Texas High Court Collides with 10th Circuit’s Air Ambulance Decision

In a long, winding, yet carefully-worded decision (with both concurring and dissenting opinions), a divided Supreme Court of Texas held the federal Airline Deregulation Act (ADA) does not preempt Texas’s general standard of fair and reasonable reimbursement as applied to air ambulance services provided to injured workers under the Texas Workers’ Compensation Act (TWCA), nor does it require that Texas compel private insurers to reimburse the full charges billed for those services [Texas Mut. Ins. Co. v. PHI Air Medical, LLC, 2020 Tex. LEXIS 615 (June 26, 2020)]. With its decision, the majority of the Court reversed a contrary decision by the state’s Court of Appeals [see PHI Air Med., LLC v. Texas Mut. Ins. Co., 549 S.W.3d 804 (Tex. Ct. App. 2018) and sidestepped a 2018 decision by the Tenth Circuit Court of Appeals [EagleMed LLC v. Cox, 868 F.3d 893, 902 (10th Cir. 2017)] that at least appears to be in conflict (for my earlier discussion of both earlier decisions, click here).

Background

PHI Air Medical, LLC (PHI), a leading provider of emergency air ambulance services, has significant operations in Texas. PHI is licensed to operate as an air carrier by the Federal Aviation Administration and as an air taxi by the United States Department of Transportation. PHI is thus subject to federal oversight, including laws and regulations that address safety and unfair or anti-competitive practices. Upon the request of first responders or medical professionals, PHI provides its services without regard to a patient’s insurance status or ability to pay.

In recent years, PHI alleges its costs have risen; simultaneously, it says, payors in the industry — often insurers — have increasingly sought to avoid paying PHI’s billed charges in full. These factors and others, PHI claims, have pressed PHI to raise prices to sustain itself. The amount that air ambulance providers may recover from workers’ compensation insurers forms the basis of this dispute.

Until 2012, when this dispute arose, insurers had been reimbursing PHI for its services at 125 percent of the Medicare rate for air ambulance services, citing the Division of Workers’ Compensation’s fee guideline for providers other than hospitals and pharmacies. Beginning in 2012, PHI and other air ambulance providers began filing fee disputes with the Division, seeking to recover the full amount of their billed charges. This particular suit concerns 33 transports that PHI provided between 2010 and 2013 to patients covered by workers’ compensation insurance.

ALJ’s Decision

Before the Division, PHI argued that the federal ADA preempted the TWCA’s fee schedules and reimbursement standards. According to PHI, the effect of ADA preemption was to require that the insurers pay its billed charges in full. The Division agreed. But an administrative law judge (ALJ) disagreed following a contested case hearing, holding that the ADA did not preempt the TWCA and its reimbursement scheme. The ALJ relied on the McCarran-Ferguson Act, the federal statute that saves or “reverse-preempts” state laws regulating the business of insurance [see 15 U.S.C. §§ 1011-15]. Having held that the McCarran-Ferguson Act rendered ADA preemption inoperative, the ALJ concluded that PHI was entitled to reimbursement under the TWCA’s standards.

The ALJ agreed with PHI that the Division’s fee guidelines did not set reimbursement rates for air ambulances at 125 percent of Medicare. As the parties had no contractual rate, the ALJ held that a fair and reasonable rate—which he determined to be 149 percent of the Medicare rate for air ambulances—must be paid.

PHI and the insurers sought judicial review. Each requested a declaratory judgment regarding preemption. The insurers also challenged the conclusion that 149 percent of the Medicare reimbursement rate was fair and reasonable for these transports. The Division intervened, siding with the insurers in opposing preemption. All parties moved for summary judgment.

Trial Court and Court of Appeals

The trial court denied PHI’s motion for summary judgment and granted summary judgment for the Division and the insurers. The court declared that the ADA does not preempt the TWCA’s reimbursement provisions and that the insurers did not owe more than 125 percent of the Medicare amount. PHI appealed and the court of appeals reversed, holding that the TWCA’s reimbursement provisions were preempted by the ADA and were not saved by the McCarran-Ferguson Act. The Division and the insurers sought review from the Texas Supreme Court and the court granted their petitions.

Majority Opinion

Justice Busby, speaking for the majority, summarized PHI’s position:

According to PHI, the federal act deregulating the airline industry (the ADA) expressly preempts Texas’s laws and regulations requiring insurers to reimburse it a fair and reasonable amount for air ambulance services; therefore, it is entitled to an order compelling the insurers to reimburse its billed charges fully under state law. The court of appeals erred in agreeing with PHI for two reasons.

The justice stressed that the federal ADA did not preempt the Texas fair and reasonable standard for reimbursement and even if the ADA had that preemptive effect, it did not — and, as a constitutional matter, could not — provide PHI the remedy it was seeking.

Preemption Issue – Significant Effect on Prices

Justice Bushby stressed that Texas’s fair and reasonable standard for reimbursement was generally applicable; it did not reference air carrier prices. Accordingly, it was for the court to apply the United States Supreme Court’s settled preemption test, asking whether that standard had the forbidden significant effect on PHI’s prices. According to the justice, on the record before the Court, PHI had not shown that the fair and reasonable standard for third-party reimbursement had a significant effect on its prices for carrying injured customers by air.

The justice applied an analogy:

The State Bar of Texas—an administrative agency that is part of our judicial branch15Link to the text of the note — has a policy that it will reimburse speakers at its continuing legal education courses for “airline travel at coach rates,” but “such expenses [must] be reasonable according to the usual cost of products or services for which reimbursement is requested as determined by similar reimbursement requests of other participants, by practices applicable to other public agencies and institutions of the State of Texas, by other readily available reference information, and by State Bar staff experience,” as well as “location and other circumstances.” Thousands of state agencies nationwide likely have similar reasonableness standards for reimbursement of airfares. Because this standard dictates the amount the State Bar will reimburse for air carrier services, it would be preempted under PHI’s approach [Decision, p. 20-21].

10th Circuit’s Decision in EagleMed

The majority acknowledged PHI’s heavy reliance on the Tenth Circuit’s EagleMed decision (cited above), noting that there, the Wyoming Workers’ Compensation Division set a rate schedule under which it reimbursed a maximum amount of “$3,900.66 plus $27.47 per statute mile” for air ambulance services. The 10th Circuit Court held the ADA preempted these provisions because they expressly established a mandatory fixed maximum rate that would be paid by the State for air-ambulance services, and thus there was no need to apply the significant-effect standard.

Flaw in PHI’s Analysis

The majority pointed to a “critical flaw” in PHI’s preemption argument. It stressed that if any part of the Texas workers’ compensation reimbursement scheme significantly affected air ambulance prices, it was the prohibition on PHI billing its customer for the price of his or her flight, not the reasonableness standards for third-party reimbursement. But the majority stressed that PHI could not obtain preemption of the latter by strategically declining to challenge the former in this Court. There were larger principles of federalism at stake here. In sum, however, the ADA did not preempt the Texas laws and regulations requiring third-party insurers to reimburse PHI a fair and reasonable amount for services rendered to covered workers.

PHI’s Full Reimbursement Argument

In part IV of the majority opinion, Justice Bushby offered an extensive discussion tearing down PHI’s argument as to full reimbursement. I read the entire discussion of the issue as dicta. Note its beginning:

If the ADA did preempt these reimbursement provisions, PHI contends it is entitled to an order requiring the insurers to reimburse its billed charges fully under state law. The court of appeals appeared to agree with PHI, concluding that “the specific rate-setting provisions at issue” could be severed from the overall Texas reimbursement scheme [cite omitted].

We disagree with the court of appeals for two reasons. First, if ADA preemption applies, neither state nor federal law provides for full reimbursement of air carrier bills—or for any reimbursement at all. Second, the effect of federal preemption cannot be that States must provide full reimbursement, as that outcome would violate the Tenth Amendment. For these reasons, the result of ADA preemption here would not be full reimbursement—it would be no reimbursement [Decision, p. 27-27].

But, of course, by this point in the decision, the majority had ruled that the ADA did not preempt the Texas reimbursement provisions; it need not have gone further. I recognize that the majority was pointing out how the Court of Appeals had erred in its own decision. That doesn’t change the fact that the Part IV discussion is not on the core point at issue.

Concurring Decision – Texas Law Saved by McCarran-Ferguson Act

Justice Bland, joined by Justices Lehrmann, Boyd, and Blacklock, concurred. Essentially the concurring opinion relied upon the The McCarran-Ferguson Act, which insulates state insurance laws from federal preemption. Justice Bland summarized the situation:

Ultimately, the air-ambulance service provider in this case seeks the relatively secure direct payment of insurance policy benefits in lieu of attempting to collect from the users of its services in the private marketplace. As PHI Air concedes, it directly billed insurers under their insurance policies and seeks payment under the coverage afforded. By opportunistically relying on the Airline Deregulation Act, PHI Air seeks to benefit from federal preemption without the market forces of deregulation, and from direct payment for its services without the state regulations that constrain all others who seek payments under workers’ compensation policies. In other words, PHI Air charges and claims insurance benefits under the Workers’ Compensation Act like a health care provider, not like the air-taxi service that purportedly brings it within the Airline Deregulation Act [Decision, p. 62].

Because the Texas Legislature enacted the TWCA “for the purpose of regulating the business of insurance,” McCarran-Ferguson saved the challenged provisions from federal preemption. The court of appeals concluded otherwise. Accordingly, the justices concurred in reversing its judgment.

Dissent

Justice Green, joined by Chief Justice Hecht, dissented. Justice Green argued:

This case requires us to determine whether the federal Airline Deregulation Act (ADA) preempts the Texas Workers’ Compensation Act’s (TWCA) reimbursement scheme as it relates to air-ambulance transport claims. The Court concludes that it does not because PHI Air Medical, LLC (PHI) cannot show that the challenged reimbursement scheme “relate[s] to a price, route, or service of an air carrier.” 49 U.S.C. § 41713(b)(1). Because I believe that a reimbursement scheme that regulates the amount an insurer must pay to reimburse an air carrier is such a law, I would conclude that the challenged scheme is preempted by the ADA. Additionally, I would conclude that the McCarran-Ferguson Act (MFA) does not save the reimbursement scheme because neither the TWCA nor its reimbursement scheme was “enacted … for the purpose of regulating the business of insurance.” 15 U.S.C. § 1012(b). Therefore, I respectfully dissent.