Despite ongoing litigation with health care providers and insurers, the Office of Federal Contract Compliance Programs (OFCCP) recently issued an extensive administrative directive to provide “comprehensive guidance for assessing when health care providers and insurers are federal contractors or subcontractors.” The December 16 directive emphasizes that OFCCP will assess contract coverage on a case-by-case basis; nonetheless, the directive provides a (perhaps premature) roadmap of possible jurisdictional issues for health care providers and insurers arising from their relationships with federal health care programs and/or participants.

According to the directive, OFCCP’s assessment of coverage issues for health care providers and insurers will include the following:

  • Does the health care provider or insurer have a covered federal contract or subcontract? Hospitals and health care providers are clearly subject to OFCCP jurisdiction through direct contracts with federal executive agencies – such as the Department of Veterans Affairs or the Federal Bureau of Prisons – to provide medical services. According to this recent directive however, OFCCP jurisdiction also may be established when a health care provider or insurer contracts with one of the nationwide federal health care programs (Medicare, TRICARE, and the Federal Employees Health Benefit Plan [FEHBP]). Jurisdiction can attach even if the arrangement is not labeled a “contract” or “subcontract” and even if such arrangement specifically rejects the obligation to comply with federal affirmative action obligations.[1]
  • Covered contracts with federal health care programs can include the provision of insurance, health care services (HMOs, PPOs, PSOs, or other forms of managed or coordinated care), administrative support (such as claims and data processing, customer service and marketing), medical savings plans/flexible spending plans, or a combination of these services and others.
  • When prime contractors with federal health care programs subcontract the performance of elements of the contract or subcontract for supplies and services necessary to the performance of the contract, a “subcontractor” relationship may be established and OFCCP may have jurisdiction over the subcontractor company. OFCCP’s directive also makes clear that its jurisdiction extends beyond “first-tier” subcontractors, so that any company that provides goods and services necessary to the performance of the prime contract or which fulfills an element of the prime contract would be a covered subcontractor.
  • Exemptions currently recognized by OFCCP include insurance reimbursement agreements between a health care provider and a federal contractor to provide health insurance (but not health care services), reimbursements made pursuant to Medicare Parts A and B (but not Medicare Parts C and D), Medicaid, grants, and other forms of financial assistance.
  • Notably, OFCCP’s directive claims that, for multi-establishment companies, even one covered contract or subcontract will establish OFCCP jurisdiction over all of the company’s establishments and facilities. This assumption by the agency is troublesome, especially in light of OFCCP’s insistence elsewhere in this directive that these issues must always be evaluated under a “case-by-case approach.”

This directive is particularly ambitious in light of the ongoing litigation of some of these very issues pending before the Administrative Review Board [2] and the U.S. District Court for the District of Columbia. [3] Should OFCCP not prevail in these cases, enforcement of this directive by the agency will be very difficult. Similarly, if OFCCP prevails in one or both of these cases, OFCCP’s enforcement efforts with regard to health care providers and insurers will only increase.

We strongly recommend that all health care providers and insurers immediately evaluate whether they could be classified as federal contractors and/or subcontractors – either through 1) direct federal contracts or subcontracts with federal executive agencies and/or 2) arrangements with federal health care programs and/or participants. While the ultimate enforceability of this directive depends in part on the ongoing litigation with the Braddock and Florida Hospital cases, health care providers and insurers which have arrangements with federal health care programs and participants can expect OFCCP to aggressively investigate claims of exemption. If such exemption claims are unsuccessful, these employers must familiarize themselves with and comply with federal affirmative action obligations, some of which attach at various monetary thresholds.