The Office of Federal Contract Compliance Programs (OFCCP) has jurisdiction over three hospitals receiving payments from a health plan for providing medical services to U.S. government employees, a U.S. District Court for the District of Columbia judge has confirmed. UPMC Braddock v. Harris, No. 09-1210 (D.C. D.C. Mar. 30, 2013). The decision is the latest chapter in a long-running jurisdictional dispute between OFCCP and three Pittsburgh-area hospitals.

In 2009, the U.S. Department of Labor’s Administrative Review Board (ARB) upheld an administrative law judge’s finding that three hospitals were federal subcontractors required to comply with OFCCP regulations. OFCCP v. UPMC Braddock, No. 08-048 (DOL ARB May 29, 2009) (see our article, Affirmative Action Regulations May Cover Hospitals Servicing Federal Employees Through HMOs). The decision of the D.C. District Court confirmed the order requiring the hospitals to comply with the affirmative action obligations enforced by OFCCP.

Background

The three hospitals, UPMC Braddock, UPMC South Side and UPMC McKeesport (the “hospitals”), contracted with UPMC Health Plan to provide medical services for individuals insured by the Health Plan. Though none of the hospitals held a federal contract, UPMC Health Plan did. The Health Plan had a contract with the Office of Personnel Management (OPM) to provide, among other things, health services to federal employees.

The hospitals consistently have argued they are not subject to OFCCP jurisdiction because:

  •  UPMC’s contract with OPM explicitly excluded medical service providers as “subcontractors”;
  • The hospitals did not provide “nonpersonal services,” as set forth in OFCCP’s definition of a covered “subcontract”;
  • The hospitals did not have notice of OFCCP jurisdiction; there was no EEO (equal employment opportunity) clause in the contract;
  • UPMC is not a subcontractor because the contract between the OPM and the Health Plan was not for the provision of medical services; and
  • The hospitals never agreed to become government subcontractors.


Arguments Rejected

The D.C. District Court rejected each of these arguments. The court stated that although the Health Plan’s agreement with OPM explicitly excluded “providers of direct medical services” from its definition of “subcontractors,” the court found that parties had no power to limit the scope of the Executive Order or their own federal contractor status by contractually agreeing to a more limited definition of “subcontractor.”

The hospitals also argued they did not fall under the Secretary of Labor’s definition of “subcontractor” because they provided “personal” medical services directly to patients, which is categorically different than the “nonpersonal” services referenced in the Secretary’s definition of a covered subcontract. The court disagreed and upheld the ARB’s finding that the Secretary’s definition refers to the relationship between the government and the employees of the subcontractor — not the interaction between the subcontractor and those benefiting from its services.

Moreover, the court held that a company’s status as a covered subcontractor is a matter of law, not a matter of notice. According to the court, the Health Plan’s failure to include the required EEO language in the contract did not excuse the hospitals from complying with federal law because the clause was incorporated into the subcontracts by “operation of law.”

What Should Employers Do Now?

In light of this decision, OFCCP likely will continue to aggressively assert jurisdiction over companies it deems subcontractors, even in the absence of contracts that reference the affirmative action regulations. Therefore, it is critical that employers, especially those in the health care industry, inventory and review customer agreements to determine whether the goods or services being provided might make them federal subcontractors, subject to the affirmative action obligations.