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OFCCP Backs Off TRICARE Providers

July 2, 2020 By Matt Nusbaum

In a final rule set to be published in tomorrow’s Federal Register, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) will finally put to bed the question of whether or not TRICARE contracts confer agency jurisdiction—they do not.

TRICARE, managed by the Defense Health Agency, is a federal health care program serving uniformed service members, retirees, and their families. Under the program, TRICARE administrators contract with individual health care providers to create a provider network for an HMO-like program. In 2007, the OFCCP faced litigation over its enforcement authority based on TRICARE contracts, owing to the underlying legislation’s wording, clear legislative intent, and the OFCCP’s own regulatory definition of “government contract.” The OFCCP tied itself in knots arguing to retain jurisdiction, even after clarifying language was added to the legislation to specifically exempt TRICARE contracts from OFCCP’s reach.

Rather than face a potential adverse ruling in court, the agency suspended “TRICARE audits” while they reviewed and further analyzed the law. Under that moratorium, the OFCCP did not initiate audits based on a contractor holding a TRICARE agreement. However, if the contractor held any other qualifying federal contract, the agency was free to move forward with enforcement and did so. In other words, health care providers could not shield themselves from OFCCP jurisdiction simply by entering into a TRICARE contract.

With the publication of the final rule, the OFCCP merely makes that moratorium permanent—nothing changes for TRICARE contractors.

However, some initial reporting has sewn some confusion, indicating that the TRICARE final rule is a broader exemption than it is, even going so far as to describe the agency’s action as a “slippery slope” potentially leading to blanket enforcement exemptions. This is, frankly, just untrue.

One does not even need to read past the executive summary of the final rule to find clear language explicitly noting that the “TRICARE exemption” is not an exemption at all. Holding a TRICARE contract is not a “get-out-of-jail-free” card of any sort. TRICARE contracts are simply not “government contracts” under the OFCCP’s regulations, so entering into a TRICARE contract does not make an organization a “federal contractor.”

However, if a TRICARE contract-holding provider also holds a different, qualifying “government contract,” they are still a federal contractor subject to the full panoply of equal employment opportunity and affirmative action obligations (subject to existing contract value and employee thresholds). This should not be unfamiliar to health care providers that hold, say, Medicare contracts.

In the OFCCP’s final rule, the agency provides two reasons for making the existing TRICARE moratorium permanent. The first reason is that they do not qualify as “government contracts,” but the agency also notes that, if their interpretation of the law in that respect turns out to be incorrect, it is also exercising its enforcement discretion under the well-established “national interest exemption.”

The national interest exemption has most often been invoked in response to natural disasters such as hurricanes. In an effort to encourage private contractors to “pitch in” on relief and rebuilding efforts, the exemption is applied to those contracts. And it works exactly the same way as the current TRICARE moratorium—those hurricane relief contracts are exempted from the OFCCP’s definition of “government contract.” The contractor, however, is not exempted, just the contract. So an existing federal contractor cannot exempt their organization from OFCCP jurisdiction simply by entering into a hurricane relief contract.

Historically, the OFCCP has been fairly stingy with the national interest exemption. For instance, despite compelling arguments from certain defense contractors regarding classified work at classified facilities—the location of which they might be prohibited from even disclosing—the agency is famously reluctant to let such contractors “off the hook” based on a national interest argument.

And national interest exemptions for hurricane relief efforts over the past decade have always included a limited time frame for executing “exempted” contracts. In other words, after a certain period, even those hurricane relief and rebuilding contracts always fall back into the definition of a “government contract.” True, this national exemption would be permanent, but only as permanent as TRICARE.

National interest exemptions are nothing new, have never operated as a “shield” from EEO/AA obligations, and the OFCCP has not indicated any intention to deviate from longstanding practices in this area. So it is unclear where these “slippery slope” concerns originate.

The only thing that happens with the publication of the OFCCP’s final rule here is that health care providers will now have finality on the TRICARE contract issue.

OFCCP to Propose Ending the TRICARE Fight

November 5, 2019 By Matt Nusbaum

In tomorrow’s Federal Register, the OFCCP will publish a Notice of Proposed Rulemaking meant to end the agency’s decade-long fight over whether and to what extent TRICARE providers fall under OFCCP’s jurisdiction by effectively making the existing TRICARE moratorium permanent.

TRICARE is an HMO-like federal managed health care program serving uniformed service members, retirees, and their families and is managed by the Defense Health Agency (DHA) within the Department of Defense (DoD). DHA contracts with managed care support contractors that, in turn, enter into agreements with individual and institutional health care providers to create provider networks for the program. From the start in 1997, the OFCCP considered TRICARE contracts, both prime and subcontracts, as qualifying contracts under the agency’s regulations implementing Executive Order (E.O.) 11246, Section 503 of the Rehabilitation Act, and the Vietnam Era Veteran’s Readjustment Assistance Act (VEVRAA).

It wasn’t until 2007 that the OFCCP’s jurisdiction over TRICARE providers (subcontractors) was challenged in court. Unfortunately, the various holdings in OFCCP v. Florida Hospital of Orlando provided more confusion than clarity. Congress actually stepped in and attempted to legislatively remove the OFCCP’s authority over TRICARE subcontractors, DoD issued a directive stating that TRICARE subcontracts are not “subcontracts” as defined in the OFCCP’s regulations, and the Department of Labor’s own Administrative Review Board (ARB) questioned whether TRICARE subcontracts constitute federal assistance, which would remove them from OFCCP jurisdiction much like Medicare Parts A and B.

But the OFCCP is understandably protective of its authority. The agency has long asserted (quite successfully) that other federal agencies do not have the authority to exempt contractors from OFCCP jurisdiction. And although a determination by the ARB would be the final say on behalf of the Department of Labor, of which the OFCCP is a part, the ARB did not decide the federal assistance question. Rather, it remanded the case to the lower administrative court, the Administrative Law Judges (ALJ) to render an initial opinion that could then be challenged before the ARB (but never did and never was). Finally, the OFCCP balked at even Congressional legislation deciding the issue for a host of complicated reasons. For one, Congress did not amend Section 503 or VEVRAA, and arguably does not have the authority to amend E.O. 11246.

Nonetheless, there was pressure on the OFCCP from all sides to exclude TRICARE subcontracts from coverage. OFCCP effectively tabled the issue for five years in 2014 by implementing a moratorium on initiating audits based on TRICARE subcontracts. Under that moratorium, prime TRICARE contractors were still covered, and TRICARE subcontractors that held other qualifying federal contracts were still covered, but a health care provider holding only a TRICARE subcontract was considered off-limits.

A little under a year before the initial moratorium was set to expire, the OFCCP issued a new directive extending the moratorium until May 7, 2021. The agency expressed concern that OFCCP jurisdiction over TRICARE providers would hinder the ability of military families to access needed healthcare and determined that it would be in the national interest to extend the moratorium to both provide the agency with additional time to assess the situation and for potential further action by Congress.

Now almost exactly one and a half years before the current TRICARE moratorium is set to expire, the OFCCP is throwing in the towel, but is still reluctant to do so permanently. The draft Notice of Proposed Rulemaking floats two possible avenues for deciding the TRICARE question: 1) Changing the regulatory definition of “subcontract” to explicitly exclude TRICARE contracts in the regulations implementing E.O. 11246, Section 503, and VEVRAA; or 2) Establishing a group exemption for TRICARE providers that do not hold separate, qualifying federal contracts.

The health care community is likely to support the first option, changing the OFCCP’s regulatory definition, because that would be much harder for the agency to reverse later. Regulatory changes are subject to, among other things, the Administrative Procedure Act and the Paperwork Reduction Act that prevent federal agencies from revising regulations on a whim. An exemption, on the other hand, is the agency simply exercising its enforcement discretion. That is akin to an internal agency policy or procedure which can be much more easily changed.

However, the OFCCP appears to be amenable to both changing the agency’s regulations and establishing an exemption. The agency is clearly concerned with providing health care providers, particularly those considering participating as TRICARE providers, with certainty. In the event that the agency’s legal analysis is somehow deemed to be incorrect, potentially invalidating the regulatory change, the exemption could act as a backstop. By doing both, the OFCCP signals to the healthcare community that even if the agency doesn’t have to exempt TRICARE subcontractors from its jurisdiction, it wants to. So, for instance, if a future Congress passes legislation to explicitly include TRICARE providers under the OFCCP’s jurisdiction, the agency still has the authority to leave the exemption in place.

Note that when and if the OFCCP’s proposal is enacted, nothing actually changes for TRICARE providers. The OFCCP’s proposed actions effectively make the existing TRICARE moratorium permanent. The policy implications are significant, but the practical implication is essentially a collective sigh of relief.

Note also that TRICARE prime contractors have always been and will remain subject to the OFCCP’s regulatory requirements and jurisdiction. Only TRICARE subcontractors (providers) are exempted.

Finally, note that entering into a TRICARE contract is not a “get-out-of-OFCCP-jurisdiction-free” card. The OFCCP will not initiate an audit or investigation based on a TRICARE subcontract, but will happily knock on your door if you hold a different type of qualifying federal contract.

The OFCCP’s draft notice is available here. Once published in the Federal Register, the public will have 30 days to submit comments (the deadline should be Friday, December 6, 2019). To submit electronically, go to http://www.regulations.gov and search for Regulatory Information Number 1250-AA08. Comments can also be submitted by mail, hand delivery, or courier addressed to Harvey D. Fort, Deputy Director, Division of Policy and Program Development, Office of Federal Contract Compliance Programs, 200 Constitution Avenue NW, Room C-3325, Washington, DC 20210.

OFCCP TRICARE Directive 2014-01

May 20, 2014 By editor

Background: The Office of Federal Contract Compliance Programs (OFCCP) enforces Executive Order (E.O.) 11246, as amended, Section 503 of the Rehabilitation Act of 1973 (Section 503), as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), as amended. Collectively, these laws prohibit federal contractors and subcontractors from discriminating on the basis of race, color, religion, sex, national origin, and status as a qualified individual with a disability or protected veteran. They also require federal contractors and subcontractors to take affirmative steps to ensure equal employment opportunity in their employment processes.

Directive 2014-01: The OFCCP has recently acknowledged a lack of common understanding between the Department of Labor and covered subcontractors of the TRICARE community regarding the OFCCP’s jurisdiction to audit certain facilities under the laws and regulations they administer. Due to this, and legal challenges brought forth, the Department of Labor issued Directive 2014-01 on May 7, 2014.

The good news: Directive 2014-01 puts in place a five-year moratorium on OFCCP’s enforcement of TRICARE subcontractors covered under the directive. During the moratorium, the OFCCP will assist with outreach and technical assistance programs to provide greater transparency and education to the TRICARE community on the laws enforced by the OFCCP, and coverage under such.

In addition, covered TRICARE subcontractors with open and pre-existing audit evaluations will receive administrative closure within 30 days of the effective date of this directive, or, May 7, 2014. TRICARE subcontractors receiving an OFCCP scheduling letter after the effective date of this directive should reach out to their local OFCCP office to request an administrative closure of the evaluation.

For further information regarding the policies, procedures, and coverage of this directive, please follow the link below to the OFCCP’s website: http://www.dol.gov/ofccp/regs/compliance/directives/dir2014_01.htm.