DC Circuit Dismisses Appeal By Three Hospitals Challenging Subcontractor Status
On November 14, 2014, the United States Court of Appeals for the District of Columbia dismissed as moot an appeal by three hospitals affiliated with the University of Pittsburgh Medical Center. The hospitals had challenged the OFCCP’s determination that they were subcontractors covered by Executive Order 11246, Section 503 of the Rehabilitation Act and Section 402 of the Vietnam Era Veterans’ Readjustment Assistance Act.
The hospitals entered into agreements with a health maintenance organization (“HMO”) to provide medical services and supplies to individuals enrolled in its coverage program. Unbeknownst to the hospitals, the HMO had contracts with the Office of Personnel Management (“OPM”) to provide coverage for federal employees. The contract between the hospitals and the HMO did not contain any “flow down” provisions or reference in any way the Executive Order, Section 503 or VEVRAA. Moreover, the OPM’s contract with the HMO expressly stated that providers of medical services were not subcontractors.
The OFCCP selected the hospitals for compliance reviews. The hospitals resisted, contending they were not subcontractors subject to the OFCCP’s regulatory authority. As a result, the OFCCP filed administrative complaints against the hospitals to enforce the requirements of the Executive Order, Section 503 and VEVRAA. An Administrative Law Judge and the Department of Labor’s Administrative Review Board (“ARB”) agreed with the OFCCP that the hospitals were subcontractors subject to the OFCCP’s authority.
The hospitals sought review of the ARB’s decision in the United States District Court for the District of Columbia. The District Court upheld the ARB’s decision. In so doing, it rejected the argument that the OPM had the ability to override the OFCCP’s authority by contract. The District Court also found that the services the hospitals provided were “nonpersonal services” covered by the Executive Order, and rejected the argument that the services provided were not necessary to the performance of the OPM-HMO contract.
The hospitals appealed the decision. As noted above, the D.C. Circuit dismissed the appeal on mootness grounds. In its two page unpublished decision, the appellate court determined dismissal was warranted given that the Secretary of Labor announced in May 2014 a five-year moratorium on enforcement activities involving healthcare providers participating in TRICARE. The D.C. Circuit noted that only one of the three hospitals continues to operate independently, and the remaining hospital is eligible for the moratorium. Further, the Department of Labor has closed all affirmative action compliance reviews of that remaining hospital as a result of the moratorium. Based on these developments, the D.C. Circuit found that the appellants lacked any injury, rendering the appeal moot.