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© Husch Blackwell LLP

HEALTHCARE AND OFCCP:Jurisdictional Coverage

at a Crossroads

Husch Blackwell WebinarWednesday, April 13, 2011

12:00 – 1:00 p.m. CDT

Presenters:Mary Elizabeth “Molly” Kurt, Esq.

Husch Blackwell [email protected]

Gerard K. “Jerry” Rodriguez, Esq.Husch Blackwell LLP

[email protected]


Introduction: What is the OFCCP and

What Laws Does it Enforce?

1. Office of Federal Contract Compliance Programs (OFCCP) is an executive agency of the Federal Government.

2. OFCCP enforces Executive Order 11246, signed in 1965 by President Johnson.• Also VEVRAA and the Rehabilitation Act.

3. EO 11246 requires Equal Employment and Affirmative Action in employment by federal contractors and subcontractors.

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3© Husch Blackwell LLP 3

Introduction, cont’d

4. Virtually all employers are required to engage in EEO.

5. Affirmative action goes a step further: Proof of good faith efforts to recruit women and minorities.• EEO is neutral, affirmative action is

proactive

6. EO 11246 includes responsibility to prepare affirmative action plans, track race and sex of job applicants, reach out to a broader recruiting network.

7. Paperwork threshold begins at single contract of $50k and 50 employees.


OFCCP Jurisdiction Over The Healthcare Industry

An Overview of The Major Decisions Impacting The Healthcare Community

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OFCCP v. Bridgeport Hospital, (ARB Case No. 00-034)(Jan. 31, 2003)

• The Prime Contract:

� U.S. Office of Personnel Management (OPM) contracts with Blue Cross/Blue Shield (BC/BS).

• BC/BS agrees to provide reimbursement to OPM employees on medical services.

• OPM (through employee premiums) pays fixed premiums to BC/BS (more than $50,000).


OFCCP v. Bridgeport Hospital (2003)

• The Secondary Contract:

� BC/BS indirectly contracts with Bridgeport (Conn.) Hospital.

• Bridgeport agrees to provide medical services to BC/BS participants (including OPM employees/families).

• BC/BS pays Bridgeport for medical services (more than $50,000).



• The Dispute:

� OFCCP cites Bridgeport for non-compliance with affirmative action program (AAP) requirements (E.O. 11246, Sec. 503 of Rehabilitation Act, and Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA)).

� Bridgeport claims it is not a federal contractor or “subcontractor.”



• The Result:

� Bridgeport wins; no AAP compliance required.

� OFCCP licks its wounds and issues OFCCP Directive 262 (March 17, 2003).

• Healthcare provider relationships with federal employee health care participants does not automatically impose OFCCP jurisdiction.



• The Analysis:

� Prime Contract (OPM – BC/BS): Contract is for insurance/reimbursement services –Not for guarantee or delivery of medical services.

� Secondary Contract (BC/BS –Bridgeport): Contract is for delivery of medical services.

� Services are so different (in Prime and Secondary Contracts) that no further analysis of Bridgeport as a federal subcontractor is required.


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

UPMC Braddock v. Solis, (Case No. 1-09-CV-01210)(D.D.C., filed June 30, 2009)


� OPM contracts with Univ. of Pittsburgh Medical Center (UPMC)’s Health Plan (Health Plan) (an HMO).

• Health Plan agrees to provide medical products and services (i.e., agrees to provide doctors and hospitals) to OPM employees/families.


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

UPMC Braddock v. Solis, (Case No. 1-09-CV-01210)(D.D.C., filed June 30, 2009)


� Health Plan contracts with UPMC Braddock, UPMC McKeesport, and UPMC Southside

(Medical Centers).

• Medical Centers agree to provide medical services to Health Plan participants (including OPM employees/families).


OFCCP v. UPMC Braddock (2009)

• The Dispute:

� OFCCP cites Braddock, McKeesport, and Southside (the Medical Centers) for non-compliance with E.O. 11246, Sec. 503, and VEVRAA.

� Medical Centers claim they are not a federal contractor or “subcontractor.”



• The Result:

� Medical Centers lose; Full AAP compliance is required.

• Medical Centers appeal from the Administrative Review Board (ARB) to D.C. District Court.

• Case remains pending.



• The ARB Analysis:

� Prime Contract (OPM – Health Plan): Contract is for delivery of medical services.

� Secondary Contract (Health Plan –Medical Centers): Contract is for delivery of some of the medical services promised by the Health Plan to OPM.

� Services are so similar (between Prime and Secondary Contracts) that ARB must conduct “federal subcontractor” analysis of Medical Centers.



• According to OFFCP regulations, who is a “federal subcontractor”?

Subcontract means any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of the employer andemployee) if the agreement is one:



1. For the purchase, sale or use of personal property or non-personal services which, in whole or in part, is necessary to the performance of any one or more contracts; or

2. Under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken, or assumed.

41 CFR § § 60-1.3, 60-741.2, 60-250.2(1).


Federal Subcontractor “3-Step Analysis”

� Step 1: Identify the Prime Contract/Prime Contractor

• Requires a contract between federal government agency and employer for purchase or use of personal property or non-personal services during the period of investigation

� Step 2: Identify any Secondary Contract(s) (between the Prime Contractor and Subcontractor(s))


Federal Subcontractor “3-Step Analysis”

• Does the contract between the Prime and Sub require the Sub to provide any portion of the actual products or services required of the Prime Contractor? OR

• Is the contract between the Prime and Sub “necessary” to the performance of the Prime contract?

� Step 3: Do the Prime- and Sub-contractors have 50 employees and a $50,000 single covered contract?


OFCCP v. Florida Hospital of Orlando, (ALJ Case No. 2009-OFC-0002)(Oct. 18, 2010),

on appeal to Administrative Review Board (ARB Case No. 11-011)


� TRICARE (DOD’s health care program for uniformed services members/families) contracts with regional program managers (i.e., HealthNetFederal Services, Humana Military Healthcare Services, Inc., and TriWest Healthcare Alliance).

• Program Managers agree to enroll patients, manage referrals process claims, provide customer service, underwrite healthcare costs, and establish networks of providers.

• TRICARE pays Program Managers for their various services.


OFCCP v. Florida Hospital of Orlando, (ALJ Case No. 2009-OFC-0002)(Oct. 18, 2010),

on appeal to Administrative Review Board (ARB Case No. 11-011), cont’d.


� Program Managers contract with Florida Hospital of Orlando to provide healthcare services for TRICARE program.

• Florida Hospital provides healthcare services for TRICARE beneficiaries.

• Program Managers pay Florida Hospital for medical services provided (approx. $100,000).


OFCCP v. Florida Hospital of Orlando (2010)

• The Dispute:

� OFCCP requests desk and onsite audit of Florida Hospital under affirmative action laws.

� Florida Hospital protests OFCCP’s jurisdiction and does not comply with audit requests.

� OFCCP files administrative complaint.



• The Result:

� Administrative Law Judge (ALJ) finds Florida Hospital is a “federal subcontractor” subject to full compliance with AAP laws.

� Decision is on appeal to the ARB.



• The ALJ Analysis:

� Prime Contract (TRICARE – Program Managers): Contract, at least in part, is for delivery of medical services.

� Secondary Contract (Program Managers –Florida Hospital): Contract is for delivery of medical services.

� Florida Hospital satisfies requirements of a “federal subcontractor.”



• Florida Hospital’s Rejected Defenses:

� Florida Hospital is not providing any portion of Program Manager’s obligations under Prime Contract.

� TRICARE is federal financial assistance; it is similar to Medicare.

� DOD’s designation of TRICARE as federal financial assistance program should be determinative.

� TRICARE’s designation of Florida Hospital as not being a federal subcontractor should be determinative.


OFCCP Directive 293:

What Does it Tell Us?

• Issued December 16, 2010.

• Superseded Directives 189 (Medicare 1993) and 262 (FEHBP 2003).

• Intended to address 3 programs:

� Medicare/Medicaid

� TRICARE (military members and dependents). 9.6 million members and dependents

� FEHBP (civilian)


Directive 293, cont’d.

• OFCCP acknowledges response to Braddock (FEHBP), Florida Hospital(TRICARE), and Bridgeport (FEHBP).

• A methodical approach, although some points open to debate.

• Silver lining: read examples carefully. There may be ways to structure contracts to avoid OFCCP jurisdiction.


Directive 293: 9 Principles

1. Because of a wide variety of plans, providers and services, OFCCP will use case-by-case approach.

� OFCCP must establish that there is a “covered contract or subcontract” to assert jurisdiction.

2. OFCCP will look to the essence of the relationship and not what the parties call it.


Directive 293: 9 Principles, cont’d

3. Contractor obligations mandated by OFCCP cannot be altered or limited by contractual language (in other words, we don’t care what another agency says).

4. Under each of the three major Federal health programs, an entity can enter into a prime contract for various kinds of services (insurance, health care, administrative support).



5. Prime contractor can, in turn, subcontract for:

� The performance of all or part of its contract, or

� Supplies or services “necessary to” the performance of the prime contract



6. When the subcontractor, in turn, contracts out part of its contract, OFCCP has jurisdiction over both subs as long as the second subcontract meets the same test – “subcontractor subcontracting.”

� A covered prime or subcontractor may have multiple contracts with companies, and OFCCP has jurisdiction over all.



7. OFCCP does not have jurisdiction over an insurance reimbursement agreement between a health care provider (e.g. a doctor or hospital) and a federal contractor contracted to provide health insurance only (the Bridgeport case).

8. Reimbursements pursuant to Medicare Part A and Part B are not contracts but rather federal financial assistance. (Stay tuned for Medicare Parts C and D).



9. Federal health care programs or other federal agencies may offer grants to eligible companies and individuals: not covered.


Directive 293: Examples

• Direct Contracts

� Health Care Providers

• Example: TRICARE contracts with Hospital A to provide HMO plan for members/ beneficiaries of one of its plans: covered.

• Example: Outpatient medical facility contracts with Dept of VA to provide health care services to active duty personnel under TRICARE: covered.


Directive 293: Examples, cont’d

• Insurers

� TRICARE, FEHBP and Medicare Advantage Part D enter direct contracts to provide health insurance for members, including fee for services and PPO.

• This creates a direct contract with the insurer: insurer covered.

� Example: OPM, the direct contracting agency for FEHBP, contracts with Blue Cross/Blue Shield to provide health insurance for certain federal employees. Blue Cross covered. (Bridgeport case).



� Medicare Advantage and Medicare Part D: fee for service plans that offer insurance but not medical supplies or medical services: insurer is covered.

• Other

� Federal programs may contract for supplies, services for one of their plans or the program as a whole: service provider is covered.

� Example: Administrative support, claims processing, customer service, flexible spending plans: covered direct contractors.



• Subcontracts

� Analytical Framework:

• OFCCP must confirm that an underlying direct contract exists; and

• Examine what the obligations under the contract are; and



• Whether there is an agreement “or arrangement” between the direct and subcontractor to either:

� Provide goods or services “necessary to” the performance of the prime contract, or

� Under which any portion of the prime contractor’s obligation is performed.

• Case by case approach



• Subcontracts for Health Care Services:

� Each of the three Federal Programs offer health care plans that offer actual health care services (as opposed to only insurance) to members.

• E.g. PPOs, HMOs, PSOs, other managed care.

• Health care provider is covered subcontractor.

• UPMC case illustrates this example:



� UPMC contracted with FEHBP to put HMO in place, the UPMC Health Plan. Health Plan’s contract with FEHBP was to provide medical services. Health Plan then contracted with hospitals to provide medical services.

� Hospital provided medical services were necessary to UPMC Health Plan performing its prime contract. Hospitals are covered subs.

� Footnote 9: OFCCP will look at PPOs, HMOs on case by case basis. Not all same.



• Florida Hospital also illustrates

� OPM had contract with Humana. Humana was obligated to establish a provider network.

� Florida Hospital had “agreement” (quotation in original) with Humana to provide health care services to TRICARE beneficiaries.

� OFCCP determined that Florida Hospital performed a portion of the medical services that Humana contracted to provide. Hospital was therefore covered.

� One of most controversial findings by OFCCP in all 3 cases.



• Medicare Part D

� Example: CMS, Medicare’s contracting agency, contracts with a health plan to provide a PPO Health Plan that includes prescription drugs for Medicare Advantage members (Medicare Part D).

� Health plan in turn contracts with pharmacy company to provide prescription drugs and with Hospital to provide medical services required by the PPO. Both are covered because they provide a portion of the services the PPO health plan contracted to CMS.



• Provision of Insurance and Reimbursement Agreements

� When prime contract is for provision of health insurance, the insurer is covered as a direct contractor.

� Insurers usually do not provide direct health care services to the insured.



• Rather, Insurer provides payment or partial payment to defray the cost of obtaining medical supplies.

• Insured must pay the health care provider the full cost of services and then seek reimbursement from the insurance plan.

• Sometimes insurance plan enters into a contract with the provider to directly pay (reimburse) the provider saving the trouble to file a claim and obtain reimbursement. Doesn’t change the analysis.



� Reimbursement Agreements between insurer and health care provider DO NOT create covered contracts.

• Prime contract is insurance contract only, to provide health insurance to Federal Program members.

• Payment of fees directly to the health care providers is neither necessary to performance of prime contract or fulfilling a portion of the prime contract.

• Analogous to Bridgeport case: Contract at issue was merely a reimbursement agreement between hospital and prime contractor, BCBS. BCBS only contracted to provide insurance services for health plan members, not health care services.

• Query: Do these kinds of arrangements still exist?



� In some cases, reimbursement agreement may be combined with contract to provide medical services.

• Company has a prime contract with OPM to establish and maintain a PPO for one of the FEHBP’s health plans. � Contract provides company will establish a network

of health care providers to provide specific health care services to beneficiaries of the health plans.

� Company contracts with Medical Practice to provide medical services.

� Contract also provides for a reimbursement agreement.

� Medical Practice is a covered subcontractor because its contract with Company is necessary to Company’s fulfillment of its contract with OPM.



• Excluded Contracts

� Entities that receive Medicare Part A, Medicare Part B, and Medicaid reimbursements

• Unless the company holds a separate covered contract.

• May relate to Medicare Part C and Medicare Part D.



• Example: Company X, that receives Medicare Part A and Part B reimbursements also holds a contract with Medicare (CMS) to establish a Medicare Advantage PPO and to be reimbursed for health care services under the PPO. PPO contract also includes establishment of a prescription drug plan and claims processing services.

� Companies contracting with Company X to provide health care services, prescription drugs or claims processing would be covered subs.



� Other Grants and Financial Assistance

• Example: Company receives a grant for education or research purposes.

• Example: Company receives a grant to provide medical services to underserved population.


Opposition to OFCCP and Directive 293

• Amicus Curiae means “friend of court”

• Three compelling arguments:

� Hospitals are overburdened already; and

� DOD correctly determined that in-network

TRICARE providers are recipients of financial assistance; and

� Even under OFCCP’s own regulations, they got it wrong.

AHA’s Amicus Brief in Florida Hospitalappeal


Opposition to OFCCP: AHA, cont’d

• Nation’s hospital’s are legitimately concerned about additional burdens

� Paperwork burdens are overwhelming already on hospitals and contribute to troubled state of

health care.

� Hospitals already face significant financial challenges.

� Applying OFCCP regulations to TRICARE in-network providers would impose significant

burdens at time when hospitals cannot afford it.



• DOD correctly determined that in-network providers are recipients of federal financial assistance.

� Federal Grant Act, not OFCCP regs, determines whether TRICARE reimbursements are federal financial assistance.• Prong 1 of Grant Act satisfied: DOD has expressly

disavowed contractor relationship.

• Prong 2 of Grant Act satisfied: Reimbursements are not for the direct benefit of the US Government; benefits are for members.



• US Government has been “loath” to agree that payments benefitting individuals or the public at large are contracts.

• Grant Act’s purpose: to eliminate unnecessary administrative burdens on recipients of federal grant money.

� DOD did not usurp DOL’s jurisdiction when it asserted jurisdiction over TRICARE providers.

• Who usurped whom?



• Even under OFCCP’s own regs, there is no basis to find contractor status.

� All the duties listed by Humana (the prime contractor) relate to the administration and reimbursement of health benefits, not the delivery of health care services to TRICARE beneficiaries.

� Therefore, Florida Hospital did not undertake or assume any Humana obligations under the contract.

� Nor did Florida Hospital sell any services to Humana that were necessary to Humana’s performance of its own duties.



• OFCCP’s decision will result in discouraging

hospitals from participating in federally

subsidized health programs. Many

hospitals, especially in underserved areas,

may just pull out of contracts.

• Humana does not purchase medical services.

• Humana only underwrites the cost of these services pursuant to its “complex” agreement with DOD, or directly reimburses providers and/or beneficiaries with government funds.

• Florida Hospital’s argument is that Humana is more like an insurer.


OFCCP Compliance for Federal Contractors and Subcontractors

• General compliance threshold under EO 11246: Aggregated $10K or more.

� Display posters, maintain records and engage in “affirmative action.”


OFCCP Compliance for Federal Contractors and Subcontractors

• Paperwork threshold under EO 11246: Single contract of $50K or more and 50 employees

� Prepare one or more AAPs which include all company employees. Update annually. • Requires analysis of current employment rates of

minorities and females compared to their presence in contractor’s relevant labor market.

• OFCCP regs are complex. Practically speaking, they require the use of specialized software or engaging outside counsel or consultant.

� Submit to audit by OFCCP.


What if your healthcare facility believes it is not a “federal subcontractor”?

• Option 1:

� The “Wait and See” Approach

• Audit notices (“scheduling letters”) provide 30 days’ notice to submit all required materials for an audit.

� It is generally more expensive to develop and submit AAP

compliance documentation on 30 days notice.

• Option 2:

� Prepare to Defend An Enforcement Proceeding

• Agency and subsequent district court litigation.


What if your healthcare facility believes it is not a “federal subcontractor?”

Open Issues:

1. Some commentators believe OFCCP will

hold off enforcement against any health care providers until the appeals are exhausted in Braddock and Florida Hospital.

2. $38.5 billion in most recent government spending cuts. OFCCP budget decrease of $4,423,000 from FY-11 to FY-12.

Will this impact enforcement?


Recommendations

• Understand the nature of your contracts.

• Examine your business relationships.

� Contracts and HR departments should work hand in hand.

• Analyze risks/benefits of accepting federal work.

• Consider risks of non-compliance if contractor/subcontractor status exists.


Question & Answer

HEALTHCARE AND OFCCP:Jurisdictional Coverage

at a Crossroads

healthcare and ofccp - microsoft › files › 984ac533...ofccp requests desk and onsite audit of...

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