Over the last few years, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) has taken an expansive approach as to when hospitals should be considered “federal contractors” and/or “federal subcontractors.” This enforcement trend is significant because, among other things, federal contractors and subcontractors must comply with the federal affirmative action laws (Executive Order 11246, Section 503 of the Rehabilitation Act and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974).
In OFCCP v. UPMC Braddock, ARB Case No. 08-048, ALJ Case Nos. 2007-OFC-001, 2007-OFC-002, 2007-OFC-003 (May 29, 2009), the Department of Labor’s Administrative Review Board (“ARB”) found that three Pittsburg Hospitals were federal subcontractors. The Government (the Office of Personnel Management (“OPM”)) contracted with a Health Plan (UPMC) to provide HMO coverage for its federal employees. In turn, the Health Plan contracted with the Hospitals via a HMO contract. The ARB concluded that the Hospitals were federal subcontractors because:
The UPMC’s contract with OPM required UPMC to put a health maintenance organization (HMO) into operation. The contract thus depended on medical providers like the [Hospitals] to offer medical services and supplies necessary for the UPMC to meet a portion of its obligation under its contract with OPM to put an HMO into operation. Therefore, their contracts with UPMC are subcontracts under the second prong of the definition [(performing a portion of the contractor’s obligations under the contract)].
(Emphasis added).
An appeal of this decision has been pending in United States District Court, District of Columbia, for the past several years. On March 30, 2013, the D.C. Court affirmed the administrative determination. (UPMC Braddock v. Harris, D.D.C., No. 09-01210, 3/30/13).
The D.C. Court agreed with the ARB’s reasoning that the Hospitals are federal subcontractors because the services provided by the Hospitals were necessary to the performance of the HMO’s prime contract with the Government (the OPM). The Court ruled that it did not matter that the prime federal contract between the Government (OPM) and the Health Plan (UPMC) specifically stated that medical providers (i.e. Hospitals) would not be considered federal subcontractors. Basically, the Court concluded that the contract could not trump the law. The Court also found it insignificant that the Hospitals had never “consented” to be federal subcontractors. Again, the Court held that the only issue is whether or not the Hospitals meet the legal definition of federal subcontractors – consent is not required.