January 30, 2012

National Defense Authorization Act: Healthcare Provider’s TRICARE Participation Does Not Trigger Affirmative Action Obligations

Holland & Knight Alert
David J. Santeusanio | Kenneth A. Jenero

On December 31, 2011, President Obama signed into law the National Defense Authorization Act, which includes a provision that healthcare providers are not subject to Department of Labor Office of Contract Compliance Programs (OFCCP) affirmative action requirements on the basis of participation in TRICARE. TRICARE is the Department of Defense’s healthcare program for the military.

The OFCCP has aggressively pursued efforts to subject healthcare providers to affirmative action requirements on the basis of participation in TRICARE. For example, OFCCP initiated litigation against hospitals and, in December 2010, issued a directive that stated the OFCCP’s position that a healthcare provider’s participation in TRICARE triggered affirmative action obligations. The National Defense Authorization Act, however, now provides that participation in TRICARE does not trigger affirmative action obligations. Healthcare providers should monitor the OFCCP’s response to the new law and be aware of the other ways in which a healthcare provider might assume affirmative action obligations, such as through participation in certain health maintenance organizations and certain contracts and subcontracts with the federal government.

OFCCP Jurisdiction and Affirmative Action Requirements

To be subject to the OFCCP’s affirmative action requirements, a healthcare provider must be party to: (1) a contract with a federal agency or department for the purchase, sale or use of personal property or non-personal services, or (2) a subcontract 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 a contract, or under which any portion of the federal contractor’s obligation under the contract is performed, undertaken or assumed.

The OFCCP has consistently maintained that a healthcare provider’s participation in TRICARE subjected the provider to affirmative action obligations. For example, the OFCCP sent letters to healthcare providers demanding that they produce affirmative action plans on the basis that the provider participated in TRICARE. The OFCCP initiated at least two lawsuits against healthcare providers in which the central issue was whether the healthcare provider had a federal contract (including one case in which the alleged contract was through TRICARE). In December 2010, the OFCCP issued Directive 293, which addressed the circumstances in which an employer may be considered a federal contractor subject to affirmative action requirements, such as through participation in TRICARE, Medicare and FEHBP (a federal healthcare program administered by the U.S. Office of Personnel Management). (Holland & Knight’s February 24, 2011 Healthcare & Life Sciences alert described the Directive in additional detail.) In short, the OFCCP was aggressively pursuing healthcare providers that participated in TRICARE.

The stakes for healthcare providers are high because affirmative action obligations are significant. These obligations include: preparing written affirmative action program for each establishment, including various statistical analyses of the female and minority representation in the workforce; developing internal auditing and reporting systems designed to assess the effectiveness of the program, including detailed data on applicant flow, hiring, promotions, terminations and compensation; and participating in OFCCP compliance evaluations. Healthcare providers have faced sanctions for alleged non-compliance.

The National Defense Authorization Act and OFCCP’s Response

Section 715 of the National Defense Authorization Act eliminates TRICARE as a basis for a healthcare provider being subject to the jurisdiction of the OFCCP. The law states, in relevant part:

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.

The OFCCP is assessing its policies and its pending litigation in light of the National Defense Authorization Act.

A healthcare provider may be subject to affirmative action requirements in other ways, such as through a federal contract or subcontract. Providers should be prepared for the possibility that the OFCCP will aggressively explore and pursue other bases for potential jurisdiction now that the National Defense Authorization Act has declared that TRICARE cannot serve as a basis of jurisdiction.


The National Defense Authorization Act provides welcome relief to healthcare providers that participate in TRICARE. But providers should continue to take steps to evaluate whether they have affirmative action obligations and to respond to the OFCCP, if necessary. These steps include: examining existing contractual relationships to identify any connections with other federal programs (including Medicare and FEHBP); evaluating the dollar amount of the covered contracts or subcontracts to determine if they meet the threshold requirements for OFCCP-enforced regulations; and consulting with legal counsel to develop a comprehensive compliance program.

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