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Federal Court Upholds OFCCP Jurisdiction Over Hospital

on Tuesday, 30 April 2013 in Health Law Alert: Erin E. Busch, Editor

For years, we have been tracking the Department of Labor’s Office of Federal Contract Compliance Programs’ (“OFCCP”) efforts to expand its jurisdiction to health care employers. Generally, the OFCCP enforces regulations that require employers with at least 50 employees, who hold a single contract or subcontract of at least $50,000 to provide services to the federal government, to comply with certain affirmative action obligations, including maintaining an affirmative action program (“AAP”).


Health Care Institutions As Federal Contractors/ Subcontractors

Many health care organizations have a direct contract with the federal government, and therefore have affirmative action obligations by nature of that contract. For instance, a hospital may be a covered contractor as a result of a contract with the Department of Veterans’ Affairs or the Department of Defense, requiring the provision of medical services to active or retired military personnel.


At the same time, a health care provider may have affirmative action obligations by nature of being a subcontractor to someone with a federal contract. In relevant part, a “subcontract” is any agreement between a contractor and any person for the purchase, sale, or use of non- personal services (1) that in whole or in part, are necessary to the performance of any contract, and/ or (2) under which any portion of the contractor’s obligation under any contract is performed, undertaken, or assumed. Whether a health care provider’s subcontracts bring it under the OFCCP’s jurisdiction is a difficult inquiry, as it depends upon the nature of the underlying prime contract and the terms of the subcontract.


Brief Review of Prior Cases

In 1993, the OFCCP issued a directive concluding that Medicare or Medicaid reimbursement would not, absent other contracts, subject hospitals to its jurisdiction. The OFCCP concluded that Medicare and Medicaid were not contracts, but instead programs of federal financial assistance; therefore, the OFCCP had no jurisdiction over hospitals solely on the basis of Medicare/Medicaid reimbursement.


In a 2003 case entitled OFCCP v. Bridgeport Hospital, the DOL’s Administrative Review Board (“Board”) held that a hospital’s contract with Blue Cross did not make it a subcontractor for affirmative action purposes. The Board held that because (1) the prime contract between Blue Cross and the agency was for medical insurance, and (2) the hospital was not in the business of providing insurance, the hospital was not a subcontractor because it did not perform work necessary to the performance of the prime contract to insure federal employees. Based on this decision, the consensus was that the OFCCP generally could not claim subcontractor coverage for hospitals, pharmacies or other medical care providers based solely upon the existence of a contract with Blue Cross or other Federal Employee Health Benefits Program (“FEHBP”) providers.


The OFCCP, however, did not give up its attempts to assert jurisdiction over health care providers, and began focusing on health care providers that have contracts with health maintenance organizations (HMOs). In OFCCP v. UPMC Braddock, the Board held that a hospital was a subcontractor by nature of its contracts with an HMO. In that case, the Board made a distinction between an HMO and an insurance arrangement like the one at issue in Bridgeport, holding that, because the prime contract between the HMO and federal agency was to provide medical services to the federal employees, and the hospital provided medical services, the hospital was performing work necessary to the performance of the HMO’s federal contract, which made them a subcontractor with affirmative action obligations.


The Board further held that the HMO’s failure to notify the hospitals of any affirmative action obligations did not excuse the subcontractors’ noncompliance.  In other words, even if an organization does not know it is contracting with a federal contractor due to the absence of an Equal Employment Opportunity Clause in the contract, the organization may nevertheless be bound by the affirmative action regulations. This matter was appealed to federal court.


Recent Developments

On March 30, 2013, a federal court upheld the OFCCP’s jurisdiction over the hospital in Braddock.  The Hospital unsuccessfully attempted several arguments, including that it did not meet the definition of “subcontractor” because the medical services it performed did not qualify as “nonpersonal services,” and that the contract with the HMO was not a “subcontract” because the hospital did not provide services necessary to the HMO’s performance of its contract with the government. The court rejected these arguments and held, “because the hospitals provide a portion of the medical care that the [HMO] agreed to supply to federal employees under its OPM contract, the hospitals’ agreements with the [HMO] are necessary to the performance of that contract.”


Finally, the hospital argued that it never consented to be bound by the EEO clauses in the laws and the Executive Order due to their absence from the contract with the prime contractor. The court disagreed, and held that “certain statutory or regulatory provisions may become part of a government contract even though the contract does not contain language to that effect.” It essentially stated that because the hospital indirectly benefited from doing business with the federal government, it was subject to the EEO clauses. In the end, the court determined that the hospital was a subcontractor and was subject to affirmative action requirements.


Practical Effect of the Decision

In the end, this decision does not change what health care institutions already knew—that the OFCCP will continue its efforts to expand its jurisdiction over health care institutions. This case merely confirms the earlier findings of the Board, and solidifies the OFCCP’s aggressive position on jurisdiction. This case does not change the TRICARE exclusion established in the December 2011 National Defense Authorization Act which held that TRICARE contracts alone are not enough to establish OFCCP jurisdiction. In other words, if the only federal contract/subcontract in place is a TRICARE contract, the health care institution does not have affirmative action obligations.


In light of the OFCCP’s current aggressive stance, we advise health care providers to review their contracts and subcontracts and review their arrangements to assure that they do not fall under OFCCP jurisdiction. Even health care providers who only have TRICARE network arrangements should take this opportunity to review their contract status to assure nothing has changed in the last 18 months.


Employers uncertain about their contract status should seek legal counsel, or at the very least, should attempt to comply with affirmative action obligations voluntarily. In this way, if (or more likely, when) the OFCCP asserts jurisdiction on a different basis, health care employers will be better prepared to prove compliance.

Kelli P. Lieurance


Read the Full Newsletter: Health Law Advisory April 30, 2013

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