United States: Federal District Court Holds That OFCCP Has Jurisdiction Over Hospitals That Provide Services To HMOs Retained By Federal Government

Earlier last week, the federal district court for the District of Columbia ruled that three hospitals providing medical services through an HMO to U.S. government employees are "subcontractors" subject to OFCCP's jurisdiction. The decision shows that OFCCP has successfully been able to expand the definition of "subcontractor" and hence its jurisdiction to enforce affirmative action requirements.

In UPMC Braddock v. Harris, a health maintenance organization ("HMO"), UPMC Health Plan, contracted with the U.S. Office of Personnel Management ("OPM") to provide coverage for federal employees who participate in the Federal Employees Health Benefits Program. The plaintiff Pittsburgh hospitals then entered into contracts with UPMC Health Plan to provide medical services and supplies to certain individuals enrolled in its coverage program.

Even though the contract between UPMC and OPM explicitly excluded hospitals and medical service providers from the definition of subcontractor, OFCCP took the position that the hospitals were nonetheless subcontractors of UPMC. When the hospitals refused to respond to OFCCP compliance audit notices, OFCCP initiated an enforcement proceeding against them.

In OFCCP v. UPMC Braddock, Case No. 08- 048 (May 29, 2009), the DOL's administrative review board ("ARB") upheld an administrative law judge's finding that the hospitals were federal subcontractors because they were performing a necessary part of UPMC's broader contractual obligations to OPM. The hospitals appealed the ARB's decision to federal district court.

The district court agreed with the ARB. It noted that healthcare providers that subcontract with insurance companies that provide traditional insurance coverage fall outside of OFCCP's jurisdiction. However, those hospitals and other providers that subcontract with HMOs doing business with the federal government must comply with applicable statutory and regulatory requirements, including the OFCCP's affirmative action and EEO requirements. The court noted that these requirements applied to the subcontractors even though their subcontracts did not include the FAR provisions imposing affirmative action requirements.

This decision potentially impacts a substantial number of hospitals, health care providers and other entities providing goods or services to HMOs retained by the federal government. We anticipate that the decision will embolden the OFCCP's continuing efforts to increase the number and types of employers subject to its jurisdiction.

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