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OFCCP Announces Five-Year Moratorium from Enforcement Related to TRICARE

Labor & Employment Law Alert Pamela M. Ploor

On May 7, 2014,OFCCP announced a five-year moratorium on audits of health care entities that, while not being a direct federal contractor, have what OFCCP terms a federal subcontract with TRICARE, the Department of Defense’s health care program for active and retired military members. In very good and unexpected news, the moratorium would apply even if, in addition to the subcontract under TRICARE, the health care entity also had one or more subcontracts under different federal health programs. The moratorium would not apply to discrimination charges as opposed to audits. OFCCP will continue to process charges of discrimination it receives directed against TRICARE “subcontractors.” The moratorium on audits would not apply if in addition to the TRICARE subcontract, the health care entity also has a direct federal government contract or a federal subcontract that is not tied to a federal health program (perhaps a subcontract to help another health care entity perform research under a federal contract held by that different entity) or a subcontract that is not health care related (perhaps the health care entity is allowing some of its excess space to be used by a government contractor to assemble parts to build a widget for the Army). More specifics follow below.

The announcement came in the form of Directive 2014-01. OFCCP states a “difference in understanding” exists between the Department of Labor (DOL) and “some entities affiliated with the TRICARE community” regarding subcontractor coverage. As a result of what OFCCP calls “confusion” regarding coverage in the “TRICARE subcontractor community,” it is issuing the five-year moratorium. This alert summarizes the OFCCP directive and provides recommendations to health care entities.

During the five-year period, OFCCP will do “extensive outreach,” which includes providing technical assistance, training, convening listening sessions, and conducting webinars on OFCCP’s legal authorities and jurisdiction. The purpose of the outreach, according to OFCCP, is “to provide greater clarity” about OFCCP coverage as a result of TRICARE. The directive also states OFCCP will work with other federal agencies to clarify “coverage of health care providers under federal statutes applicable to subcontractors.” It appears OFCCP will try to convince the Department of Defense to support (or perhaps not detract from) OFCCP’s effort to assert coverage of TRICARE providers. What OFCCP will not do during the moratorium is give up its effort to bring health care entities that receive or participate in TRICARE under OFCCP’s regulatory control. OFCCP is just agreeing not to pursue health care entities via audit for five years.

The moratorium applies to health care entities that participate in TRICARE as subcontractors under a prime contract between the Department of Defense TRICARE Management Activity and one of the prime contractors providing managed-care contractors, including (1) health care entities that participate in TRICARE only as subcontractors, (2) health care entities that participate in TRICARE as subcontractors and as subcontractors under any Medicare program, (3) health care entities that participate in TRICARE as subcontractors and as subcontractors under the Federal Employee Health Benefits Program, and (4) health care entities that participate in TRICARE as subcontractors and “as subcontractors under any other federal health program.” Health care entities that remain covered as a contractor, according to OFCCP, and are not exempted by the moratorium are (1) entities that participate in TRICARE as subcontractors and that hold prime contracts with a federal agency (like the Veterans Administration or the Indian Health Service), and (2) TRICARE subcontractors that hold separate, independent non-health care related federal subcontracts.

If a health care entity that is subject to the moratorium has a pending OFCCP audit, OFCCP will close the audit within 30 business days of the date of the directive (by June 19, 2014). A health care entity covered by the moratorium that receives an OFCCP audit letter (OFCCP calls such letters a “scheduling letter”), should send a letter to its local OFCCP office requesting administrative closure of the audit and include a copy of its TRICARE agreement. If a health care entity covered by the moratorium previously received advance notice of an OFCCP audit through the Corporate Scheduling Announcement Letter (CSAL), OFCCP states the entity should wait to receive the scheduling letter before requesting closure — ostensibly because OFCCP may never send the scheduling letter.

The moratorium appears to be the result of resistance from TRICARE providers to OFCCP jurisdiction and to Congressional oversight reflecting displeasure with OFCCP’s application of its obligations to TRICARE recipients. There is a bill (H.R. 3633: Protecting Health Care Providers from Increased Administrative Burdens Act) pending before Congress providing that entities that receive payment from the federal government related to the delivery of health care services to individuals will not be treated as a federal contractor or subcontractor by the OFCCP. Health care entities that do not wish to be federal contractors should support passage of this bill because its current chance of enactment is very low.

Recommendations: Health care entities that may be covered by the moratorium and are in a current OFCCP audit should quickly determine their bases for coverage and request administrative closure of any pending audit if there is a basis to do so. If a health care entity received notice of an upcoming OFCCP audit when it received a CSAL, it should sit tight to see if OFCCP sends a scheduling letter.

If a health care entity with a TRICARE agreement but no direct federal contracts receives a charge of discrimination from OFCCP during the moratorium, the entity should consider whether it should challenge OFCCP’s ability to process the charge on the basis that the TRICARE agreement is not a covered federal subcontract (despite OFCCP’s continued position, not yet sustained by a court, that it is a covered subcontract).

Outside of OFCCP audits, health care entities need to remain vigilant when faced with requests to agree to provide medical services connected with TRICARE. The moratorium assumes that federal subcontractor status exists despite the statute (National Defense Authorization Act, H.R. 1540, 2012) that Congress passed to exempt such coverage. The moratorium merely delays enforcement of OFCCP’s ambiguous standards. Health care entitles could find themselves deeper into federal contractor status, according to OFCCP’s interpretation, if they fail to understand the basis for each prime contract up the line from them and how their services relate to the prime contract. The scope of the moratorium is quite broad and appears to reflect OFCCP’s enforcement position that a hospital’s receipt of TRICARE or provision of medical services as a TRICARE subcontractor to a federal employee who participates in the Federal Employee Health Benefits Program (FEHBP) is sufficient for federal contractor status.

For more information, please contact Pamela Ploor at (414) 277-5661 /, Ely Leichtling at (414) 277-5681 /, Adrianne Mazura at (312) 715-5213 /, Eric B. Johnson at (602) 229-5425 /, or your Quarles & Brady attorney.