Form an effective compliance program

Feb. 1, 2011

Q Is the lab considered a federal contractor if it participates in TRICARE, the U.S. Department of Defense healthcare program that provides civilian health benefits for military personnel, retirees, and dependents?

AHealthcare providers — including medical laboratories — have long believed that participation in federally funded health-insurance programs did not subject them to the jurisdiction of the Office of Federal Contract Compliance (OFCCP) and the equal-opportunity requirements that apply to federal contractors and subcontractors.

The distinction between what constitutes a federal contract and what does not can be difficult to discern. Lab work done under a federally funded research project is a federal contract; similarly, lab work done on behalf of a third party that is conducting federally funded research creates a federal subcontract. Likewise, providing healthcare services to the Federal Bureau of Prisons is considered a federal contract. At the same time, the law is well settled that participation in the Medicare and Medicaid programs is not considered a federal contract.

Until recently, the issue of whether participation in TRICARE constituted a federal contract or subcontract had not been clearly decided. Nevertheless, given the distinctions drawn above, healthcare providers have assumed that participation in the TRICARE program for federal employees would not make a provider a federal contractor or subcontractor because the relationship appeared more like participation in Medicare/Medicaid than like payments under a federally funded research project or a contract to provide healthcare in a federal prison. That assumption, however, is no longer valid.

For example, an administrative judge held that a Florida hospital was a federal subcontractor because it contracted with Humana Military Healthcare Services to service TRICARE members as part of a provider network. The judge expressly rejected the hospital’s assertion that TRICARE payments should be treated like Medicare payments for purposes of determining whether they constituted payments under a federal contract, holding that participation in TRICARE was a contract to provide services, unlike Medicare, which is considered a contract to pay for services. Similarly, another administrative judge held that Pittsburgh hospitals, which had contracted with an HMO to provide medical services to current and retired federal employees as part of a provider network, are federal subcontractors because the HMO had a contract with the Office of Personnel Management to provide those services to federal employees.

Compliance obligations

The implications of this are significant. Federal contractors and subcontractors are subject to the jurisdiction of the OFCCP, and they have significant compliance obligations — obligations which increase in scope depending on the number of people employed and the value of the federal contract. Executive Orders 11246, 13496, 12989, Section 503 of the Rehabilitation Act of 1973 (Section 503), and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRRA) each impose very specific obligations on federal contractors and subcontractors. Those obligations can include 1) document retention and inspection obligations; 2) requirements that the organization adopt affirmative-action plans, 3) mandatory filing of EEO-1 and Vets 100/100A reports; 4) required posting of certain EEO and union/labor notices; 5) electronic verification of employees’ rights to work legally in the United States; and 6) obligations to analyze employment decisions with regard to hiring, firing, and promotions for adverse impact.

Practical steps for medical labs

Given the complex nature of the applicable requirements, medical laboratories should consult with their counsel and carefully assess whether they have contracts with any agency of the executive branch of the federal government (e.g., Office of Personnel Management, Department of Defense, Department of Veterans’ Affairs, Bureau of Indian Affairs/Indian Health Services, or Federal Bureau of Prisons), or whether they are receiving payments from an entity that has such a contract with an agency of the executive branch of the federal government.

Likewise, labs should review any agreements under which they provide medical services to TRICARE participants, federal government employees, and/or retired government employees, or active and/or retired military members to determine if a federal contractor or subcontractor relationship exists.

Each federal contract/subcontract must be evaluated to determine whether it meets the applicable minimum value and/or employee thresholds for compliance under Executive Orders 11246, 13496, 12989, Section 503, and VEVRAA. In addition to consulting with counsel, and possibly retaining an outside entity to assist in the preparation of any necessary affirmative-action plans, the Department of Labor offers helpful compliance guidance for federal contractors and subcontractors at

Sharon Snyder (shown here) is a principal in Ober|Kaler’s employment and litigation groups in Baltimore. Kathleen McGinley is an associate in Ober|Kaler’s employment group.

MLO’s “Liability and the lab” is intended to provide information of a general nature; it is not intended to provide specific legal advice. If you require legal advice, the services of an attorney should be sought. Contact us at [email protected].