On July 2, 2020, the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) promulgated a final rule resolving long-standing uncertainty regarding its enforcement authority over health care providers participating in TRICARE, a federal program that provides health care to service members, veterans, and their families.[1] The rule officially removes OFCCP’s regulatory authority over TRICARE providers by amending the definition of “subcontract” set forth in the governing Department of Labor regulations.  Although the amendment carves out TRICARE providers from OFCCP authority by name and leaves the rest of the “subcontractor” definition unchanged, OFCCP expressly raised the possibility that it would issue additional sub-regulatory guidance concerning its jurisdiction over Federal Employees Health Benefit Program (“FEHBP”) and Veterans Administration Health Benefit Program (“VAHBP”) providers.

Background

The final rule draws years of uncertainty about the status of TRICARE providers as “subcontractors” subject to OFCCP regulatory authority to a close.

Beginning in 2007, OFCCP maintained – in both its litigation filings and agency directives – that it possessed enforcement authority over TRICARE providers, though that stance was challenged by several hospitals and provider networks.[2] Congress attempted to resolve the controversy in the National Defense Authorization Act for Fiscal Year 2012 (“NDAA”), which set forth a provision stating that “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.”  Yet OFCCP maintained its aggressive enforcement posture until 2014 when it announced a five-year moratorium on enforcement action against TRICARE providers.  This moratorium subsequently was extended for an additional two years in May of 2018.[3] Finally, on November 6, 2019, OFCCP issued a Notice of Proposed Rulemaking (“NPRM”), which led to the final rule discussed here.[4]

Changes to the “Subcontractor” Definition

OFCCP’s final rule adds a subsection to DOL’s governing regulatory definition of “subcontract” to specify that TRICARE providers are not subcontractors but otherwise leaves OFCCP’s current two-prong definition of “subcontractor” intact.[5] The upshot is that even if  TRICARE providers might otherwise be classified as “subcontractors” under the prior definition, the added subsection expressly provides that OFCCP lacks authority over them. Note, however, that OFCCP’s regulatory requirements continue to apply to TRICARE providers if they hold a separate, unrelated government contract.

OFCCP’s final rule reiterates the two rationales for the amendment to the definition of “subcontract” that it described in the NPRM. Its primary rationale is that Congress’s passage of the 2012 NDAA did, in fact, remove OFCCP’s enforcement authority over TRICARE providers, contrary to the decision of the Department of Labor Administrative Review Board’s 2013 decision in OFCCP v. Florida Hospital of Orlando.[6]

Alternatively, OFCCP’s final rule establishes a “national interest” exemption for TRICARE providers from its anti-discrimination and equal opportunity requirements. In the rule, OFCCP provides four reasons that the exemption is in the national interest. First, OFCCP authority may negatively affect service members’ access to health care because the costs of compliance deter provider participation in TRICARE. Second, pursuing enforcement is not the best use of OFCCP and provider resources, especially because current uncertainty surrounding that authority could lead to lengthy litigation. Third, the exemption provides uniformity and certainty for providers. Fourth and finally, the exemption harmonizes OFCCP’s approach with the Department of Defense’s. OFCCP additionally notes extensive justification for its ability to make a categorical exemption for all TRICARE providers, rather than proceeding case-by-case.

Possibility of Further Sub-regulatory Development Regarding FEHBP and VAHBP Providers

In its NPRM, OFCCP requested comments about its authority over providers participating in federal health care programs besides TRICARE. In its final rule, OFCCP addressed FEHBP and VAHBPs in particular. The FEHBP covers all federal employees, and the VAHBPs encompass a variety of agreements between providers and the Veterans Administration for health care services.

A number of stakeholder comments supported exempting both FEHBP and VAHBP providers from OFCCP’s compliance requirements. The comments pointed to policy rationales similar to those underlying OFCCP’s “national interest” exemption for TRICARE providers. Namely, commentators expressed concern that the compliance burden associated with these programs deters participation, and thus diminishes beneficiaries’ access to health care. Further, some comments suggested that providers participating in the FEHBP and/or VAHBPs along with TRICARE may drop out of the non-TRICARE programs in order to preserve their TRICARE exemption. Further, commentators indicated that a uniform rule applying to all health care providers involved in federal programs would further avoid legal uncertainty, a particularly salient concern given the historical confusion regarding OFCCP jurisdiction over these program providers.

OFCCP, however, declined to adopt any regulatory changes related to FEHBP and VAHBP providers in the final rule. Rather than addressing a possible extension of the “national interest” exemption to these providers, OFCCP instead generally maintained that none of the comments pointed to a valid legal basis for it to disclaim authority over the relevant providers. OFCCP’s course of action in this respect implies that it may be reluctant to extend the “national interest” exemption granted to TRICARE providers, even in situations where the rationales for that exemption appear similarly applicable.

OFCCP did leave open the possibility that it would issue additional sub-regulatory guidance regarding its authority over FEHBP and VAHBP providers. Further, OFCCP’s current moratorium on enforcement action, set to end on May 7, 2021, currently covers all VAHBP providers. However, sub-regulatory guidance and use of discretion are easily altered, particularly if there is a change in administration, so providers participating in federal health care program(s) should continue to closely watch this space for additional developments.

* Rachel Nixon, a Summer Associate currently attending University of Virginia School of Law, contributed to this blog.

[1] 85 Fed. Reg. 39834 (July 2, 2020) (to be codified at 41 C.F.R. pt. 60).

[2] OFCCP v. Fla. Hosp. of Orlando, No. 2009-OFC-00002, 2010 WL 8453896 (ALJ Oct. 18, 2010); OFCCP, Directive 293, Coverage of Health Care Providers and Insurers (Dec. 16, 2010) (rescinded Apr. 25, 2012).

[3] OFCCP, Directive 2014-01, TRICARE Subcontractor Enforcement Activities (May 7, 2014); OFCCP, Directive 2018-02, TRICARE Subcontractor Enforcement Activities (May 18, 2018).

[4] 84 Fed. Reg. 59746 (Nov. 6, 2019) (to be codified at 41 C.F.R. pt. 60).

[5] Subcontract is defined 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.” 41 C.F.R. 60-1.3, -300.2(x), -741.2(x).

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

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Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions…

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as transactional and legislative issues. Her practice also includes bid protest and contract claims and appeals litigation before GAO, agency boards and the federal courts. Ms. Plitsch has particular expertise in advising clients in the pharmaceutical and biologics industry. She advises a range of pharmaceutical and biologics manufacturers on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as research and development contracts and grants with various federal agencies. She also has significant experience advising on the requirements of various programs under which vaccine products and biodefense medical countermeasures are procured by the Government.

Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.