Court rules employers who provide services to federal government employees subject to federal contracting regulations

OFCCPA federal court recently ruled that hospitals affiliated with the University of Pittsburgh Medical Center became “federal subcontractors” when they entered into contracts with an HMO that provided health services for federal employees. As a result, the hospitals were bound by federal nondiscrimination and affirmative action requirements. The ruling could have broad implications for health care providers who would normally not consider themselves to be federal subcontractors, and could subject them to the equal employment opportunity and affirmative action requirements of the Department of Labor’s Office of Federal Contract Compliance Programs.

Although this particular case focused on relationships between health care providers and their clients, the ruling broadly applies to any businesses that provide goods or services to the federal government or its employees, or to other businesses contracted by the government.

In UPMC Braddock, et al. v. Harris, the hospitals entered into contracts with an HMO to provide medical services and supplies to individuals enrolled in its coverage program. The HMO contracted with the U.S. Office of Personnel Management to provide coverage for federal employees. Although none of the hospitals had a federal contract, the Department of Labor concluded the hospitals qualified as federal subcontractors because they provided medical services to federal employees.

The court rejected the hospitals’ arguments that they were not federal “subcontractors,” rejecting as void language in the hospitals’ contracts with the HMO purporting to disclaim such status. The court ruled that the hospitals were “subcontractors” within the statutory and regulatory framework and thus, were obligated to comply with federal rules even though these requirements were not expressly incorporated into the contracts.

The decision may have a significant impact for hospitals and health care providers going forward. First, any hospital, health care provider, or other entity that provides services to an HMO under contract with the federal government could be subject to the OFCCP’s jurisdiction and required to comply with certain nondiscrimination and affirmative action requirements regardless of whether the contract disclaims such responsibility or is silent on the issue.

Furthermore, it seems clear from this ruling that the Department of Labor is actively attempting to expand the scope of its enforcement ability. Therefore, any entities that do business with the federal government would be wise to make themselves aware of the DOL’s regulations. It is important to note that Congress statutorily exempted the Department of Defense’s TRI-CARE programs so this ruling should not apply to contracts to provide medical services for TRI-CARE beneficiaries.

This alert has been provided for clients and friends of McAfee & Taft A Professional Corporation. It does not provide legal advice, and is not intended to create a lawyer-client relationship. Readers should not act upon information in this alert without seeking professional counsel.