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In a surprising reversal, the Department of Labor's Administrative Review Board has ruled that the Office of Federal Contract Compliance Programs does have jurisdiction over health care providers who participate in a TRICARE network.

This is the latest development in a continuing saga we have reported on before. First, when Florida Hospital of Orlando contested the OFCCP's jurisdiction, an Administrative Law Judge held that it had subcontracted to provide medical services to TRICARE beneficiaries and was therefore a federal subcontractor subject to the affirmative action laws.

Florida Hospital appealed that decision to the federal Administrative Review Board. While that appeal was pending, Congress passed the National Defense Authorization Act, which seemed to support the Hospital's position:

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.

(Emphasis added.)

Given this congressional action, it was not surprising that, on October 19, 2012, the ARB rejected the OFCCP's argument that it had jurisdiction over Florida Hospital.

The OFCCP was not so easily deterred, and petitioned the ARB to reconsider its decision. On July 22, 2012, the ARB both granted the OFCCP's motion for reconsideration and ruled that Florida Hospital (and other TRICARE network providers) do meet the definition of federal subcontractors, notwithstanding the plain language of the NDAA.

Here's the gist of the ARB's rather convoluted reasoning:

The regulations define a subcontract as "any agreement or arrangement between a contractor and any person ... (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." (Emphasis added.) The OFCCP contended that, although the NDAA rendered the second prong of the subcontractor definition inapplicable, the first prong was not affected and still provided for OFCCP jurisdiction over TRICARE network providers.

After reviewing the NDAA's legislative history and noting the limiting language "on the basis of such requirement" in the statute, the ARB concurred with the OFCCP and held that the NDAA "simply clarifies that a Medical Network Clause does not translate into a duty to perform healthcare services." Finding that Florida Hospital's contract was for the purchase of non-personal services and that such purchase was necessary for the performance of the direct contract, a majority of the ARB decided that the conditions for a subcontract under the first prong of the subcontractor definition were met.

This may not be the end of the inquiry, though. In response to Florida Hospital's argument that TRICARE qualifies as a federal financial assistance program – which would divest the OFCCP of jurisdiction – the ARB remanded the case back to the ALJ for additional fact-finding and analysis of this issue. The ALJ had previously rejected the Hospital's argument, but the ARB determined that the record was not clear as to whether Congress intended for TRICARE to be a federal financial assistance program.

In Other (Good!) OFCCP News

An ALJ has granted summary judgment to the employer in an OFCCP disparate impact case comparing selection rates of Asians to non-Asians. The OFCCP alleged that VF Jeanswear Limited Partnership discriminated against non-Asian applicants in its hiring process. The ALJ found that "non-Asians" are not a recognized racial or ethnic group, and therefore that the agency's attempt to aggregate other ethnic groups for analysis was inappropriate.

The ALJ's decision comports with the Uniform Guidelines on Employee Selection Procedures. According to the Guidelines, impact ratio analyses should compare the group with the highest selection rate with other groups individually, not in the aggregate.

Regulations at OMB

Last week, it was announced that the Office of Management and Budget is now reviewing the OFCCP's Final Regulations updating Section 503 of the Rehabilitation Act and Section 4212 of the Vietnam Era Veterans' Readjustment Assistance Act. We are anxiously awaiting the OMB's final decision and will alert our readers as soon as any decision is made. Please stay tuned for our AA Alert and webinar briefings on these issues.

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