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D.C. District Court Affirms OFCCP’s Expanding Jurisdiction Over the Health Care Industry

April 9, 2013

On March 30, 2013, the U.S. District Court for the District of Columbia affirmed an Administrative Review Board (ARB) decision finding that the Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) had jurisdiction over certain health care providers as government subcontractors.  UPMC Braddock et al., v. Harris, No. 1:09-cv-01210 (D.D.C. Mar. 30, 2013). 

The plaintiff hospitals (hospitals), affiliated with the University of Pittsburgh Medical Center (UPMC), had contracted with the UPMC Health Plan (Health Plan) to provide medical services to individuals covered under the Health Plan.  Following the initial agreement, the Health Plan contracted in 2000 with the Office of Personnel Management (OPM) to provide health maintenance organization (HMO) services to certain federal employees covered under the Federal Employees Health Benefits Program (FEHBP).  The hospitals continued to renew their UPMC Health Plan contract after the OPM contract took effect. 

In 2004, the OFCCP, which has authority to ensure that federal contractors and subcontractors comply with federal non-discrimination and equal opportunity laws, attempted to subject the hospitals to a compliance review.  The hospitals refused to participate, claiming that they were not government subcontractors and were thus not under OFCCP’s authority.  The dispute came before the District Court following the ARB decision affirming OFCCP jurisdiction over the hospitals. 

The hospitals challenged DOL’s assertion that they were government subcontractors and therefore subject to equal opportunity requirements applicable to government contractors and subcontractors, which require contractors to include non-discrimination and affirmative action clauses in their contracts, subcontracts and purchase orders, and implement affirmative action practices in contracts and subcontracts exceeding certain monetary amounts.  

The District Court found that contractual language excluding the hospitals from the definition of a subcontractor was insufficient to override statutory and regulatory mandates defining the hospitals as subcontractors.  Unlike the OPM contract, the DOL regulations did not exempt medical service providers from the definition of subcontractors, and the court reasoned because DOL and not OPM was charged with enforcing the requirements at issue, the DOL definitions prevail. 

The court also disagreed with the hospitals’ argument that they were not subcontractors even under the DOL’s regulations.  The hospitals maintained that they were providing personal services, not nonpersonal services, and their agreements with the Health Plan were thus not subcontracts within the regulation’s meaning.  Although the regulations themselves failed to define “nonpersonal services,” the court accepted the ARB application of a particular Federal Acquisition Regulations (FAR) definition as more consistent with the equal opportunity requirements and DOL’s interpretation of those requirements.

Additionally, the court rejected the hospitals’ argument that medical services provided under the contract are not necessary to the Health Plan’s performance of its contract with OPM.  The hospitals claimed that this was because the Health Plan-OPM agreement was for medical insurance, not medical services.  The court found the ARB more persuasive on this point as well, agreeing that the Health Plan serves as an HMO under the government contract, and not just a “traditional insurer.”  Because HMOs are responsible for contracting with specific doctors and hospitals to provide medical services, the hospitals’ contract with Health Plan was deemed necessary to the performance of the Health Plan’s contract with OPM.  Finally, the court rejected the hospitals’ claim that they did not consent to and should not be bound by the equal opportunity clauses at issue, and the court inserted the relevant contract provisions into the hospital-Health Plan contract by operation of law. 

This decision represents a significant departure from the earlier ARB decision, OFCCP v. Florida Hospital of Orlando, ARB No. 11-011 (Department of Labor, Oct. 19, 2012), which, consistent with the TRICARE exception set forth in Section 715 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), found that OFCCP could not assert jurisdictional authority over TRICARE health care providers.  TRICARE is the Department of Defense’s (DOD) health insurance program for military personnel and their families, and in a similar fact pattern, a TRICARE provider hospital, Florida Hospital, refused to comply with an OFCCP equal opportunity review on the basis that it was not a federal contractor or subcontractor.  As previously reported by Wiley Rein, the Florida Hospital decision found that the NDAA effectively exempted TRICARE providers and that retroactively applying the NDAA was appropriate.  This decision was seen as favorable toward the health care industry and OFCCP continued to contest jurisdiction after the decision was issued. 

The UPMC Braddock decision now reveals the limited scope of the Florida Hospital decision.  In short, this recent decision will subject more health care providers to OFCCP oversight, will allow OFCCP officials access to employment sites and records for compliance audits, and will likely further encourage OFCCP to continue to attempt to expand its jurisdiction over health care providers and insurers in the future.  Indeed, because many TRICARE providers also may participate in federal health care programs implicated by the UPMC Braddock decision, it is unclear the extent to which Florida Hospital will continue to provide many health care providers relief.

What does seem to be coming into focus is the sweeping nature of the UPMC Braddock ruling and its potential cascading effect on all providers that render medical services not only through HMOs contracted under the FEHBP, but also those contracted under other federal health care programs (e.g., Medicare).  Thus, this development reinforces the importance of carefully monitoring the changing landscape of OFCCP’s enforcement efforts and also the importance of conferring with counsel to assess how the OFCCP affirmative action requirements might be applicable to your organization.