December 2011 Volume 8 Number 4

The OFCCP's Expanding Reach: Healthcare Providers as Federal Contractors

By Karen M. Buesing, Akerman Senterfitt LLP, Tampa, FL
and Martin R. Dix, Akerman Senterfitt LLP, Tallahassee, FL 1

AuthorAuthorHospitals, professionals, pharmacies and others who participate in networks that provide medical services could soon find themselves unwittingly subject to the extensive maze of regulations governing federal contractors. The Office of Federal Contractor Compliance ("OFCCP") is aggressively moving to expand its coverage to include healthcare providers who participate in contractual arrangements (and sub-contract arrangements) with the Federal Employees Health Benefit Program ("FEHBP") and TRICARE, as well as under Medicare Advantage Part C (managed/coordinated care plans) and Medicare Part D (prescription drug plans).

To that end, the OFCCP quietly issued Directive 293 late last year providing new guidance to OFCCP's staff for assessing when healthcare providers and insurers are federal contractors or subcontractors. Directive 293 supersedes two prior directives2 and follows closely on the heels of two administrative rulings effectively expanding the definition of a federal subcontractor.

The Impact of Being a Federal Contractor

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 corollary state laws, 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, and on-site reviews conducted at the contractor's establishment.

The Background

In 2003, the Administrative Review Board ("ARB")5 issued a decision in OFCCP v. Bridgeport Hospital6 which suggested that being a provider of healthcare services to federal employees by itself would not trigger OFCCP jurisdiction. In Bridgeport, Blue Cross Blue Shield had a contract with the federal Office of Personnel Management ("OPM") to provide health insurance to federal government employees. The OPM/Blue Cross contract provided for different levels of cost-sharing (co-payments/deductibles) depending on whether the hospital had an agreement with a participating Blue Cross plan (i.e., was a preferred or member hospital). Bridgeport had an agreement with Blue Cross to give preferred rates for covered services to persons eligible to receive healthcare benefits under any Blue Cross plan during the applicable period, including federal employees covered by a Blue Cross plan. The OFCCP argued that Bridgeport was a federal contractor; the ARB disagreed.

While Blue Cross was clearly a federal contractor by virtue of its contract with OPM, the ARB found that Bridgeport hospital was not a federal subcontractor under OFCCP definitions because Blue Cross did not contract to provide or guarantee the actual medical services, but rather contracted to provide reimbursement for covered services. Thus, healthcare providers participating in health plan networks understood from Bridgeport that they could provide services to federal government employees without themselves becoming subcontractors subject to the jurisdiction of the OFCCP.

That position was further affirmed in March 2003, when the OFCCP issued Directive 262 acknowledging that it could not assert jurisdiction over healthcare providers based solely on the providers having a relationship with Federal Employees Health Benefits Program participants.

Six years later, the ARB issued a seemingly contrary decision in OFCCP v. UPMC Braddock.7 There the ARB ruled that several Pittsburgh hospitals were federal subcontractors subject to OFCCP jurisdiction where the University of Pittsburgh Medical Center ("UPMC") Health Plan, a health maintenance organization, contracted with the OPM to provide medical services and supplies to federal employees in exchange for the payment of premiums, and the UPMC Health Plan had thereafter contracted with the hospitals to provide those medical services and supplies. The ARB focused on the fact that each hospital's provision of medical services and supplies was a critical component of the prime contract between the UPMC Health Plan and the OPM. Notably, in Braddock, the UPMC Health Plan/OPM arrangement required participants to see specific physicians and hospital providers. Focusing on the requirement that the participants use specific physicians and hospitals, the ARB found that UPMC Health Plan necessarily agreed to provide medical services; it was not a fee-for-service arrangement.8

In the meantime, OFCCP's reach was further expanded in OFCCP v. Florida Hospital of Orlando.9 In Florida Hospital, Humana Military Healthcare Services (“Humana”) held a prime contract with TRICARE to provide networks of healthcare providers for TRICARE beneficiaries. Florida Hospital participated in that network. The Administrative Law Judge ("ALJ") ruled that Florida Hospital was a federal subcontractor by virtue of its participation in Humana’s network of providers.10

Florida Hospital argued that its subcontract with Humana is akin to the subcontract Bridgeport Hospital had with BCBS in the Bridgeport case, and was not a covered subcontractor relationship. In the Florida Hospital case, the prime contract between TRICARE and Humana did not impose on Humana the duty to provide medical services or supplies, but rather to act as an administrator, processing claims and handling the administration of a government health plan for a fee. The agreement between Florida Hospital and Humana was a fee-for-service arrangement in which Humana processed claims for healthcare submitted by Florida Hospital and reimbursed Florida Hospital in accordance with negotiated rates for services. As was the case in Bridgeport, TRICARE members retained the freedom to obtain care from any provider of their choice, whether in or out of network. In other words, Florida Hospital argued, under the prime contract, Humana was not obligated to provide medical services to TRICARE beneficiaries, but rather was required to provide networks of healthcare providers to TRICARE beneficiaries. An obligation to provide a network of providers is not an obligation to provide medical services, Florida Hospital argued. The ALJ disagreed.

For now, the Florida Hospital ruling means that hospitals and other healthcare providers that (1) employ 50 or more persons and have a federal contract or subcontract for $50,000 or more, and (2) accept TRICARE reimbursement are subject to the extensive affirmative action, posting, record-keeping and other requirements applicable to federal contractors, and are subject to compliance audits by the OFCCP.

The Braddock and Florida Hospital decisions set the stage for Directive 293. Directive 293 distinguishes the Braddock and Florida Hospital decisions from the Bridgeport decision, and expands the reach of its jurisdiction even further than in Braddock. Specifically, it notes that the agreement between Bridgeport and BCBS provided solely for reimbursement to the hospital for the cost of medical services that the hospital provides to federal government employees enrolled in the BCBS plan. "Such a reimbursement agreement – between a medical services provider ( Bridgeport) and an insurer (Blue Cross) was not necessary to the performance of the prime health insurance contract Blue Cross had with OPM to reimburse Blue Cross policyholders for their medical costs. Consequently the hospital was not a covered subcontractor."11

The New Framework for Analysis: Directive 293

Directive 293 sets forth how the OFCCP will analyze contractual arrangements for purposes of determining coverage. Essentially, if a prime contractor subcontracts the performance of elements of its contract to one or more companies for supplies or services necessary to the performance of the contract, the OFCCP takes the position that it is a federal subcontractor and the OFCCP has jurisdiction. 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. The directive notes that Medicare Advantage and Medicare Part D both offer a variety of plans, including fee-for-service plans that provide insurance, but not supplies or medical services, to plan members and beneficiaries. Directive 293 compares those to the contract at issue in Bridgeport, and states that "insurance only plans are direct federal contracts that establish OFCCP jurisdiction over the insurer." Directive 293 further notes that reimbursements made pursuant to Medicare Part A and/or B (or Medicaid) are federal financial assistance programs designed to provide national health insurance programs for eligible beneficiaries, and are not contracts.

The Florida Hospital decision and Directive 293 have created turmoil in the healthcare industry. Hospitals and other providers already face increasingly burdensome regulations and rightfully fear the significant costs associated with the additional burdens which would be imposed by federal contractor status. The healthcare industry has sought assistance from Congress. Legislation has been proposed in both the House and Senate which would clarify that providers under TRICARE network provider agreements "would not be considered subcontractors for purposes of the Federal Acquisition Regulations or any other law."12 This provision, if enacted, will significantly affect OFCCP’s expanded enforcement as to TRICARE providers.


In the current economic climate, relief from the significant costs associated with complying with the record-keeping, reporting and affirmative action requirements associated with federal contractor status would be welcome in the health provider community. In the interim, healthcare providers who serve TRICARE or FEHBP participants may want to explore their potential contractor status with employment counsel and determine whether there are steps they should take now to position themselves for the future.


Karen M. Buesing, Esq. ( 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. ( 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 U.S. and overseas.

2 Directive 293 supersedes Directive 189 (Re: Health Care Entities that receive Medicare or Medicaid, December 16, 1993) and Directive 262 (Re: Coverage of Health Care Providers Based on their relationship with participation in FEHBP, March 17, 2003) . To review Directive 293 in full, go to: .

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


41 C.F.R. § 60.300.1. The OFCCP issued a Notice of Proposed Rulemaking in April 2011 of proposed changes which would substantially expand the affirmative action requirements of 41 CFR parts 60-250 and 60-300, the regulations implementing VEVRAA (38 U.S.C.§ 4212); the comment period closed June 27, 2011.


The Administrative Review Board issues final agency decisions for the Secretary of Labor in cases arising under a wide range of worker protection laws, primarily involving environmental, transportation, and securities whistleblower protection; H-1B immigration provisions; child labor; employment discrimination; job training; seasonal and migrant workers; and federal construction and service contracts. The Board’s cases generally arise upon appeal from decisions of Department of Labor Administrative Law Judges or the Administrator of the Department’s Wage and Hour Division.


ARB No. 00-034, 2003 WL 244810 (Jan. 31, 2003).


ARB Case No. 08-048 (May 29, 2009).


The ARB Order in the Braddock case has been appealed to United State District Court for the District of Columbia.


DOL ALJ, No. 2009-OFC-00002 (October 18, 2010).


The decision has been appealed to the Administrative Review Board.


Directive 293 at 2.


National Defense Authorization Act for Fiscal Year 2012 (S. 1253) was introduced in the Senate on June 22, 2011; see Section 702 of the bill entitled “Maintenance of the Adequacy of Provider Networks under the TRICARE Program”.

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