmative action requirements, Gournis says.
Hospital had no federal contracts
The ruling clarifies the long debated and little understood issue of what constitutes a federal subcontract in the health care industry for affirmative action purposes, Gournis says. Florida Hospital has no direct federal contracts, so its leaders did not think it had to have an affirmative action program. It does receive more than $100,000 annually in federal reimbursement pursuant to a managed care contract between HMHS and TRICARE, however. That led to the dispute that eventually resulted in the ruling.
Florida Hospital disagreed with the results of a 2007 audit, saying OFCCP had no jurisdiction, because its TRICARE agreements were neither federal contracts nor subcontracts under federal law. The OFCCP insisted they were and initiated compliance proceedings against the hospital when it refused to hand over its affirmative action compliance plan.
"The ALJ determined Florida Hospital was a covered subcontractor, because it provided medical services to TRICARE's beneficiaries, and these services were necessary to the performance of TRICARE's contract with HMHS," Gournis says. "The ALJ found irrelevant the fact that Florida Hospital's agreement with HMHS contained no indication that the hospital would be deemed a federal subcontractor."
The ALJ also ignored TRICARE's assertion that it never intended for Florida Hospital to be a federal subcontractor, she says. It also rejected Florida Hospital's argument that TRICARE was the functional equivalent of Medicare, which the OFCCP has consistently deemed to be a "grant" and not a federal contract. Consequently, health care providers receiving only Medicare and Medicaid reimbursements have not been subject to federal contractor obligations.
The ALJ distinguished Medicare by stating TRICARE "brings together the health care resources of the uniformed services and supplements them with networks of civilian health care professionals . . ." and is a "totally different program" from Medicare.
Law has been unclear
The recent ruling changes the scene only for hospitals that have a TRICARE contract amounting to at least $50,000 in revenue and which do not have another federal contract, says Kendra M. Allaband, JD, an attorney with the law firm of Drinker Biddle in Chicago. Prior to the Florida Hospital of Orlando decision, case law was not altogether clear on TRICARE contracts, she says. In 2003, the Administrative Review Board issued a decision in OFCCP v. Bridgeport Hospital, ARB No. 00-034, 2003 WL 244810 (Jan. 31, 2003), which led the health care community to believe that providing health care for government employees would not trigger affirmative action obligations, she says.
In that case, Bridgeport Hospital had an agreement with Blue Cross/Blue Shield (BCBS) to provide medical services to persons eligible to receive health care benefits under any BCBS plan. This agreement provided for preferred rates at the hospital for all BCBS members. BCBS contracted with the U.S. Office of Personnel Management (OPM) to provide federal employees with health insurance, and Bridgeport Hospital received over $300,000 in payments from BCBS for services provided to federal employees and their dependents.
"The OFCCP argued that, by providing services to federal employees and their dependents, Bridgeport Hospital was providing a service necessary to the effectuation of BCBS's federal contract and that the hospital was therefore a subcontractor," Allaband says. "The Administrative Review Board disagreed and found that BCBS actually provided insurance not medical services. Therefore, Bridgeport Hospital was not deemed a covered subcontractor."
Six years after the Bridgeport Hospital decision, the Administrative Review Board substantially narrowed the effect of that holding, Allaband says. In OFCCP v. UPMC Braddock, ARB Case No. 08-048 (May 29, 2009), the University of Pittsburgh Medical Center (UPMC) had an HMO contract with the University of Pittsburgh Medical Center Health Plan to provide medical products and services to government employees pursuant to a contract between the Health Plan and OPM. This opinion stated that, unlike BCBS, the UPMC Health Plan was more than an insurer it was an HMO, Allaband says. By its nature, an HMO arranges and provides for medical services through providers such as UPMC. UPMC was therefore found to be a federal subcontractor.
The holdings of Bridgeport Hospital and UPMC Braddock were difficult to reconcile and left the health care community with little guidance on which types of agreements would subject providers to affirmative action requirements, Allaband says. The OFCCP and the Florida Hospital of Orlando case clarify that more health care providers are subject to the requirements.
"This ruling serves as a wakeup call for risk managers and compliance officers that they really need to initiate a review and audit of their compliance standards and procedures," Allaband says. "Too often, we find that health care employers lack a really consistent standard of practice for tracking federal contracts and don't even recognize whether they have federal contracts or not. The risk manager or compliance officer should have a strong working knowledge of the OFCCP compliance standards and what constitutes a federal contract, and they should work with legal counsel on an ongoing basis [regarding] what obligations arise as a result of those contracts."
Kendra M. Allaband, JD, Drinker Biddle, Chicago. Telephone: (312) 569-1328. E-mail: Kendra.firstname.lastname@example.org.
Stephanie Dodge Gournis, JD, Partner, Drinker Biddle, Chicago. Telephone: (312) 569-1327. E-mail: Stephanie.email@example.com.