Hospitals Face Mandatory Affirmative Action Obligations Incorporated by Operation of Law Into Their Federal Subcontracts

In UPMC Braddock v. Harris, the U.S. District Court for the District of Columbia upheld the U.S. Department of Labor’s Arbitration Review Board decision treating hospitals as government subcontractors subject to the equal opportunity clauses traditionally required to be flowed-down to federal government subcontractors, because those hospitals provided medical services to federal employees enrolled in an HMO plan offered by a federal agency. This court decision strikes new ground by incorporating affirmative action obligations into a subcontract by operation of law, even where the prime contract at issue expressly purported to exempt the hospitals from such coverage. In light of this decision, many hospitals (and other vendors) that traditionally have not considered themselves “subcontractors” subject to federal affirmative action requirements may now be subject to Department of Labor (“DOL”) enforcement, depending on the nature of the services they provide to federal prime contractors.

Three hospitals affiliated with the University of Pittsburgh Medical Center contracted to provide medical services and supplies to individuals enrolled in the UPMC Health Plan, a health maintenance organization (“HMO”). UPMC Health Plan in turn contracted with the U.S. Office of Personnel Management (“OPM”) to provide coverage to federal employees enrolled in the Federal Employees Health Benefits Program. The contract between UPMC Health Plan and OPM explicitly sought to exempt the hospitals from federal subcontractor status, defining the term “subcontractor” as “[a]ny supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor, or another subcontractor, except for providers of direct medical services or supplies pursuant to the Carrier’s health benefits plan” (emphasis added). This contractual definition derived from OPM’s Federal Acquisition Regulation Supplement § 1602.170-15. Based on this explicit contractual language, the hospitals – “providers of direct medical services or supplies” – presumed that they were not subcontractors subject to equal opportunity clauses that traditionally are required to be flowed down to subcontractors.

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