May 2012 Volume 8 Number 9

The OFCCP Rescinds Directive Which Sought to Expand Federal Contractor Status to Many Healthcare Providers

By Karen M. Buesing, Akerman Senterfitt LLP, Tampa, FL
and Martin R. Dix, Akerman Senterfitt LLP, Tallahassee, FL

AuthorAuthorHospitals, medical facilities, medical professionals, pharmacies and others who participate in networks that provide medical services to TRICARE1 beneficiaries and federal employees can breathe easier. The Office of Federal Contractor Compliance Programs (“OFCCP”) has rescinded Directive 293,2 which could have made those facilities and professionals subject to the maze of regulations governing federal contractors.

Federal contractors and subcontractors are subject to Executive Order 11246, as amended; Section 503 of the Rehabilitation Act of 1973, as amended;3 and Section 4212 of the Vietnam Era Veterans' Readjustment Assistance Act, as amended.4 Together, these laws generally prohibit federal contractors and subcontractors from discriminating in employment decisions on the basis of race, color, religion, sex, national origin, disability or status as a Vietnam era or special disabled veteran. While healthcare providers and organizations generally seek to comply with other federal and state anti-discrimination laws such as Title VII, the Americans with Disabilities Act and their state equivalents, the application of federal contractor status to a provider would impose extensive record-keeping, posting and reporting obligations, and would require covered contractors to have detailed affirmative action plans. Federal contractors are also subject to a range of OFCCP evaluations, including compliance reviews with a comprehensive analysis of hiring and employment practices, policies and conditions as well as on-site reviews conducted at the contractor's establishment.

Directive 293 was an enforcement directive providing guidance to investigators for assessing when healthcare providers and insurers are federal contractors or subcontractors based on their relationship with a federal healthcare program and/or participation in a federal healthcare program. Where a federal agency or department contracts with a person for the purchase, sale or use of personal property or non-personal services, that person becomes a federal contractor and its contract is the "prime" contract. Where a federal contractor contracts with any person (not in an employer/employee relationship) for the purchase/sale or use of personal property or non-personal services which, in whole or in part, is necessary to the performance of the prime contract, or under which any portion of the federal contractor's obligations under the prime contract is performed, undertaken or assumed, the subcontractor is also a federal contractor for purposes of OFCCP jurisdiction.

Therefore, where a subcontractor contracts with a healthcare provider to assume the obligation to provide the services under the prime contract with the federal agency, the subcontractor is a covered federal contractor. However, an agreement between a healthcare provider and a federal contractor or subcontractor which provides only for reimbursement and does not require the provision of healthcare services does not create a covered subcontractor relationship and does not confer jurisdiction on the OFCCP.

Directive 293, quietly issued in December 2010, followed closely on the heels of a Department of Labor administrative decision in OFCCP v. Florida Hospital of Orlando,5 and sought to expand OFCCP's coverage. In the Florida Hospital case, a DOL administrative law judge ruled that the OFCCP had jurisdiction over Florida Hospital because Humana Military Healthcare Services held a prime contract with TRICARE to provide networks of healthcare providers for TRICARE beneficiaries, and Florida Hospital participated in that network. The case is still pending before DOL's Administrative Review Board.

However, on December 31, 2011, Congress essentially rejected the concept that a contractual requirement to establish a network of providers or participation in such a network was enough to confer federal contractor status. Specifically, Congress enacted the National Defense Authorization Act (“NDAA”), which states in Section 715 that a "TRICARE managed 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" for the purpose of determining whether network providers are federal subcontractors subject to OFCCP jurisdiction.6 While the NDAA was silent as to those who participate in contractual arrangements with the Federal Employees Health Benefit Program, the OFCCP has clearly taken note that Congress disagreed with its position. In light of the enactment of the NDAA, Florida Hospital has filed a Motion to Dismiss the pending case against it. The case remains on appeal.

What will happen next remains to be seen. For now, participants in networks that serve TRICARE beneficiaries can breathe easier.


Karen M. Buesing, Esq. (karen.buesing@akerman.com) is a shareholder with Akerman Senterfitt, Tampa, FL. She is a Florida Bar Board Certified specialist in Labor & Employment Law and represents management in employment law matters. Martin R. Dix, Esq. (martin.dix@akerman.com) is a shareholder with Akerman Senterfitt, Tallahassee, FL. He is a Florida Bar Board Certified specialist in Healthcare Law and represents providers on regulatory issues. Akerman Senterfitt is full service, multi-state firm based in Florida which serves clients across the United States and overseas.


1

TRICARE is the Defense Department's healthcare program for active and retired military members.

2 Directive 293 was rescinded effective April 25, 2012, according to the DOL Office of the Solicitor.
3

41 C.F.R. §§ 60-741.1, 60-741.4(a)(3), 60-741.43.

4

41 C.F.R. § 60.300.1.

5

OFCCP v. Florida Hospital of Orlando, Case No. 2009-OFC-00002 (Oct. 18, 2010).

6

"TRICARE Prime: automatic enrollment; enrollment fee; payment options] of title 10, United States Code, is amended by adding at the end the following new paragraph: ‘In establishing rates and procedures for reimbursement of providers and other administrative requirements, including those contained in provider network agreements, the Secretary shall to the extent practicable maintain adequate networks of providers, including institutional, professional, and pharmacy.  Network providers under such provider network agreements are not considered subcontractors for the purposes of the Federal Acquisition Regulation or any other law.’”


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