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OFCCP Issues Guidance on Coverage of Health Care Providers

Labor & Employment Law Alert Pamela M. Ploor, Ely A. Leichtling, Adrianne C. Mazura

All health care providers, including pharmacies, should take steps to assess their risk for being found to be a federal contractor or subcontractor following a recent policy directive issued by the Office of Federal Contract Compliance Programs ("OFCCP"). The directive provides guidance on when health care providers are considered federal contractors or subcontractors under the laws, regulations and orders enforced by the OFCCP, including those concerning federal Affirmative Action Program obligations. Although not announced as a major change in policy, the directive makes clear OFCCP's position and analysis going forward.

On December 16, 2010, the OFCCP issued its policy directive "Coverage of Health Care Providers and Insurers" (Number 293). This directive supersedes two earlier directives: (1) Directive Number 189, Health Care Entities that Receive Medicare and/or Medicaid (December 16, 1993); and (2) Directive Number 262, Coverage of Health Care Providers Based on their Relationship with Participants in the Federal Employees Health Benefits Program (March 17, 2003). In the new directive, the OFCCP makes clear that a wide variety of arrangements with a health care provider may create a covered contract or subcontract. It also provides that the wide variety of health plans, providers, services and arrangements dictates an individual determination of whether there is OFCCP coverage and thus "[i]t is imperative that each plan is examined on a case-by-case basis, rather than just assuming based on a label (e.g., PPO) that the plan works in a particular manner or otherwise imposes certain obligations on the plan."

The directive outlines the OFCCP's general approach to possible coverage of health care entities as federal contractors or subcontractors. A typical form of coverage as a direct federal contractor occurs when the health care provider contracts to provide specified health care services to members and beneficiaries of one or more health plans within a federal program. A contract between a government agency or federal program and a health care provider may also require the health care provider to establish and/or operate a managed or coordinated care plan (e.g., an HMO) or facility. The directive states that direct federal contracts with health care providers are used by TRICARE, the Federal Employees Health Benefit Plan ("FEHBP") and Medicare's Advantage (Part C) and Prescription Drug (Part D) programs. TRICARE is the federal health care program serving active duty military service members, members of the National Guard and Reserve, military retirees, the families of military service members and certain former military spouses.

The directive provides examples of the types of direct contracts that result in OFCCP coverage, assuming jurisdictional amounts are met, including:

  • A federal program contracts with a hospital to provide an HMO plan for the members and beneficiaries of one of its health plans. The hospital is a direct (prime) contractor and OFCCP jurisdiction is established.

  • An outpatient medical facility contracts with the Department of Veterans' Affairs and the Department of Defense to provide health care services to active duty and retired military personnel under TRICARE. The outpatient facility is a direct (prime) contractor and OFCCP jurisdiction is established.

The directive also addresses specific subcontractor relationships and states that a covered subcontractor relationship exists when the subcontract at issue is necessary to the performance of a covered prime contract, or when the subcontract's purpose is to perform any portion of the prime contractor's obligation. Whether a particular contract with a prime federal contractor is a covered subcontract must be determined on a case-by-case basis, considering all of the contract's provisions and their relation to the prime contract.

The starting point - for one example - is when a federal program or agency offers health care plans that provide actual health care services to its members and beneficiaries (as opposed to offering only insurance services). Health care plans that provide actual health care services can include HMOs and/or other forms of managed or coordinated care programs. To offer such plans, a federal program typically contracts with a health care plan or company to establish the desired managed or coordinated care plan. The health care plan or company that contracts with the federal program to establish the managed or coordinated care program is a covered federal contractor, but the analysis does not stop there. Often, the health care plan or company will then contract with one or more health care providers to provide some or all of the medical services the plan is contractually obligated to provide. In such circumstances, according to the directive, the entity actually providing the health care services is a covered subcontractor.

The OFCCP's position on this point was upheld in OFCCP v. UPMC Braddock, et al., ARB Case No. 08-048 (May 29, 2009), which currently is on appeal in federal court. In that case, a prime contract to put an HMO into operation existed between the U.S. Office of Personal Management ("OPM"), which is the FEHBP program's contracting agency, and the University of Pittsburg Medical Center ("UPMC") Health Plan. The three UPMC hospitals (the health care providers) were found to be covered subcontractors because they were under a contract with UPMC to provide the supplies and services to members and beneficiaries of the UPMC Health Plan that were required by the UPMC Health Plan's contract with the OPM.

Another example of a covered subcontractor relationship, according to the directive, starts when a health plan company has a prime contract with CMS, which is Medicare's contracting agency, to provide a PPO health plan that includes a prescription drug plan (Medicare Part D) for Medical Advantage members. If the health plan company (the direct or prime contractor) in turn contracts with a pharmaceutical company to provide the necessary prescription drugs and with a hospital to prove the health care services the PPO requires, then both the pharmaceutical company and the hospital are covered subcontractors.

The directive explains that the following situations do not create OFCCP coverage:

  1. An insurance reimbursement agreement between a health care provider (e.g., a doctor or hospital) and a federal contractor who contracted with the federal government only to provide health insurance, not health care services. The reason the health care provider is not subject to OFCCP coverage is that the prime contract with the federal program is an insurance contract solely for the provision of health insurance to federal program members and beneficiaries. The payment of fees by the insurer directly to health care providers is neither necessary to the performance of the prime insurance contract nor to the fulfillment of an element of the prime contract;

  2. Reimbursements made pursuant to Medicare Parts A and/or B or Medicaid; and
  3. Grants and/or federal financial assistance from federal health care programs.

Advice for Health Care Providers

The directive is another shot across the bow to health care providers, who should locate and review any agreements they may have with TRICARE, FEHBP and any other part of the federal health care apparatus except Medicare (Parts A and B) and Medicaid. Also, they should determine what kind of providers they are under TRICARE or the FEHBP.

A TRICARE network provider signs a contractual agreement with the TRICARE managed care support contractor and agrees to accept a negotiated rate. A non-network TRICARE provider does not sign a contractual agreement with the TRICARE managed care support contractor and is either a participating non-network provider (one who submits bills directly to TRICARE and accepts TRICARE reimbursements) or a non-participating non-network provider (one who submits bills to the patient and gets reimbursed at higher rates from TRICARE). The directive does not address the OFCCP's enforcement position that receipt of TRICARE payments (even by a non-network provider) creates coverage.

If a health care provider is a subcontractor to an entity that itself has an agreement with TRICARE, the FEHBP or any other federal agency, program or entity, the health care providers should analyze the nature of that other entity's agreement with TRICARE, the FEHBP or the other federal agency, program or entity. The health care provider must consider whether they are performing a necessary part of the agreement that other entity has with TRICARE, the FEHBP or the other federal agency, program or entity. This analysis is imperative and should be done now with counsel experienced in OFCCP matters and not under the gun during an OFCCP audit.

If you have any questions about OFCCP's recent guidance or OFCCP in general, please contact Pam Ploor at
(414) 277-5661 / pamela.ploor@quarles.com, Ely Leichtling at (414) 277-5681 / ely.leichtling@quarles.com,
Adrianne Mazura at (312) 715-5213 / adrianne.mazura@quarles.com or your Quarles & Brady attorney.