• Healthcare Blindside: Organizations May Be Covered by Affirmative Action Obligations
  • April 11, 2011 | Authors: David M. Buday; Gary A. Chamberlin
  • Law Firms: Miller Johnson - Kalamazoo Office ; Miller Johnson - Grand Rapids Office
  • Today, a healthcare organization that contracts to perform more than $50,000 annually in medical services to a healthcare plan that covers federal employees through an HMO or the military’s TRICARE network, or is a recipient of federal funds through Medicare Parts C or D, faces the distinct likelihood of being deemed a federal subcontractor. With that designation comes significant compliance burdens and the risk of being audited by the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). This is a result of a recent OFCCP Policy Directive and two administrative decisions involving hospitals in Florida and Pittsburgh.

    What Happened?

    In Oct. 2010, an Administrative Law Judge ruled that Florida Hospital of Orlando, an acute care hospital, is subject to affirmative action obligations because it participated in a healthcare provider network through Humana Military Health Services, Inc., which had a contract to provide actual medical services to TRICARE participants. TRICARE is the U.S. Defense Department’s healthcare program for active and retired military members and covered dependants (formerly CHAMPUS). Even though the Florida hospital did not have a direct contract with any federal government entity, the arrangement through TRICARE was a federal subcontract that subjected the hospital to affirmative action laws and regulations.

    This comes on the heels of a similar 2009 Administrative Review Board decision. In OFCCP v. UPMC Braddock, three Pittsburgh area hospitals were deemed federal subcontractors because they contracted to provide actual medical services to the UPMC health plan, an HMO that had a contract for providing medical services to federal employees through the Office of Personnel Management.

    More recently, the OFCCP has announced that receipt of federal funds through Medicare Part C (Medicare Advantage) or Part D (prescription drug plans) may also trigger affirmative action coverage. The OFCCP’s Dec. 2010 Policy Directive about coverage of the healthcare industry indicated for the first time that receipt of funds through Medicare Parts C or D could result in federal subcontractor status for a healthcare employer.

    In contrast, the OFCCP has long held that receipt of funds through Medicare Parts A and B and Medicaid is merely federal financial assistance and not a contract for medical services. In addition, the providing of medical services under a Blue Cross/Blue Shield type of health plan that covers federal employees is not a federal subcontract because it is merely a contract for insurance, not actual medical services.

    What Does This Mean?

    Healthcare organizations that provide more than $50,000 in annual services that are paid through a healthcare plan that has contracts with TRICARE, a federal employee HMO or Medicare Parts C or D, will likely be deemed federal subcontractors and subject to significant obligations. The healthcare industry historically hasn’t been required to comply with those requirements unless they had a direct contract with the federal government, such as for research or clinical trials. Examples of the types of compliance activities in which federal contractors and subcontractors must engage include:

    • Prepare an annual affirmative action plan;
    • Conduct applicant tracking by gender and race/ethnicity, for each job group/job title;
    • File annual EEO-1 Report(s);
    • File annual Vets 100 or 100A Report(s);
    • Participate in the federal E-verify system for immigration compliance;
    • Conduct annual adverse impact analyses on applicants/hires, promotions and terminations;
    • Incorporate the EEO/AA clause in federal contracts and purchase orders;
    • Post most job vacancies with the state employment services agency; and
    • Engage in documented outreach recruitment activities.

    The expense and administrative task of preparing affirmative action plans and otherwise complying with the items listed above, while significant, are not the greatest concerns. Instead, it is the risk of the OFCCP targeting your organization for an enforcement audit which will demand a substantial amount of your time and resources. The average length of an OFCCP audit is 30-36 months.

    OFCCP investigations are intense and typically focus on uncovering evidence of employment discrimination against females and/or minorities in the hiring process—typically at entry level positions. A statistical finding of adverse impact can lead to OFCCP demands for settlement involving back pay, front pay, interest, hiring remedies, and several years of reporting through a conciliation agreement. Settlements are often several hundred thousand dollars and more.

    What Should You Do?

    Healthcare employers with at least 50 employees should closely examine their contractual relationships with healthcare plans to determine whether revenues from Medicare Parts C or D, federal HMO contracts and TRICARE exceed $50,000 annually. If so, the OFCCP will likely adopt the view that you are covered by affirmative action obligations. You should then prepare for a coming wave of enforcement by the OFCCP by taking the following steps:

    • Evaluate what your business needs to do to get into compliance and calculate the cost of compliance both initially and annually.
    • Weigh those costs against the value of the contractual relationship(s) that is triggering the federal subcontractor status. If the value of those contracts is not substantial, or if there is no broader strategic objective of having federal revenue, your healthcare organization should evaluate whether discontinuing those relationships is possible in order to avoid being a federal subcontractor.
    • Develop a plan to get into compliance. Like all projects of any magnitude, this requires advance planning and budgeting. Healthcare organizations will need to build affirmative action plans, create, maintain and/or enhance applicant tracking systems, and conduct adverse impact analyses, among other items.