An Administrative Review Board (ARB) of the United States Department of Labor (DOL) recently upheld the determination of a DOL Administrative Law Judge (ALJ) that three hospitals receiving payments from a Health Maintenance Organization (HMO) for providing medical services to U.S. government employees are covered federal subcontractors. As a result, the ARB held that the hospitals are subject to affirmative action obligations imposed by the Office of Federal Contract Compliance Programs (OFCCP), even though the hospitals have no direct federal contracts to provide the services in question.

The three hospitals involved in OFCCP v. UPMC Braddock, ARB. No. 08-048 (ARB May 29, 2009), were all separate affiliates of the University of Pittsburgh Medical Center (UPMC), and each had HMO contracts with the UPMC Health Plan to provide medical services to U.S. government employees. The UPMC Health Plan, in turn, contracted with the federal Office of Personnel Management (OPM) to provide such medical coverage. Therefore, there were no direct contracts between the hospitals and OPM. Each of the hospitals refused to schedule on-site compliance reviews of their facilities or provide copies of affirmative action plans and other compliance documents, in response to requests from OFCCP, arguing that they were not government subcontractors and thus not subject to OFCCP’s jurisdiction. The hospitals pointed out that they never agreed to become government subcontractors, that the UPMC Health Plan’s contract with OPM specifically excluded hospitals, and that the hospitals’ contracts with UPMC Health Plan did not include an equal employment opportunity (EEO) clause required of federal subcontractors by Executive Order 11246. The OFCCP’s administrative complaints with DOL asserted that the three hospitals’ failure to cooperate with its investigation and failure to produce affirmative action plans violated Executive Order 11246, the federal Rehabilitation Act, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA).

The ARB concluded that failure to include EEO clauses in the HMO contracts with the hospitals did not excuse the hospitals from complying with these laws, because it determined that the EEO clauses were incorporated by operation of law into those contracts, whether or not expressly stated there. The ARB also distinguished the situation of the UPMC hospitals from one of its earlier decisions, in which it held that a hospital contract with a state Blue Cross/Blue Shield organization, covering federal workers, did not render the hospital a federal subcontractor. That case, the ARB held, involved merely Blue Cross/Blue Shield’s provision of insurance to the federal workers. In the present case, however, the ARB found that UPMC was operating primarily as a heath care provider, not strictly as an insurance provider, and that UPMC’s brochure expressly stated that the Health Plan contracted with (among other providers) hospitals to provide plan benefits. Thus, the ARB concluded that the hospitals were covered subcontractors by operation of law because the hospitals were “necessary” to the Health Plan’s performance of its contract with OPM to provide medical services for the covered federal employees.

OFCCP also recently filed an administrative complaint against a private hospital in Florida, similarly asserting that the hospital is a government subcontractor within the meaning of the Executive Order, the Rehabilitation Act and the VEVRAA, and, as such, is obligated to comply with the EEO and affirmative action requirements of those federal laws. In that case, the Florida hospital has agreements with a non-governmental network of doctors and hospitals providing medical services for beneficiaries of the federal TRICARE program (for military service participants). The network, in turn, has contracts with TRICARE to provide medical services to U.S. government military employees and their dependents. In that case, as well, OFCCP is arguing that the hospital’s contracts with the network are “necessary” to the networks’ performance of its contracts with TRICARE, and, therefore, the Florida hospital is a government subcontractor within the meaning of the three federal laws. The ARB’s decision in this latest case is likely be dispositive of the issues in this case insofar as DOL’s internal policies are concerned, although it could be subject to challenge and further review in the federal courts. (The UPMC hospitals elected not to pursue federal court appeal of the DOL’s UPMC Braddock decision.)

Smith, Gambrell & Russell, LLP will continue to monitor the progress of the case and will report on any decisions as they develop.

To learn more about how these decisions may affect your company or if you have any questions regarding these issues, be sure to contact your employment counsel at Smith, Gambrell & Russell, LLP.