In a long-awaited decision, the Federal District Court for the District of Columbia has ruled that three hospitals that provide medical services through a Health Maintenance Organization (HMO) to individuals covered by the Federal Employees Health Benefits Plan (FEHBP) are subject to the Office of Federal Contract Compliance Program’s (OFCCP) jurisdiction and reporting requirements.

Background

The case, UPMC Braddock, et al. v. Harris, involves three hospitals (the Hospitals) affiliated with the University of Pittsburgh Medical Center, which entered into contracts with the UPMC Health Plan (the Health Plan), an HMO to provide medical services to individuals enrolled in its coverage program. UPMC Health Plan, in turn, contracted with the U.S. Office of Personnel Management to provide coverage to federal employees who participate in the FEHPB. OFCCP attempted to assert jurisdiction over the Hospitals and the Hospitals refused to comply, arguing that they were not federal government subcontractors.

In support of their position, the Hospitals argued that their agreement with the Health Plan did not fit the definition of a “subcontract” because the services provided by the Health Plan were not “necessary to the performance” of the Health Plan’s contract with the federal government. The Hospitals argued that the Health Plan contracted to provide only insurance coverage to the federal employees enrolled in the FEHBP, and not medical services. In making their argument, the Hospitals relied on the decision in OFCCP v. Bridgeport Hospital, ARB Case No. 00-034. In that case, OFCCP attempted to obtain jurisdiction over Bridgeport Hospital based on its medical services agreement with Blue Cross/Blue Shield (Blue Cross), which had contracted with the U.S. Office of Personnel Management to provide health insurance to federal government employees. In that case, the Administrative Review Board agreed with that the hospital was not a federal subcontractor because Blue Cross’ contract with the federal government did not obligate Blue Cross to provide medical services to Blue Cross’ policyholders, only insurance.

In UPMC Braddock, however, the court disagreed with the Hospitals’ assertion that the Bridgeport decision controls, holding that the UPMC Health Plan had agreed to serve the function of an HMO rather than that of a traditional insurer, and thus had agreed to provide medical services to federal government employees. In making the distinction between traditional insurers and HMOs, the Court held that the Hospitals are, as a result, federal government subcontractors who must submit to OFCCP’s jurisdiction.

 Impact of Decision?

According to Braddock, healthcare providers who subcontract with insurance companies that provide traditional insurance coverage fall outside of OFCCP’s jurisdiction, while those that subcontract with HMOs doing business with the FEHBP must comply with Executive Order 11246 and its statutory counterparts. Thus, while the Braddock decision does not impact the 2012 National Defense Authorization Act’s exemption of TRICARE providers from OFCCP jurisdiction, it reinforces that there are many other potential bases upon which OFCCP may– and likely will – assert jurisdiction over healthcare providers. Among these bases are contracts through Medicare Advantage programs and any direct contracts with federal agencies for healthcare services. The Department of Veterans Affairs and the Federal Bureau of Prisons are two agencies that commonly enter into direct contracts for healthcare services. It is likely that OFCCP will continue to aggressively assert jurisdiction over employers in the healthcare industry and will use contracts with an HMO to provide coverage to federal employees who participate in the FEHBP, as well as these other types of contracts, as bases for asserting jurisdiction over the employers in the healthcare industry.