Hunton Employment & Labor Perspectives

The Office of Federal Contract Compliance Programs (“OFCCP”) has a long history of attempting to assert jurisdiction over hospitals.  A recent federal court ruling confirms that, despite some recent victories for hospital employers in this area, hospitals may indeed find themselves subject to OFCCP jurisdiction.

The U.S. District Court for the District of Columbia recently ruled in UPMC Braddock v. Harris, D.D.C. No. 09-01210 (2013), that three Pittsburgh hospitals are covered federal government “subcontractors” because they contracted with an HMO to provide medical services to Federal employees and their beneficiaries.  The court found the hospitals’ provision of medical services was “necessary” to the HMO’s contract with the Office of Personnel Management (“OPM”).

The Court affirmed a decision of the Administrative Law Judge (“ALJ”), holding the ALJ had not abused his discretion in finding the hospitals to be covered by the OFCCP’s subcontractor regulation.  The OFCCP’s regulations define a subcontractor as one who has an agreement or arrangement “(1) [f]or the purchase, sale or use of personal property or nonpersonal services, which in whole or in part, is necessary to the performance of one or more [prime]contracts or (2) [u]nder which any portion of the contractor's obligation under any one or more contracts is performed, undertaken or assumed.”  41 CFR 60-1.3.  A significant fact in the Court’s analysis was that the HMO provided not just health insurance, but also health care services, to the OPM.  The HMO depended on the hospitals to provide those medical services.  Thus, according to the Court, the hospitals are covered federal subcontractors.

In its ruling, the Court rejected several arguments raised by the hospitals against OFCCP jurisdiction:

• Employers cannot preclude subcontractor status by contract.   The Court rejected a claim that the prime federal contract excluded medical providers from the definition of “subcontractor.”  The Court reasoned that a contract provision that conflicts with federal law is invalid.
• Most services provided the Government are covered “nonpersonal” services.  The hospitals argued they provide “personal services”, i.e., medical care, to the HMO.  The court disagreed, finding they provide “nonpersonal services” that support subcontractor status.  Analogizing to another Federal Acquisition Regulation, the Court reasoned that “personal services” are those where there is an employer-employee relationship between the Government and the subcontractor’s personnel.
• Consent is not required for subcontractor status.  The hospitals noted that their contracts with the HMO did not include equal employment opportunity (“EO”) clauses.  Thus, they claim they never consented to OFCCP jurisdiction.  The Court rejected this view because the OFCCP’s regulations incorporate the EO clauses into every federal contract and subcontract, regardless of whether they are explicitly cited.

This case is the latest in a long-running and contentious debate between hospitals and the OFCCP.  It confirms that subcontractor status can attach without the awareness of the covered employer.  It also reiterates the OFCCP’s continued practice of broadly construing its jurisdictional reach.  Hospitals who contract with HMOs should determine whether the persons being served are Federal employees and beneficiaries, and if so, should evaluate OFCCP coverage.