Murtha Means More

Health Care Contracting Issues - Part I of a series

April 30, 2013

Are Hospitals and Other Health Care Providers Subject to Federal Affirmative Action Requirements?

A recent Federal District Court decision increases the risk that hospitals may be subject to Federal Affirmative Action requirements.

First, some history. Under Executive Order 11246, issued by President Lyndon Johnson, federal contractors and subcontractors of a certain size are subject to affirmative action requirements, including an annual, detailed, Affirmative Action Plan with a full workforce analysis and plans to address any “under-representation” of particular racial, ethnic or gender groups. While many employers prepare such plans, they are both an administrative burden and can provide fodder for plaintiffs in employment discrimination cases. Therefore, employers generally do not undertake such detailed plans unless required to do so. The failure of an employer to comply with the rules if it is required, however, can result in fines, penalties and in serious cases debarment from future federal contracts. 

Hospitals and other health care providers have traditionally taken the stance that, despite receiving large amounts of federal money, they are not federal “contractors” or “subcontractors” and are therefore not subject to the affirmative action requirements of Executive Order 11246. The Office of Federal Contract Compliance Programs (“OFCCP”), which administers the 11246 affirmative action requirements, has argued several times over the last 15 years that many hospitals and health care providers ARE subject to OFCCP oversight, and has brought several administrative and court proceedings to address the question.

On March 30, 2013, a Federal District Court in Washington, D.C. agreed with OFCCP and held that the specific arrangements between a hospital, a managed care plan and the federal government meant that both the managed care plan, as a contractor, and the hospital, as a subcontractor, were required to have formal full-blown affirmative action plans in place. That decision has once again brought the issue of whether particular hospitals are subject to such requirements to the forefront, and has many hospital administrators wondering exactly what requirements their institutions are subject to. 

While the details of the recent decision (click here for a link to the UPMC Braddock v. Harris decision) are interesting to lawyers, of much more practical use is a directive issued by OFCCP in December 2010 that describes the OFCCP’s view of the circumstances under which hospitals and health care providers would, and would not, be considered federal contractors and subcontractors subject to federal oversight of affirmative action procedures. Click here to view a copy of the December 16, 2010 OFCCP Directive. This directive is not a law, and it seems likely that the recent court decision will be appealed, which could result in a significant change in OFCCP’s position, but it is good guidance as to the current thinking at OFCCP.

As an initial matter, OFCCP agrees that the receipt of reimbursement under Medicare Part A, Medicare Part B and Medicare does NOT result in an institution becoming a federal contractor or subcontractor. In addition, the mere receipt of federal grants, for educational or research purposes, does NOT subject the entity to OFCCP oversight. Finally, because of federal legislation in 2012 (after the OFCCP’s December 2010 directive) participation in TRICARE, the program that provides health benefits to military personnel, does not result in federal contractor or subcontractor status.

The matter becomes more complicated when it comes to providing health services to non-military federal employees. The line drawn by OFCCP, and approved at least in part by the recent court decision, depends on the type of service initially purchased by the federal government. If the federal government purchases traditional insurance from an insurer – which generally provides that expenses for certain services will be reimbursed – then the hospital that provides such services is NOT a subcontractor. On the other hand, if the federal government purchases actual services – such as through an HMO or other managed care arrangement – then the hospital that provides such services would be considered a subcontractor and would be covered by affirmative action requirements.

Hospitals and other health care providers should take the following steps:

  • Determine whether you are currently preparing annual Affirmative Action Plans under Executive Order 11246.
  • If you are, review the plan and make sure it is properly prepared. If you want to consider discontinuing the practice, follow the steps below:
    • If you are not currently preparing an annual Affirmative Action Plan, determine whether you need to be doing so.
    • Review your contracts to determine whether your institution has any direct contracts with the federal government (other than TRICARE, Medicare Part A, Medicare Part B or educational and research grants) that would qualify as a direct contract.
    • Review payment arrangements from insurers and other payors to determine if any obligate the institution to perform services that have been directly promised by the payor to the federal government, as distinguished from simple reimbursement of expenses incurred in medical care obtained by a patient directly.

If an institution determines that it may be covered as a federal contractor or subcontractor, then it should decide whether to prepare a full blown affirmative action plan or instead wait until there is some additional clarity on the issue, because it is likely that the recent decision from the Federal District Court will be appealed and there may be some additional guidance.

If you have questions about the issues addressed here, please contact Hugh Murray at (860) 240-6077 or hmurray@murthalaw.com.

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