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OFCCP Scrutiny of Hospitals and Other Health Care Entities Likely

November 03, 2010

In light of a Department of Labor ("DOL") decision issued late last month, OFCCP v. Florida Hospital of Orlando, 2009-OFC-00002 (October 18, 2010), and stepped-up enforcement activities at the Office of Federal Contract Compliance Programs ("OFCCP"), hospitals and other health care entities will likely be the focus of future OFCCP scrutiny.

OFCCP v. Florida Hospital of Orlando

The OFCCP, the agency that enforces affirmative action regulations, has for many years looked for ways to expand its jurisdiction over health care, an industry that previously considered itself exempt from the OFCCP's purview. The decision in Florida Hospital represents a significant expansion of OFCCP jurisdiction, as it confirms that a hospital or a health care provider participating in and receiving more than $50,000 in reimbursement from the Department of Defense's TRICARE program will be considered a federal affirmative action subcontractor. The decision directly contradicts a long-standing belief in the health care community that, similar to Medicare and Medicaid reimbursements which are not considered covered federal contracts, all medical services reimbursed by the federal government were immune from OFCCP jurisdiction.

The Florida Hospital decision hinges on the nature of services provided under the primary government contract and passed down through the subcontract at issue. In this case, the prime contract was between a health insurance company and TRICARE, the Department of Defense's worldwide military health care program that contracts for managed care support, for the provision of health care provider network services to active and retired military service members and their families. The Florida Hospital subcontract was a long-standing contract between the hospitals and the health insurance company to be an approved supplier of health care services to the health insurance company's beneficiaries, which included the TRICARE program. The DOL concluded that the subcontract to deliver medical services to active and retired military members in furtherance of a prime contract between the health insurance company and TRICARE was sufficient to subject the hospital to OFCCP jurisdiction as a federal subcontractor.

The DOL expressly rejected the hospital's argument that TRICARE - like Medicare or Medicaid - is purely a form of federal financial assistance that falls outside of OFCCP's jurisdiction, rather than a contract to provide medical services which comes within OFCCP's authority. In reaching this conclusion, the DOL distinguished this case from the Administrative Review Board's decision in OFCCP v. Bridgeport Hospital, ARM Case No. 00-034 (January 31, 2003). In Bridgeport Hospital, the hospital received payments from Blue Cross/Blue Shield ("Blue Cross") as part of an insurance contract between Blue Cross and the federal Office of Personnel Management ("OPM"). The hospital was held not to be a covered federal subcontractor because the hospital did not assume any of Blue Cross's obligations under the prime federal contract - namely the provision of insurance. In contrast, the DOL pointed out in Florida Hospital that TRICARE and its contracted health care provider network provide more than mere insurance, and subcontractors, such as Florida hospitals, assume the federal contract obligations and are therefore covered federal subcontractors.

The Florida Hospital decision continues a trend that began with last year's ruling in OFCCP v. UPMC Braddock, ARB Case No. 08-048 (May 29, 2009). In UPMC Braddock, UPMC Health Plan ("UPMC"), a health maintenance organization, contracted with OPM to provide medical services to federal employees. The defendants were hospitals which had subcontracted with UPMC to provide medical products and service to federal employees. Since the defendant hospitals subcontracted with UPMC to provide some of UPMC's medical services, they were peforming a portion of the contractor's obligations under its federal contract, and were therefore covered federal subcontractors.

It is important to note that in both Florida Hospital and UPMC Braddock, the defendant hospitals were not informed of their affirmative actions obligations by TRICARE or UPMC and their contracts did not contain the mandated equal opportunity clause. Despite this error on the part of the contracting agency, the DOL held that such failure to include the obligatory contract language does not excuse a subcontractor from compliance with applicable affirmative action laws.

OFCCP Enforcement Activities

It is no surprise that under the current administration, the OFCCP has started to publicly pursue a new agenda of change. Part of that change includes increased funding, which we have already seen has a tremendous impact on OFCCP's national enforcement activities. To put things in perspective, this past year the OFCCP staff grew by 35%. At last count, there are six regional directors, 45 district directors, and a total of 782 employees, including 200 new investigators. The OFCCP's primary agenda items include strengthening enforcement and broadening its reach. To this end, the OFCCP is training its new investigators with a revamped program that is designed to provide investigators with the tools to efficiently and effectively investigate noncompliance. We are seeing outreach efforts that include multi-establishment audits and a focus on those industries which have not historically been the subjects of audits, such as health care. The number of audit letters being issued to contractors is on the rise and investigators are being less generous with extensions for companies that are out of compliance. Instead, Notice of Violations letters are being issued, the OFCCP's current preferred and most commonly seen notification letter, when it discovers what it believes are violations of the statutes and regulations it enforces. In addition, such violations seem to be refocused on discrimination findings that arise out of the affirmative action audit. With the Florida Hospital case firmly establishing the OFCCP's jurisdiction over health care service contracts and subcontracts, hospitals and health care providers will undoubtedly feel the impact of the OFCCP's efforts to strengthen enforcement activities.

What Does this Mean to You?

As a general rule, contractors and subcontractors with government contracts of $50,000 or more and 50 or more total employees are required to develop and maintain a written affirmative action plan. If your organization meets the threshold requirements of a federal subcontractor, the first step will be to undertake the time-consuming task of creating an affirmative action program. The creation of an affirmative action plan will require an in-depth analysis of your workforce, including your hiring, promotion, termination, recruitment and discharge practices. As mentioned above, the OFCCP has increased its enforcement activities and more and more health care organizations are being contacted by the OFCCP for audit. If a health care organization knows that it is subject to federal affirmative action obligations either through a TRICARE contract or other federal contract for medical services, it is advisable to create an affirmative action program before being contracted by the OFCCP, as the OFCCP audit process can become complicated if the organization is not already in compliance. In addition, failure to create an affirmative action program and undertake the additional affirmative action obligations prescribed by federal regulations could subject the organization to significant fines and penalties, including exclusion/debarment from future government contracts.

For more information or assistance with the creation or implementation of your company's affirmative action plan, contact Margaret Kurlinski (mkurlinski@gklaw.com, 414.287.9539), Christine Liu McLaughlin (cmclaughlin@gklaw.com, 414.287.9232) or an attorney from Godfrey & Kahn's Labor & Employment or Health Care Practice Groups.

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If you have a media request or need an attorney with particular knowledge for comment, please contact Susan Steberl, Director of Marketing, at 414.287.9556 or ssteberl@gklaw.com.

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