The Office of Federal Contract Compliance Programs (OFCCP) has obtained favorable rulings from the Administrative Review Board in two recent decisions adverse to healthcare providers. Under these rulings, even in the absence of a direct contractual relationship with the U.S. government or one of its agencies, a healthcare provider may be deemed to be a federal government subcontractor for purposes of compliance with the federal affirmative action laws’ requirements. Unless these rulings are reversed by district courts on appeal, health systems must be aware that when a prime contract exists between the federal government and a health plan administrator through which medical services are provided to federal employees or military personnel, hospitals providing such services are likely to be viewed as federal subcontractors, subject to OFCCP jurisdiction. This means the hospitals should make efforts to comply with the OFCCP recordkeeping, posting, affirmative action, and reporting obligations. These obligations are a substantial burden for any hospital with no prior reason to engage in these efforts.

This article is intended to assist employers in the healthcare industry by providing background on the OFCCP and the obligations of contractors and subcontractors, with a summary analysis of the recent decisions.

Background

What is the OFCCP? The OFCCP is a stand-alone program within the U.S. Department of Labor, reporting directly to the Secretary of Labor. The stated mission of the OFCCP is to enforce, for the benefit of job seekers and wage earners, the contractual promise of affirmative action and equal employment opportunity required of those who do business with the federal government. In other words, the OFCCP is responsible for ensuring that contractors that have decided to do business with the federal government -- and their subcontractors -- complete federally required affirmative action measures and do not discriminate against applicants and employees.

To carry out its mission, the OFCCP utilizes various enforcement procedures. In addition to technical assistance programs, compliance evaluations, and complaint investigations, from time to time the OFCCP will recommend enforcement actions to the Solicitor of Labor. The OFCCP must attempt resolution through a conciliation process before initiating an administrative enforcement action. These enforcement actions generally proceed as administrative complaints filed with the U.S. Department of Labor, with the appropriate federal district court then providing appellate review after a determination is made by an administrative law judge and reviewed by the Administrative Review Board.

What laws does the OFCCP enforce? There are three laws enforced by the OFCCP: Executive Order 11246 (1); Section 503 of the Rehabilitation Act of 1973, as amended (2); and the Vietnam Era Veteran’s Readjustment Assistance Act of 1974, as amended (“VEVRAA”). (3)

Executive Order 11246, which has been in place for 45 years, prohibits government contractors and subcontractors from discriminating against applicants or employees on the basis of race, creed, color, gender, or national origin. The OFCCP asserts jurisdiction under Executive Order 11246 over “all contractors and subcontractors who perform under Government Contracts” when the amount of the contract or subcontract is $50,000 or more. (4) For these purposes, the term “subcontract” means a contract that requires the performance of any obligation under a primary contract with the federal government or one of its agencies, or where the subcontract is essential to the performance of the primary contract. (5)

Section 503 of the Rehabilitation Act requires federal contractors and subcontractors to take affirmative action in the hire and advancement of qualified individuals with disabilities.

Finally, VEVRAA requires federal contractors and subcontractors to take affirmative action in the hire and advancement of Vietnam -era veterans, special disabled veterans, and individuals who served on active duty during a war. For contracts entered into on or after December 1, 2003, the OFCCP asserts jurisdiction under VEVRAA over contractors and subcontractors with contracts of $100,000 or more. (6)

What is required of federal contractors and subcontractors? Contractors and subcontractors within the OFCCP’s jurisdiction are subject to burdensome requirements, and presumably have concluded that the cost of compliance with these requirements is outweighed by the value of doing business with the federal government. Generally speaking, the OFCCP requirements of federal contractors and subcontractors include recordkeeping obligations, posting and reporting obligations, the obligation to maintain written affirmative action programs that include quantitative and self-critical information, and the obligation to provide the OFCCP with broad access to the employer’s premises, records, and employees.

The OFCCP’s Expansion of Jurisdiction into the Healthcare Industry

The OFCCP is generally reluctant to engage in jurisdictional battles if an employer responds to a compliance evaluation with a credible argument that the OFCCP lacks jurisdiction over the employer. One exception to this general reluctance is the healthcare industry, which the OFCCP has been interested in since an administrative review board decision in the 2003 case of OFCCP v. Bridgeport Hospital.

OFCCP v. Bridgeport Hospital.(7) In this case, a federal agency (the U.S. Office of Personnel Management) had contracted with the Blue Cross/Blue Shield Association (“BCBS”) to provide health insurance to federal employees. BCBS entered into a contract with Blue Cross of Connecticut, Inc. (“Connecticut Blue”) to provide such health insurance. For OFCCP purposes, therefore, BCBS was a federal contractor and Connecticut Blue was a federal subcontractor, in both cases the underlying contracts related to health insurance. Connecticut Blue contracted with Bridgeport Hospital to provide medical service and supplies to federal employees insured by Connecticut Blue. Bridgeport Hospital did not view itself as a federal subcontractor because the underlying contract between the federal agency and the prime contractor was not for the provision of medical services. Rather, the prime contract was for reimbursement for healthcare costs. When the OFCCP cited Bridgeport Hospital for not having an affirmative action program, Bridgeport Hospital denied the OFCCP’s jurisdiction.

The Administrative Review Board (ARB) determined that the prime contract was to provide policyholders with reimbursement for medical care costs, not for the medical services themselves. The contract between Connecticut Blue and Bridgeport Hospital was for something else – provision of medical services – so the ARB concluded that Bridgeport Hospital was not subject to OFCCP jurisdiction. Health systems relied on this decision in analogous situations – until the 2009 decision in OFCCP v. UPMC Braddock.

OFCCP v. UPMC Braddock.(8) In this case, the same federal agency at issue in Bridgeport Hospital (the U.S. Office of Personnel Management) had contracted with a health maintenance organization known as UPMC Health Plan. The defendant hospitals held contracts with UPMC Health Plan to provide medical products and services to federal employees covered by the HMO. The contracts with the hospitals contained no provision or notice that the hospitals would be deemed federal subcontractors through their contracts with UPMC Health Plan. In fact, the contracts with the defendant hospitals defined “Subcontractor” as “[a]ny supplier, distributor, vendor or firm that furnishes supplies or services to or for a prime contractor, or another subcontractor, except for providers of direct medical services and supplies pursuant to the Carrier’s health benefits plan.” (Emphasis added.)

When the OFCCP requested copies of the defendant hospitals’ affirmative action programs and attempted to schedule compliance reviews, the hospitals refused, and denied the OFCCP’s jurisdiction over them. In addition to other arguments, the hospitals relied on Bridgeport Hospital in their assertion that they were not covered by the laws enforced by the OFCCP.

The Administrative Review Board found in favor of the OFCCP. The Board distinguished Bridgeport Hospital, finding differences between an insurer and an HMO with respect to the nature of the underling contract. According to the Board, UPMC Health Plan had described itself in a brochure distributed to federal employees as a provider of medical services, including emergency services, mental health and substance abuse services, prescription drug benefits, and dental benefits. Therefore, according to this analysis, when the defendant hospitals provided medical services to federal employees, they were fulfilling portions of UPMC Health Plan’s contractual obligation to a federal agency, making the hospitals federal subcontractors subject to the OFCCP requirements. The troubling nature of this analysis is compounded by the more recent decision in OFCCP v. Florida Hospital of Orlando.

OFCCP v. Florida Hospital of Orlando.(9) In this case, TRICARE, which is the Department of Defense’s worldwide healthcare program for active duty and retired military members and their families, contracted with Humana Military Healthcare Services, Inc. (HMHS) to, among other things, establish networks of health care providers to provide health care services to eligible TRICARE beneficiaries. TRICARE supplements the healthcare resources of the uniformed services with these networks of civilian health care professionals, institutions, pharmacies and suppliers. Many health systems in the United States and abroad have formed networks similar to those formed by HMHS. Through these networks, TRICARE serves approximately 9.6 million beneficiaries worldwide. TRICARE is not a federal agency; in fact, the Department of Defense has designated TRICARE as a federal financial assistance program (which is not subject to federal affirmative action requirements). One of TRICARE’s arguments to the OFCCP is that “it would be impossible to achieve the TRICARE mission of providing affordable health care for our nation’s active duty and retired military members and their families if onerous federal contracting rules were applied to the more than 500,000 TRICARE providers in the United States.”

Here, the defendant, Florida Hospital of Orlando, contracted with HMHS to become a participating hospital in the HMHS network. TRICARE did not require HMHS to insert the equal opportunity “flow down” clauses into its contracts with participating health care providers to notify them of potential affirmative action obligations. When the OFCCP announced a desk audit of the defendant hospital’s compliance with affirmative action laws, the hospital objected, arguing that it is not a covered subcontractor for several reasons, including TRICARE was designated a federal financial assistance program, and the OFCCP does not have jurisdiction over businesses that are recipients of federal financial assistance. The hospital also asserted that this case was governed by the Administrative Review Board’s 2003 decision in Bridgeport Hospital.

The ALJ found that HMHS is neither an insurer nor a health maintenance organization. Rather, based on stipulations of fact submitted by the parties, the ALJ found that HMHS provides medical services to TRICARE’s beneficiaries under its contract with TRICARE. The ALJ further found that the defendant hospital has undertaken to perform a portion of HMHS’s obligations under the TRICARE contract, specifically the provision of medical services to TRICARE’s beneficiaries. The ALJ determined that the hospital’s situation was governed by the UMPC Braddock decision, not Bridgeport Hospital. While acknowledging that federal financial assistance, such as payments by Medicaid or Medicare, do not subject a hospital to OFCCP jurisdiction, the ALJ concluded that TRICARE is not a federal financial assistance program, despite the Department of Defense’s designation as such. Therefore, according to this analysis, the defendant hospital fell under the OFCCP’s jurisdiction.

Conclusion

Clearly the OFCCP is moving towards broader jurisdiction over health systems and their constituent hospitals. Many hospitals in the various TRICARE networks, for example, are facing OFCCP compliance challenges for the first time. Healthcare entities must closely analyze their relationships with federal government agencies through HMOs, provider networks, and the like, and consult with counsel to determine whether they must comply with federal contractors’ affirmative action obligations, including:

  • Developing written affirmative action programs for minorities and women, and for covered veterans and the disabled;
  • Preparing adverse impact analyses of hires, promotions, and terminations;
  • Analyzing compensation practices for discrimination;
  • Filing EEO-1 and Vets 100(A) Reports;
  • Posting required notices and invitations to self identify;
  • Notifying state employment service delivery system agencies of job openings; and
  • Complying with detailed recordkeeping requirements.

With the erosion of the jurisdictional arguments that historically kept the OFCCP at bay, a proactive approach towards OFCCP compliance, particularly for hospitals in TRICARE networks, is now warranted.

Copyright 2010 American Health Lawyers Association, Washington, DC

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