On May 18, 2018, the U.S. Office of Federal Contract Compliance Programs (OFCCP) issued a directive ending uncertainty as to whether efforts to audit TRICARE participants will resume in 2019 and signaling an encouraging willingness to reconsider the agency’s prior positions on this issue. Directive 2018-02 announces a two-year extension of the current moratorium on enforcement of federal contractor obligations based on TRICARE participation through May 7, 2021.

Background

TRICARE is the Department of Defense (DOD) program that pays for the medical benefits of active duty and retired military personnel and their families. The DOD has three direct contractors that administer the TRICARE program: (1) Humana Military Health System; (2) TriWest; and (3) Health Net. These three direct contractors, in turn, enter into agreements with hospitals and other medical providers to supply medical care and supplies to military personnel and their family members covered by TRICARE.

During the Obama administration, the OFCCP began to assert jurisdiction over health care providers based on their participation in TRICARE. The OFCCP reasoned that TRICARE providers were covered government subcontractors either because (1) they were providing supplies or services necessary to the performance of the direct contractors TRICARE contracts or else (2) had assumed or undertaken some portion of the direct contractors’ obligations under the TRICARE contracts.1

Health care providers responded by objecting to the OFCCP’s assertion of jurisdiction leading to litigation between the agency and Florida Hospital of Orlando. In addition, Congress responded in 2011 by including a provision in the National Defense Authorization Act (NDAA) for Fiscal Year 2012 barring the OFCCP from asserting jurisdiction over a healthcare provider based on TRICARE participation:

In establishing rates and procedure for reimbursement of providers and other administrative requirements, including those contained in provider network agreements, the Secretary shall, to the extent practicable, maintain adequate networks of providers, including institutional, professional, and pharmacy. For the purpose of determining whether network providers under such provider network agreements are subcontractors for purposes of the Federal Acquisition Regulation or any other law, a TRICARE managed care support contract that includes the requirement to establish, manage, or maintain a network of providers may not be considered to be a contract for the performance of health care services or supplies on the basis of such requirement.

Despite this clear congressional attempt to foreclose further assertions of jurisdiction based solely on TRICARE, the OFCCP continued its efforts. Specifically, while the OFCCP admitted that the NDAA precluded it from asserting jurisdiction over TRICARE providers based on the second prong of the definition of a subcontract (assumption of a government contractor’s obligations), it argued that it could still assert jurisdiction based on the first prong of the definition (providing supplies or services necessary to the performance of a prime contract).2

In 2014, concern over the OFCCP’s aggressive position led to the introduction in the House of Representatives, initially with bipartisan support, of the Protecting Health Care Providers from Increased Administrative Burdens Act, which would have broadly prevented the OFCCP from asserting jurisdiction over healthcare providers based on their federal health program participation. At the same time, litigation between the OFCCP and Florida Hospital of Orlando over TRICARE jurisdiction was continuing.

It was at this point, seeing that it could lose its argument in the courts and face further congressional restraints, that the OFCCP abandoned its efforts to audit Florida Hospital, closed pending audits against TRICARE providers, and agreed to a five-year moratorium on TRICARE audits. Unfortunately, this was a poor outcome for TRICARE providers as it not only prevented a clear resolution of the issues in dispute, but meant at least five more years of uncertainty.

Conclusions

When the moratorium was set to expire in 2019, TRICARE participants had to decide in 2018 whether to start complying with the OFCCP’s rules in order to be prepared to possibly be audited in 2019. The two-year extension means that current TRICARE participants now have some additional time to decide whether to end participation in the program, come into compliance with the OFCCP’s rules, or be prepared to fight the agency over jurisdiction.

Moreover, it is hoped that this two-year extension is the first step in a process that will lead to the OFCCP abandoning its claim to have jurisdiction based on just TRICARE participation. Such optimism would seem to be supported by language in Directive 2018-02 noting that the “OFCCP has determined that it would be beneficial to the national interest and the health of veterans and their families to extend the moratorium to provide additional time to receive feedback from stakeholders.” The Directive also cites a GAO report documenting the “difficulties active-duty and retired service members and their families have accessing healthcare” and expressing a concern “that the continued uncertainty over the extent to which the E.O., Section 503, and VEVRAA apply to TRICARE subcontractors has contributed to this difficulty.”

It is a hopeful sign to see the OFCCP finally acknowledging the burdens that its actions have imposed on health care providers and the consequences for the people they serve.