Guest Commentator Shafeeqa Watkins Giarratani: OFCCP Rescinds Directive Regarding Its Jurisdiction over Health Care

Office of Federal Contractor Compliance Programs (OFCCP) recently held a webinar to announce that, effective immediately, it was rescinding OFCCP Directive 293, Coverage of Health Care Providers and Insurers. Directive 293 permitted wide-reaching jurisdiction for the OFCCP over the health care field. In particular, Directive 293 extended OFCCP jurisdiction to health care providers and insurers that offered TRICARE services – the federal government’s health care program for active duty and retired military and their families.

Although rescinding Directive 293 is a retreat from the OFCCP’s previous focus on expanding jurisdiction over health care providers, it should not be interpreted as a desertion of such efforts. The OFCCP has announced that it has merely “put on hold” compliance reviews where the only basis for jurisdiction is TRICARE and has made clear that it intends to still consider other federal programs, such as Medicare Parts C and D, as potentially granting OFCCP jurisdiction over a health care entity. The OFCCP explained that rescinding Directive 293 was “warranted” in light of (1) the pending appeal of OFCCP v. Florida Hospital of Orlando, Case No. 2009-OFC-00002 (Oct. 18, 2010) and (2) the recent passage of the National Defense Authorization Act. Both are discussed further below. OFCCP v. Florida Hospital of OrlandoIn October 18, 2010, a Department of Labor administrative law judge (“ALJ”) ruled in a landmark case that a hospital was a federal subcontractor subject to OFCCP jurisdiction based on its participation in TRICARE services. OFCCP v. Florida Hospital of Orlando, No. 2009-OFC-00002 (Oct. 18, 2010).

The facts of the case were as follows. Humana Military Healthcare Services, Inc. (“Humana”) contracted with TRICARE to provide “networks of individuals and institutional health care providers.” The ALJ concluded that Humana held a federal contract subjecting it to OFCCP jurisdiction because Humana had directly contracted with TRICARE. Humana then contracted with Florida Hospital to provide general health care services. The ALJ found that Florida Hospital was a covered federal subcontractor due to its contract with Humana. To find that Florida Hospital was also subject to the OFCCP’s jurisdiction, the ALJ reviewed the definition of a covered federal subcontract. The regulations define a covered federal “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 government contracts; or (2) under which any portion of the contractor’s obligation under any one or more government contracts is performed, undertaken or assumed.” 41 C.F.R. §60-1.3 (Executive Order 11246); 60-250.2 (VEVRAA); 60-741.2 (Rehabilitation Act). In Florida Hospital, the ALJ found that Florida Hospital had a covered federal subcontract because it had assumed part of Humana’s contract with TRICARE. The ALJ defined the requirement in Humana’s contract with TRICARE to provide a “network of institutional health care providers” as a requirement to provide health care services. Consequently, Florida Hospital, had assumed part of Humana’s obligations under its federal contract with TRICARE and met the subcontractor definition.

Thereafter, on December 16, 2010, the OFCCP issued Directive No. 293 that, among other things, confirmed and codified the findings in Florida Hospital. For its part, Florida Hospital appealed the findings of the ALJ in Florida Hospital. Recent Passage of the National Defense Authorization Act Earlier this year, Congress passed the National Defense Authorization Act (“NDAA”). Section 715 of the NDAA reverses the findings of Florida Hospital and Directive No. 293. Specifically, it states: “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.” National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, §702 (2012). Section 715 prohibits a finding of jurisdiction based on the exact reasoning found in Florida Hospital. In other words, it prohibits interpreting a TRICARE contract to establish a “network of providers” as a contract to provide health care services. In Florida Hospital, this interpretation of Humana’s contract with TRICARE allowed hospitals to be deemed covered federal subcontractors subject to OFCCP jurisdiction. However, Section 715 does not foreclose other ways that an entity involved with TRICARE may be subject to the OFCCP’s elaborate compliance scheme. In short, Section 715 offers only limited relief to health care providers. Florida Hospital Following Passage of National Defense Authorization ActFollowing the NDAA’s enactment, however, Florida Hospital filed a motion to dismiss the case, arguing that TRICARE was the OFCCP’s only basis for jurisdiction and under the NDAA, TRICARE was not an appropriate basis for OFCCP jurisdiction. The OFCCP has responded and disputed this argument.

A decision from the Administrative Review Board is forthcoming. Because of these conflicting developments, the OFCCP concluded that the rescission of Directive 293 was necessary at this time. What Does this Mean for OFCCP Jurisdiction over Health Care?Although the OFCCP rescinded Directive 293, it provided no guidance on the OFCCP’s current direction with regard to jurisdiction over health care providers. Instead, the OFCCP declared that it will “put on hold” compliance reviews of entities whose sole basis for coverage is as a TRICARE provider. It stated that it would continue its reviews of entities that have an alternative basis for jurisdiction. Letters announcing these decisions were supposed to be sent at the end of last week. Entities whose only basis for jurisdiction is TRICARE participation will be told that their compliance reviews are on hold pending the outcome of Florida Hospital. Meanwhile, entities that have another basis for jurisdiction will be informed that the OFCCP is moving forward with their audits. While these announcements are a marked step back from the agency’s previous position, they should not be interpreted as an abandonment of the OFCCP’s interest in health care providers. Indeed, during the webinar, the OFCCP confirmed that it fully intends to determine on a case-by-case basis whether Medicare Parts C or D grant it jurisdiction over a health care provider.

Further, the OFCCP’s Notice of Rescission echoed this sentiment, stating that the “OFCCP will continue to use a case-by-case approach to make coverage determinations in keeping with its regulatory principles applicable to contract and subcontract relationships and OFCCP case law.” Thus, health care providers must continue to identify and review their sources of federal revenue to determine whether they are covered by the OFCCP and if so, take necessary steps to ensure compliance. Shafeeqa Watkins Giarratani is a senior associate with Fulbright & Jaworski, LLP. She is widely recognized as an authority on OFFCP compliance issues, having delivered numerous briefings and speeches on behalf of Fulbright & Jaworski. She is a board member and the legal liaison for the San Antonio Industry Liaison Group (SAILG) and regularly advises Fulbright & Jaworski clients on OFCCP compliance and affirmative action issues. Shafeeqa develops affirmative action plans for employers and has represented several clients during the OFCCP audit process. Disclaimer This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Fulbright & Jaworski is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website or to read our privacy statement.

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