OFCCP Agrees to 5-Year Enforcement Moratorium for TRICARE Providers

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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In a letter to congressional leaders on March 11, 2014, Secretary of Labor Thomas E. Perez announced that the Office of Federal Contract Compliance Programs (OFCCP) will issue a directive establishing a five-year moratorium on enforcement of the affirmative action obligations required of all TRICARE subcontractors and will administratively close any open and scheduled compliance evaluations for TRICARE subcontractors. TRICARE is the health care program that provides benefits for active duty and retired military personnel and their families.

The letter is in response to proposed legislation and strong concerns raised by members of the House Committee on Education and the Workforce and its Workforce Protections Subcommittee that OFCCP is exceeding its jurisdiction in this area. Significantly, the letter does not concede that OFCCP does not have jurisdiction over “those healthcare providers that participate as subcontractors in TRICARE and the Federal Employees Health Benefits Program (FEHBP).” Rather, the letter states that during the five-year moratorium OFCCP will work with the U.S. Department of Defense (DOD), which administers TRICARE, the Office of Personnel Management (OPM), which is the agency responsible for administering the Federal Employees Health Benefits Program (FEHBP), and the White House Office of Federal Procurement Policy to clarify that health care providers that participate in TRICARE and FEHBP may, in certain circumstances, be subcontractors for purposes of the laws that OFCCP enforces.

Still a TRICARE Subcontractor

Although health care providers should welcome this temporary relief from OFCCP enforcement activities, the fundamental jurisdictional issue of health care providers as subcontractors is far from resolved. Essentially, the congressional camp argues that health care providers are not federal subcontractors under any definition based solely on participation in TRICARE-managed care contracts that include the requirement to establish, manage, or maintain a provider network.  This position, they argue, is supported by long-standing DOD and OPM regulations, section 715 of the National Defense Authorization Act of 2012, and even prior directives by OFCCP. In his letter to Congressman John Kline and others, Secretary Perez acknowledged that, “You have made clear that, in your judgment, Congress intended to eliminate entirely OFCCP’s jurisdiction over TRICARE subcontractors. The Department, based on a good faith reading of the provision and its legislative history, read Section 715 as a more narrow limitation that preserved one aspect of OFCCP’s jurisdiction.”

In addition to working with DOD, OPM, and the White House to provide greater clarity, Secretary Perez pledges that,

 . . . OFCCP will do the following:

  • Provide information, materials, and technical assistance training to TRICARE subcontractors on how to develop cost effect affirmative action plans, record keeping, and applicant tracking systems;
  • Conduct regional and national webinars that cover OFCCP’s legal authorities, jurisdiction, and Federal contractor and subcontractor obligations;
  • Convene listening sessions to learn about the unique issues facing TRICARE subcontractors in order to provide relevance and targeted technical assistance under all OFCCP legal authorities;

Background

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):

  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.

Over the years OFCCP has created much confusion by arguing alternatively in multiple administrative proceedings that either or both of these prongs of the subcontractor definition apply to Florida Hospital of Orlando because the hospital’s contract with a managed care company was necessary to the performance of the managed care company’s direct contract with TRICARE or that it required the hospital to perform a portion of the managed care company’s obligation under its direct contract with TRICARE. We discussed these lengthy and still ongoing proceedings and the National Defense Authorization Act of 2012 in our August 2013 blog post, “Hospital Jurisdiction Revisited—ARB Finds Florida Hospital Is Subject to OFCCP Jurisdiction.”

As mentioned above, congressional committee members and other health care advocates contend that neither of these definitions apply.

Issues Not Addressed

The memorandum does not address whether the moratorium extends to medical providers that receive funding though the FEHBP.

In OFCCP v. UPMC Braddock, the agency brought an action alleging that hospitals that had a health maintenance organization (HMO) contract to provide health care services to FEHBP participants were federal subcontractors subject to OFCCP jurisdiction. Following an appeal by UPMC Braddock after a ruling by the Administrative Review Board (ARB) of the U.S. Department of Labor in favor of OFCCP, the U.S. District Court for the District of Columbia, in UPMC Braddock v. Harris (March30, 2013), agreed with OFCCP’s decision. That 2013 decision currently is on appeal to the District of Columbia Circuit Court of Appeals.

The memorandum also side steps OFCCP’s controversial statements that the agency may have jurisdiction over health care providers receiving reimbursement from Medicare Advantage Plans (Part C) or Medicare Prescription Drug Plans (Part D). Medicare includes both traditional indemnity plans under Parts A and B, as well as managed care components under Parts C and D. OFCCP has long taken the position that Medicare Parts A and B are federal financial assistance, and thus no covered contractual relationship is formed. However, OFCCP in recent years has expressed the opinion that contracts with Medicare to provide Part C or Part D services are potentially covered federal contracts or subcontracts.

Conclusion

In recent years OFCCP has aggressively sought to expand its jurisdiction over health care providers that offer care to military service members and their families and to other federal employees. This agreement with congressional leaders represents a temporary scaling back of these efforts, at least where TRICARE is involved. Nonetheless, it is clear that OFCCP still takes the position that there are certain circumstances in which health care providers offering care to participants in federally funded health benefit programs, including TRICARE, FEHBP, and Medicare, will be considered federal subcontractors by OFCCP. This position appears to be at odds with congressional intent. Whether or not this fundamental difference can be resolved through OFCCP’s proposed educational effort during the next five years remains to be seen.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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