On November 6, 2019, the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) issued a Notice of Proposed Rulemaking (“NPRM”) aimed at resolving what OFCCP describes as a “decade of confusion.”[1] At issue is a long-standing question concerning the scope of OFCCP’s enforcement authority over health care providers participating in TRICARE, a federal health care program covering millions of military personnel, veterans, and their families. In particular, the NPRM requests comments on proposed regulations that would amend OFCCP’s definition of “subcontractor” and thereby remove TRICARE providers–and potentially other categories of providers–from OFCCP’s regulatory authority entirely. The deadline for filing comments is December 6, 2019.

I.                    Background

The NPRM marks the latest development in a decade-long saga, including protracted litigation and multiple policy directives, concerning whether TRICARE providers are considered federal government “subcontractors” subject to OFCCP regulation.

OFCCP’s authority over contractors and subcontractors derives from three laws that, taken together, prohibit employment discrimination and require affirmative action to ensure equal employment opportunity.[2] To enforce compliance with these three laws, OFCCP requires covered contractors and subcontractors to furnish certain information about their affirmative action programs as well as provide access to employment-related records and data.

Historically, OFCCP maintained the view that TRICARE health care providers were covered subcontractors and therefore obligated to comply with affirmative action program requirements. However, that changed in 2014 when the Department of Labor published a directive establishing a five-year moratorium on the enforcement of equal opportunity and affirmative action compliance obligations against TRICARE subcontractors.[3] This directive formed the basis for the dismissal of UPMC Braddock v. Perez, a case then pending in the D.C. Circuit that involved whether certain hospitals’ participation in federal health care programs warranted their classification as government “subcontractors” by OFCCP.[4] In May 2018, OFCCP extended the moratorium for another two years.[5]

II.                 Proposed Changes to the Status of TRICARE Providers as “Subcontractors”

The newly-issued NPRM goes further than both moratoria by proposing regulations that would exclude TRICARE providers from OFCCP’s regulatory purview altogether. To that end, OFCCP articulates two separate rationales for the proposed change.

OFCCP’s primary rationale is that, “after careful consideration,” it simply lacks enforcement authority over TRICARE health care providers. In reversing its position, OFCCP credits the reasoning from the dissent in OFCCP v. Florida Hospital of Orlando, a case before the Department of Labor’s Administrative Review Board regarding OFCCP’s enforcement authority over a TRICARE network hospital.[6] A significant issue in Florida Hospital concerned whether Section 715 of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2012 withdrew OFCCP’s jurisdiction over TRICARE providers. The NPRM seems to adopt the Florida Hospital dissent’s reading of the NDAA that it precludes OFCCP from asserting its jurisdiction over TRICARE providers as subcontractors based solely on their delivery of care to TRICARE beneficiaries.

Under an alternative rationale, OFCCP proposes a “national interest” exemption for TRICARE health care providers from the compliance requirements set forth in E.O. 11246, Section 503 of the Rehabilitation Act, and VEVRAA. Its stated reasons for why a national interest exemption is warranted are three-fold. First, OFCCP believes the proposed change would improve access to health care for TRICARE beneficiaries. By lowering compliance costs, OFCCP predicts an increased willingness by providers to participate in TRICARE which, in turn, could increase access to care. Second, OFCCP has determined that enforcement activity against TRICARE providers is not an efficient allocation of its limited resources, especially given the prospect of costly litigation. Last, OFCCP believes the change would afford those in the health care community greater certainty about their legal obligations.

Under either rationale, OFCCP’s proposed change is the same: revisions to its definition of “subcontractor.” Previously, OFCCP defined subcontractor as an agreement between a contractor and any person: (1) for the sale/purchase of “nonpersonal services . . . necessary to the performance” of another contract; or (2) where any portion of the contractor’s obligation is “performed, undertaken, or assumed.”[7] The proposed rule, however, inserts a paragraph expressly excluding from this definition a “health care provider [that] agrees to provide health care services or supplies to natural persons who are beneficiaries of TRICARE.”

III.              Potential Implications

The proposed rule, if finalized, could have significant consequences for the health care industry given the size of the TRICARE program and the sheer number of participating providers. For one, the rule would bring much-needed certainty to providers about their compliance obligations under the Department of Labor’s OFCCP. At the same time, the consequences should not be overstated. The proposed rule does not apply to health care providers if they are prime contractors or if they hold a government subcontract separate from their health care provider arrangement with TRICARE. Further, the rule would not affect health care providers’ equal employment and nondiscrimination obligations under Title VII or other civil rights laws.

Moreover, it should be noted that even though OFCCP has conceded it lacks jurisdiction over TRICARE providers, it is still maintaining a highly aggressive enforcement posture overall. Just last month, OFCCP announced that it obtained a record $40 million in settlements in FY 2019, a figure that was nearly 70% higher than the previous annual record. Consistent with its stated objective to use its resources efficiently, contractors can expect that resources previously tied up in prolonged litigation over TRICARE jurisdiction may now be channeled to increased enforcement activity involving more traditional government contractors.

In addition, unresolved questions persist about whether health care providers who participate in other federal health care programs beyond TRICARE, such as the Federal Employees Health Benefits Program (“FEHBP”), should similarly fall outside OFCCP’s authority. In fact, the NPRM requests comments on this very question–perhaps because disputes regarding OFCCP claims of authority over FEHBP providers have been equally confusing and long-running.[8] And more broadly, many of the reasons that OFCCP has identified for renouncing its claimed authority over TRICARE providers (e.g., barriers to entry into the federal space, agency resource inefficiency, regulatory uncertainty, etc.) could apply in other contexts as well in which OFCCP continues to assert jurisdiction. Therefore, health care providers−even ones without TRICARE relationships−should monitor additional developments in this space to stay up-to-date on their employment-related compliance obligations. In the meantime, TRICARE health care providers continue to have a temporary moratorium on compliance reviews through May 7, 2021.

*Jennifer Plitsch, Partner and Co-Chair, Government Contracts Practice Group; Michael Wagner, Partner; Nicholas E. Baer, Law Clerk

[1] 84 Fed. Reg. 59746, 59748 (Nov. 6, 2019) (to be codified at 41 C.F.R. pt. 60).

[2] See Executive Order 11246, 30 Fed. Reg. 12319 (Sept. 24, 1965); Section 503 of the Rehabilitation Act of 1973, 29 U.SC. 793; the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) of 1974, 38 U.S.C. 4212.

[3] Dep’t of Labor, OFCCP, Directive 2014-01, TRICARE Subcontractor Enforcement Activities (May 7, 2014).

[4] See 584 F. App’x 1, *1 (D.C. Cir. Nov. 14, 2014).

[5] Dep’t of Labor, OFCCP, Directive 2018-02, TRICARE Subcontractor Enforcement Activities (May 18, 2018).

[6] OFCCP v. Fla. Hosp. of Orlando, No. 11-011, 2013 WL 3981196 (Adm. Rev. Bd. July 22, 2013).

[7] 41 C.F.R. §§ 60−1.3, 60−300.2(x), 60−741.2(x).

[8] The Department of Labor’s Administrative Review Board and two different federal courts–including the D.C. Circuit Court of Appeals–considered a dispute centering on the question of whether (and if so, when) OFCCP has authority over FEHBP health care providers. After seven years of litigation, that litigation ultimately was dismissed as moot (without a definitive ruling on the merits) following OFCCP’s announcement of the TRICARE enforcement moratorium.