On February 13, 2013, a proposed rule was issued providing long-awaited guidance regarding an exemption to the Service Contract Act (“SCA”) for certain providers of extended care programs entering into agreements with the U.S. Department of Veterans Affairs (the “VA”). The SCA imposes prevailing wage rate and fringe benefit standards, as well as various reporting requirements, on certain contractors and subcontractors.

The proposed rule pertains to the Veterans Health Care, Capital Asset and Business Improvement Act (“the Act”), which was passed in 2003 to expand access to care for veterans with mental illness. Although the Act has long been understood to provide an SCA exemption, the VA recommended that providers wait to apply the exemption until the regulations were issued. After a ten year wait, the proposed rules have been issued. Final rules are expected shortly, and the VA is advising eligible providers to prepare accordingly.

We spoke with the Director of the Purchased Long-Term Care Group at the VA about this critically important proposed rule. The core of this rule, largely drawn directly from the statute, is that the reporting and wage payment provisions of the SCA do not apply to certain “providers” of “extended care services” serving veterans, if the providers enter into “agreements” rather than “contracts” with the VA. Highlights from our interview appear below.

• What providers are covered by the exemption? To be exempt from the reporting and wage payment provisions, a “provider” must have an agreement with Medicare or Medicaid or participate in a state plan for home and community based services to veterans. The VA must approve and authorize the services being provided under a provider agreement. Many providers in rural areas do not participate in Medicare or Medicaid and thus must enter into agreements to participate in state plans for home and community-based services to veterans. This may prove difficult for small providers who may not have legal counsel.
• What are “provider agreements”? “Provider agreements” are instruments used by the federal government to purchase long-term care services without making the provider a federal contractor and therefore subject to many additional rules and regulations that do not apply to providers of care under Medicare and Medicaid. In its distilled form, it is a purchasing instrument the VA can use to acquire extended care services.
• What exactly are eligible providers exempt from under the proposed rule? Providers will be exempt from reporting and wage payment requirements under the SCA, effectively removing the ability of the Department of Labor to audit them for SCA compliance. While providers can determine their own wages, they must still comply with the Fair Labor Standards Act for their employees.
• What are “extended care services?” This includes nursing homes, home hostice, home health care, adult care, home respite, home or community based respite and geriatric evaluation services.
• What is the difference between “agreements” and “contracts?” The SCA applies to contracts, but not to agreements. The major difference between them is that the VA sets the amount of medical liability and insurance for contracts, whereas the state insurance commissioner determines this for provider agreements. Also, provider agreements, which are four pages or less, are easier to administer than contracts, which may be 70+ pages long.
• What will be reimbursed? The VA will pay the Medicare and Medicaid rates, whichever is higher.
• What does this mean for potentially exempt providers? The comment period is 30 days and it is expected to be another 90 days until the final rule is issued. In the interim, the VA advises providers to consult legal counsel regarding how to restructure their contracts, and to contact the appropriate individuals (head of geriatrics and extended care, head of social work, or head of community health nurse) at their local VA hospital to discuss moving forward with provider agreements.

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