Health Law Alert: Federal Government Asserts Jurisdiction Over Health Care Providers for Purpose of Affirmative Action

August 09, 2011

This article details, in question and answer format, recent efforts by the federal government’s Office of Contract Compliance Programs (OFCCP) to assert jurisdiction over hospitals and other health care providers. 
 
What is the OFCCP?

The OFCCP is a unit within the Department of Labor (DOL) which imposes specified rules and regulations on companies doing business with the federal government. The OFCCP requires employers that contract or subcontract with the federal government to supply goods or non-personal services to abide by certain affirmative action rules in the employment context. Providing insurance is a “non-personal service” under OFCCP regulations. Therefore, any entity that contracts with the federal government to provide insurance services is a government contractor subject to OFCCP jurisdiction. Moreover, any entity that subcontracts with a main contractor covered by the regulations is subject to the same jurisdiction. The OFCCP has used this broad definition of “non-personal services” to assert jurisdiction over hospitals that contract with insurers to provide medical care.

Historically, hospitals have avoided the compliance requirements under Executive Order 11246 because Medicare provided insurance - not direct services. In December of 2010 the OFCCP issued a directive regarding jurisdiction over hospitals superseding two earlier directives on this subject. Gearing up for aggressive enforcement, the OFCCP released another new directive, the Active Case Enforcement Directive (ACE). The ACE procedures will result in more in-depth OFCCP audits and will greatly increase the chances of OFCCP making findings that are adverse to the employers they audit. Because of these two directives, the OFCCP has increased its enforcement activities and more and more health care organizations are being contacted by the OFCCP for audit.

Employers subject to OFCCP jurisdiction must have an affirmative action plan with regard to hiring minorities, women, disabled individuals, and veterans. Failure to create an affirmative action program and undertake the additional affirmative action obligations prescribed by federal regulations could subject the organization to significant fines and penalties, including exclusion/debarment from future government contracts. 

What kinds of medical service provider contracts fall under OFCCP jurisdiction?

Two recent cases demonstrate the broad jurisdiction that the OFCCP believes can be asserted over health care services contracts.

OFCCP v. UPMC Braddock, ARB Case No. 08-048 (May 29, 2009)

In May 2009, the OFCCP successfully asserted jurisdiction over 3 hospitals that contracted with an HMO to provide medical services to federal government employees. In this case, the hospitals had provider agreements with the HMO, which had a contract to provide medical supplies and services to patients insured by the Federal Employee Health Benefits Program (FEHBP). The DOL Administrative Review Board ruled that the provider agreements were covered subcontracts within the meaning of the OFCCP regulations. Therefore, the hospitals, as federal government subcontractors, had to abide by the OFCCP affirmative action rules. The Board distinguished the HMO arrangement from a traditional insurance reimbursement arrangement, which has historically not been considered a covered arrangement under the OFCCP regulations. This case is currently on appeal to the U.S. District Court for the District of Columbia.

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

In October 2010, the OFCCP scored another victory over hospitals when an administrative law judge ruled that Florida Hospital of Orlando was a covered subcontractor under the OFCCP regulations. In this case, the hospital contracted with Humana Military Healthcare Services to join its network and provide health care services to military service members insured by the TRICARE program. Humana had a contract with TRICARE to establish provider networks. The judge ruled that the Humana/Florida Hospital arrangement created a subcontract over which the OFCCP had jurisdiction despite Department of Defense regulations which provide that TRICARE is a federal financial assistance program and health care providers under network agreements are not subcontractors. This case is on appeal to an Administrative Review Board. 
 
What is OFCCP Directive 293?

Bolstered by the Braddock and Florida Hospital decisions, the OFCCP issued Directive 293 on December 16, 2010. The Directive outlines the OFCCP’s objectives for asserting jurisdiction over hospitals and other health care entities. The main principles of the Directive are as follows: 

  • Traditional fee-for-service reimbursement arrangements under Medicare Parts A and/or B or Medicaid are “federal financial assistance” and will not be considered covered contracts under the OFCCP’s jurisdiction. However, arrangements under Medicare Parts C (Medicare Advantage) and D (prescription drug coverage) may rise to the level of a federal government contract or subcontract. For example, the Directive provides that an organization with a contract to establish a Medicare Advantage PPO will be a covered contract. If the organization subcontracts with others to provide health care, prescription drugs, or claims processing, all of the subcontracts will be considered federal contracts as well.
  • The OFCCP may have jurisdiction over a health care provider receiving Medicare Part A and/or B reimbursement if the provider also holds a separate covered contract (i.e., a Medicare Advantage or Medicare Part D contract).
  • The OFCCP will distinguish between traditional reimbursement arrangements with insurance companies and arrangements with other types of health plans and HMOs. Following the reasoning in Braddock, a hospital providing services through a managed care company that contracts with a federal contracting agency will probably be considered a subcontractor for OFCCP purposes. The Directive points out that traditional insurance reimbursement arrangements do not provide direct health care services and therefore are exempt from OFCCP regulation.
  • The OFCCP reserves the right to determine whether an arrangement is a covered contract on a case-by-case basis. Notably, the OFCCP will apply broad definitions of the terms “contractor” and “subcontractor” without regard to the use of the same or similar terms in other government regulations.
  • A contractor or subcontractor may not defeat OFCCP jurisdiction by including language to the contrary in its contract.
  • OFCCP jurisdiction will probably attach to a health care provider that provides services to TRICARE or FEHBP beneficiaries.
  • Medical device providers and suppliers may be covered under the Directive.
  • Grants provided by federal health care programs will not in and of themselves create covered contracts.


Directive 293 can be found online by clicking here.

I’m a health care provider that may be covered under the Directive. What should I do? 

  • Review the terms of the OFCCP’s Directive carefully.
  • Carefully review the terms of your provider agreements to determine if they are subject to the Directive.
  • Determine if HMOs and other entities with which you have contractual arrangements have agreed to provide health care services to government employees.
  • Track the appeals and developments of the Braddock and Florida Hospital cases.
  • If the Directive applies, create or update affirmative action plans to comply with OFCCP regulations.
  • Monitor the OFCCP’s developments in Directive 293 and its application.