United States: Federal Judge Finds That OFCCP Has Jurisdiction Over Three Hospitals

Executive Summary:   The Office of Federal Contract Compliance Programs ("OFCCP") has jurisdiction over three hospitals that provided medical services to federal employees who were members of an HMO, according to Judge Paul L. Friedman of the United States District Court for the District of Columbia.  The hospitals, located in Pittsburgh, contracted with a prime contractor, the UPMC Health Plan, which had a contract with the federal government to provide medical services to federal employees.  Despite the fact that the hospitals did not have an EEO clause in their contracts, and contrary to the arguments that the hospitals raised, the court found that each of the hospitals was a subcontractor that performed services necessary to the performance of the prime contract.  Accordingly, even though the hospitals never consented to be bound by OFCCP's requirements, the court found that OFCCP had jurisdiction over each of the hospitals.  UMPC Braddock, et al. v. Seth D. Harris, Civil Action No. 09-1210 (PLF)(D.D.C. 3-30-13).

Practical Impact

• Even healthcare employers whose agreements with federal contractors do not include EEO provisions may be subject to OFCCP jurisdiction if the services they provide are necessary to the performance of the federal contractor's prime contract. 
• Healthcare employers should review their contracts and seek advice from counsel to determine whether they might be subject to OFCCP jurisdiction.
• Healthcare employers who determine they may be subject to OFCCP jurisdiction should take proactive steps to ensure they are in compliance with the equal employment and affirmative action laws governing federal contractors.  

Background

The three hospitals affiliated with the University of Pittsburgh's Medical Center, UPMC Braddock, UPMC McKeesport, and UPMC Southside, signed contracts with an HMO called the UPMC Health Plan.  Under the terms of the contracts, the hospitals agreed to provide medical services to covered individuals.  The UPMC Health Plan contracted with the federal government's Office of Personnel Management ("OPM") to provide coverage for federal employees.  The OFCCP scheduled a compliance audit to be held at each hospital under Executive Order 11246 ("EO 11246"), the Rehabilitation Act and VEVRAA, and requested that each hospital submit information in compliance with the equal opportunity provisions in those laws and also permit OFCCP compliance officers to conduct onsite investigations.  None of the hospitals complied. The hospitals argued that they were not government subcontractors and therefore they were not subject to OFCCP jurisdiction or the equal employment opportunity requirements of the various statutes and the Executive Order.  In fact, the hospitals had entered into contracts that specifically omitted the relevant EEO clauses.  

OFCCP filed an enforcement action against the hospitals.  A Department of Labor (DOL) administrative law judge held that OFCCP had jurisdiction because the hospitals were subcontractors.  The DOL Administrative Review Board ("ARB") upheld the administrative law judge's decision.  The ARB held that the hospitals' agreements with the health plan are subcontracts covered by the equal employment opportunity provisions required by EO 11246.  The ARB's decision and order enjoined the hospitals from failing to comply with EO 11246, the Rehabilitation Act, VEVRAA, and the implementing regulations.  The hospitals filed suit in the United States District Court for the District of Columbia asking the court to set aside the ARB's decision and enjoin the DOL from enforcing it. 

Rejecting each of the hospitals' arguments, Judge Friedman upheld the ARB's decision and held that OFCCP has jurisdiction over each of the hospitals.  He determined each of the hospitals is a subcontractor within the meaning of EO 11246 and the implementing regulations.  First the court rejected the hospitals' contention that they were not federal contractors or subcontractors.  The prime contract between OPM and UPMC Health Plan excluded medical providers from its definition of "subcontractor."  However, the court held that a contract provision that violates federal law is unenforceable and invalid.  

The court also rejected the hospitals' contention that they did not provide nonpersonal services to the UPMC Health Plan and thus could not be subcontractors subject to OFCCP jurisdiction.  Analyzing the Federal Acquisition Regulations, the judge determined that the term "nonpersonal services" does not refer to the relationship between the employees of a subcontractor and those individuals benefiting from subcontractors, but rather to the relationship between a subcontractor's personnel and the agency.  

Finally, the court held that the hospitals' contracts with the UPMC Health Plan were in fact subcontracts because the medical services the hospitals provided were necessary to the performance of the prime contract between the UPMC Health Plan and the OPM.  In sum, the judge rejected all of the hospitals' arguments and affirmed the decision of the ARB.  The judge distinguished this case from an earlier case, OFCCP v. Bridgeport Hospital.  In Bridgeport, the prime contractor, Blue Cross, did not agree to provide medical services and, therefore, Bridgeport's arrangement with Blue Cross was not essential to the fulfillment of any contractual undertaking that Blue Cross undertook in its federal contract.  Thus, Bridgeport Hospital was not a subcontractor subject to OFCCP jurisdiction.  In Braddock, however, the UPMC hospitals' services were essential to the performance of the prime contract.  Therefore, the UPMC hospitals were subject to OFCCP jurisdiction. 

Employer's Bottom Line:  The UPMC hospitals tried to disclaim government-contractor status and raised arguments, all of which the federal judge rejected.  The court held that the hospitals' express consent was not necessary for them to be bound to the obligations imposed by federal law and regulations.  Under the Obama Administration, OFCCP likely will continue to seek ways to broaden its jurisdiction over healthcare employers.  

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