Recent Decisions Affecting Affirmative Action Requirements in the
Health Care Industry


Imagine receiving a letter from the federal government requiring that you submit 11 categories of data within 30 days data ranging from your affirmative action plan (which you may not have), to your applicant and hiring statistics for the last year (which may not be complete), to your compensation data (which you may not fully appreciate). Imagine further that the federal government then decides to come to your facility, review additional data (including your records of accommodating your employees, your personnel files and your I-9s) and interview both management and non-management employees. Does this sound like a bad dream? Have you always believed that you, as a health care provider without a direct federal contract, are not subject to such inquiries from the federal government? If so, you need to be aware of some recent decisions that, if upheld, increase the likelihood that your organization will be subject to an affirmative action compliance audit.


Companies, including health care providers, are only subject to the affirmative action requirements administered by the Office of Federal Contractor Compliance Programs (OFCCP) if they have federal contracts or subcontracts above certain monetary thresholds, the lowest of which is $10,000. The affirmative action obligations become more onerous as the value of the contracts increase. Importantly, a federal contract or subcontract exists when a company has either an agreement to provide goods or non-personal services to the federal government (or agency) directly, or an agreement with a contractor of the federal government (or another subcontractor down the contracting chain) to: (a) provide goods or non-personal services that are necessary to fulfill the federal contract; or (b) perform or assume a portion of the obligations of the federal contract.


It has been established through an internal OFCCP directive that the receipt of Medicare and Medicaid reimbursements does not create a federal contract. Further, grants that do not require the provision of goods or services to the federal government are not federal contracts. There are several ways, however, in which a health care provider can become a federal contractor including contracting to provide health services to a federal agency (such as the federal prison system) or contracting to provide research related services for a university that is contracting with the federal government for the research. Recent decisions have identified additional methods by which a health care provider may become subject to federal affirmative action requirements, including TRICARE agreements and certain agreements to provide services to federal employees that are paid for by insurance purchased by the federal government. These decisions have the potential to bring the majority of health care providers into the world of affirmative action and potential audits by the OFCCP.




An administrative law judge (ALJ), in OFCCP v. Florida Hospital of Orlando, recently decided that a hospital that participated in TRICARE is a federal contractor. The ALJ distinguished the TRICARE program from Medicare because TRICARE's "primary objectives are to optimize the delivery of health care services in the direct care system for all [military] beneficiaries . . . ." In other words, according to the ALJ, unlike Medicare, which is a reimbursement program, TRICARE provides actual medical services to military beneficiaries through, in part, contracts with civilian health care professionals. The ALJ was not swayed by arguments that the Department of Defense intended TRICARE to be treated as "federal financial assistance" (which is how Medicare and Medicaid is characterized) or that the TRICARE program would be overly burdened if its more than 500,000 TRICARE providers were required to comply with affirmative action requirements and be open to OFCCP audits. This decision may be appealed, although, absent legislative intervention, it is likely to be upheld.


Contracts With Health Insurers to Provide Services to Federal Employees


The OFCCP also pursued a case, which is pending appeal, alleging that three hospitals, including UPMC Braddock Hospital, are subject to the affirmative action requirements and OFCCP audits because the hospitals had agreements to provide HMO services for a health plan that contracted with the federal government. Prior to this case, the health care industry relied upon a 2003 administrative decision (and a resulting OFCCP directive) holding that an agreement between a hospital and Blue Cross to provide medical services to Blue Cross policyholders did not create a federal contract, even though the policyholders were federal employees. The basis for the decision was that the contract between Blue Cross and the Office of Personnel Management (OPM) was for medical insurance, not medical services. Therefore, when the hospital provided medical services to federal employees, it was not providing services necessary to the fulfillment of the insurance contract between the federal government and Blue Cross.


The OFCCP distinguished the 2003 decision from its current case. In an administrative action against UPMC Broddock Hospital (Braddock) and two additional UMPC hospitals, the OFCCP successfully argued that the hospitals were subject to the affirmative action requirements and must submit to an OFCCP audit because the contract between OPM and the UMPC health plan required the plan to provide medical services, not just medical insurance. Accordingly, the HMO services provided by the hospitals were necessary to the completion of the federal contract. It is important to note that the OFCCP succeeded in its argument even though the contract between the OPM and the UPMC health plan specifically excluded health care service providers from the definition of a federal subcontractor. The decision notes that the statutory and regulatory affirmative action obligations are incorporated into a federal contract as a matter of law, regardless of the language of the contract itself.


The Braddock decision is being appealed to the federal courts. As with the TRICARE decision, if this decision is upheld, it may result in a very large number of health care providers, who previously thought they were excluded from the definition of a federal subcontractor, being covered by the affirmative action requirements. Specifically, hospitals and large medical practices that are part of a provider network that has a contract to provide medical service or supplies to federal employees will be subject to the affirmative action requirements and OFCCP audits.


What Should Health Care Providers Do?


It is more important than ever that health care providers know the nature of their contracts, particularly those that have a connection to the federal government. Many organizations, both within and outside of the health care industry, are not aware of the nature of their contracts until the government is at their doorstep. This leaves the organization scrambling at the last minute to determine whether they are covered and whether they have complied with the applicable requirements. Such scrambling can lead to unfortunate oversights.


If contracts exist that may subject the provider to OFCCP audits, the provider should work with legal counsel to gauge their risk. Some providers may chose a wait and see approach with the hope that these recent decisions will be overturned and/or that they will not be the next provider selected for an audit before the appeals are exhausted. Others may decide to be more proactive and ensure that they are in compliance with the affirmative action requirements before the OFCCP initiates an audit. Given that the OFCCP is pursuing providers who chose not to submit to an audit, an informed decision should be made on the best approach.


Even if a wait and see approach is taken, providers should consider a review of their human resources practices to ensure that they are in compliance with anti-discrimination laws and that they are aware of any potential issues. If performed with or at the direction of counsel, such a review, and any negative results, may be protected from discovery by the government and others. An audit is much more costly if the OFCCP identifies a problem area, particularly in hiring or compensation, that an employer is unable to explain. If a self-audit identifies a potential issue, the provider has an opportunity to determine the reason behind the potential issue, remedy those issues that cannot be explained and lessen the potential exposure that could result from an audit.


If you would like to discuss your options or the best approach to your potential affirmative action obligations, contact Tami A. Earnhart or your Ice Miller labor and employment attorney.


This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.