The Department of Labor’s (DOL) Administrative Review Board (ARB) has upheld an administrative law judge’s (ALJ) finding that three hospitals that receive payments from a Health Maintenance Organization (HMO) for providing medical services to U.S. Government employees are covered federal subcontractors that must comply with the equal employment opportunity and affirmative action obligations imposed by the Office of Federal Contract Compliance Programs (OFCCP).

The three hospitals at issue in OFCCP v. UPMC Braddock had HMO contracts with the University of Pittsburgh Medical Center (UPMC) health plan to provide medical products and services to federal employees. The UPMC health plan, in turn, had contracted with the U.S. Office of Personnel Management (OPM) to provide such medical coverage. The three hospitals, therefore, did not directly contract with the OPM.

Under Executive Order 11246, section 503 of the Rehabilitation Act (RA), and section 402 of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), federal contractors and subcontractors are required to prepare affirmative action plans for women, minorities, individuals with disabilities, and covered veterans. Federal contractors and subcontractors also are prohibited from discriminating on the basis of race, color, religion, sex, national origin, disability and veteran status. The OFCCP has the authority to conduct audits of federal contractors and subcontractors to ensure compliance with these federal laws. When the OFCCP attempted to schedule compliance reviews of the hospitals at issue and requested copies of their affirmative action plans and other compliance documents, the hospitals denied these requests. They argued, among other things, that they were not subcontractors as they had never agreed to become government subcontractors and thus had no notice that the OFCCP considered them as such. The hospitals also argued that the UPMC’s contract with OPM specifically excluded hospitals, and that their contracts with UPMC did not include an equal opportunity clause as required by Executive Order 11246. The hospitals also pointed to Department of Labor precedent that held that hospitals that provide medical coverage through an insurance company’s arrangement with the federal government were not federal subcontractors because the medical coverage was not necessary to the performance of the insurance company's direct federal contract, which was to provide insurance, not medical services, to federal employees.

The ALJ found, and the ARB agreed, however, that such clauses were incorporated into the hospital’s contract by operation of law, and thus the hospitals were bound by them. Additionally, even though the UPMC’s contract with the OPM specifically excluded “providers of direct medical services and supplies” from its definition of “subcontractor,” the hospitals were still to be considered subcontractors, as the parties could not, “by contract invalidate the equal opportunity provisions of the three laws” in question. In addition, the ARB declined to use the definition of “subcontractor” from the Federal Acquisition Regulation (FAR) – which would have excluded hospitals – as it conflicts with the DOL’s regulations. This is consistent with previous interpretations of OFCCP jurisdiction and the applicability of the affirmative action requirements of Executive Order 11246, the RA, and the VEVRAA, as amended. This decision reinforces that relying on contract language does not necessarily insulate an organization from OFCCP jurisdiction.

The greater significance of the ARB’s decisions is that it suggests that hospitals and medical providers with 50 or more employees that provide medical care of $50,000 or more to a federal employee through insurers or HMOs may be subject to OFCCP jurisdiction. The ARB distinguished this case from an earlier 2003 decision in which it held that a hospital that provided medical coverage to federal employees through insurance rather than as part of an HMO was not a federal subcontractor. OFCCP v. Bridgeport Hospital, ARB No. 00-034 (Jan. 31, 2003). The ARB distinguished the two cases by pointing to the fact that these hospitals provided medical care through an HMO rather than through an insurance arrangement. In Bridgeport Hospital, the prime contract was to insure medical coverage for federal employees. The ARB held that the hospital was not a subcontractor because it did not perform work necessary to the performance of the prime contract to insure federal employees. In the UPMC case, the ARB made a distinction between an HMO and an insurance arrangement. The prime contract with an HMO is to provide medical services to the federal employees. Accordingly, the hospital was performing work necessary to the performance of the HMO’s federal contract.

This contrived distinction suggests that eventually any hospital or medical practice with 50 or more employees that provides $50,000 or more in medical services to a federal employee will likely be subject to OFCCP jurisdiction. OFCCP very likely will challenge the distinction between working under an HMO as opposed to an insurance arrangement. Moreover, most hospitals or medical providers likely would provide medical services to federal employees under both HMO and private insurance arrangements, in addition to other types of medical plans. As most hospitals do not make distinctions in what type of coverage they accept from federal employees, the practical effect of this new decision is to find OFCCP jurisdiction over any hospital or medical practice that provides care to any federal employee valued at $50,000 or greater. Hospitals and medical providers should assume that OFCCP will take the position that the UPMC and Bridgeport Hospital decisions are inconsistent and that Bridgeport Hospital was effectively reversed by UPMC.
 

Joshua S. Roffman and Alissa A. Horvitz contributed to this entry.