Hospitals May Be Subject to OFCCP Jurisdiction Through HMO Contracts

June 12, 2009

Hospitals may assume burdensome and costly obligations and oversight by the U.S. Department of Labor Office of Contract Compliance Programs (OFCCP) by virtue of provider agreements with HMOs, even though they are unaware that the HMO has a federal contract. On May 29, 2009, the U.S. Department of Labor Administrative Review Board (ARB) held that, by operation of law, several hospitals were subject to OFCCP jurisdiction because they had contracts with an HMO that was a federal contractor. OFCCP v. UPMC Braddock, DOL ARB, No. 08-048, 5/29/09.

Braddock specifically involved three hospitals that received compliance review letters from the OFCCP in January 2004. The hospitals refused to respond to the OFCCP’s demands for information and on-site reviews, arguing that they had no federal contracts or subcontracts. However, the ARB disagreed, holding that the hospitals were in fact subject to OFCCP jurisdiction because they had contracts with an HMO (“Health Plan”) – which in turn had contracted with the Federal Office of Personnel Management (OPM) to provide medical services to federal employees.

Case Overview

Covered federal contractors (and subcontractors that provide services necessary to the performance of federal contracts) are generally required to comply with the affirmative action and other requirements of Executive Order 11246, the Rehabilitation Act, and the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA). Their compliance is subject to audit by the OFCCP.

In Braddock, Health Plan contracted with the OPM to provide medical services to federal employees, and contracted with the three hospitals in question to provide medical services on behalf of Health Plan. However, Health Plan’s contracts with the hospitals did not contain any provision, notice or agreement that the hospitals would be deemed federal subcontractors by virtue of contracting with Health Plan. When the OFCCP attempted to schedule compliance reviews, the hospitals:

  • Denied knowing that Health Plan had a contract with the federal government, denied agreeing or being informed that they became federal subcontractors by contracting with Health Plan, and denied that they were subject to the OFCCP’s compliance jurisdiction.
  • Relied on the ARB’s decision in OFCCP v. Bridgeport Hosp., which held that Bridgeport Hospital was not a federal subcontractor simply because it had a contract with Blue Cross/Blue Shield of Connecticut, which in turn had a contract with OPM to provide health insurance to federal workers.

Despite these arguments, the ARB distinguished the Bridgeport decision on the grounds that Health Plan was “more than an insurer” and had described itself in its brochure as a provider of listed health care benefits, using contracts with individual physicians, medical groups and hospitals. The ARB found that the hospitals “were operating primarily as health care delivery providers and not strictly as insurance providers.” Thus, the ARB concluded that because the hospitals’ services were “necessary” to Health Plan’s performance of its contract to provide medical services to federal employees, the hospitals were covered federal subcontractors by operation of law. This was the case even though they had never been informed of the existence of Health Plan’s federal contract.

The hospitals also argued that they were excluded from coverage because the Federal Acquisition Regulation (FAR) definition of “subcontractor” expressly excludes “providers of direct medical services or supplies pursuant to the Carrier’s health benefits plan” (48 C.F.R. Sec. 1602.170-4). The ARB agreed that the hospitals fell within this exclusion in the FAR and that the FAR was incorporated into the federal contract at issue. However, the ARB refused to apply the FAR exclusion on the grounds that the Secretary of Labor’s non-discrimination and affirmative action regulations have priority, and the Secretary’s broader definition of “subcontractor” trumps the FAR definition.

Take-Away For Medical Service Providers

As a result of this new ARB decision:

  • Hospitals and other medical service providers can expect the OFCCP to look for opportunities to assert jurisdiction on the basis of contractual relationships with HMOs or other entities that may have contracts with the federal government to provide health care services.
  • The OFCCP may take this jurisdictional position even though the hospital or other health care provider has never been notified of the existence of the federal contract.
  • Where hospital and other medical services are simply being provided in exchange for insurance payments, the Bridgeport case should still prevent the OFCCP from asserting jurisdiction.
  • However, if medical services are provided pursuant to a contract with an HMO or similar entity, which in turn is providing those medical services to federal employees or others under a federal contract, the medical provider could unknowingly become a covered federal subcontractor.
  • As a covered federal subcontractor, medical providers would be subject to detailed and potentially burdensome and costly affirmative action program requirements. This includes, among other things, significant applicant and employee tracking, statistical analysis and recordkeeping obligations, and related OFCCP audit jurisdiction.

For further information about the implications of this decision and steps to deal with its consequences, contact the author or any member of McGuireWoods’ Federal Contract Compliance Team with the Labor & Employment practice.