The Texas Supreme Court Friday grounded an air-ambulance company’s challenge to workers’ compensation reimbursement rates, ruling that that the federal Airline Deregulation Act does not preempt the state’s general standard of fair and reasonable reimbursement.
The deregulation act also does not require that Texas compel private insurers to reimburse the full charges billed for transporting injured workers, the court said. The decision reverses the judgment of the Austin-based Third Court of Appeals and reinstates the trial court’s judgment declaring that Texas law is not preempted.
With $50 million in disputed claims pending at the state insurance department, the case was being closely followed by Texas businesses and insurance companies that sell workers’ comp coverage. Air ambulance companies argued for greater reimbursement to continue their life-saving, but costly services.
Two justices dissented from the ruling, saying life flight helicopters are air carriers and the state’s reimbursement scheme is a law relating to price, route or service that the federal law preempts.
The insurance reimbursement dispute dates to 2012 when PHI Air Medical and other air ambulance providers began filing fee disputes with the Division of Workers’ Compensation at the Texas Department of Insurance. They sought to recover the full amount of their billed charges, set at 125 percent of the federal Medicare rate for air ambulance services.
PHI sued over 33 reimbursements for workers’ compensation patients it transported between 2010 and 2013. The company’s suit represents a fraction of air ambulance fee disputes pending at the insurance department, which reached $50 million in 2019.
Justice Brett Busby wrote the opinion for the six-justice majority. He said that PHI is trying to use the preemption clause to have it both ways.
“PHI relies on Texas law requiring that private insurers reimburse it for air ambulance services to injured workers, yet it argues that the Texas standards governing the amount of that reimbursement are preempted,” Busby said. “The Supreme Court of the United States unequivocally rejected this stratagem in Dan’s City Used Cars, Inc. v. Pelkey, observing that any preemption under a similarly worded federal law would displace the entire state-law regime.”
Texas Mutual Insurance Co. and other workers’ comp providers argued that Congress did not intend air-ambulance services to be covered by the deregulation law’s effect on free-market airfares. The insurers raised a second issue, that the McCarran-Ferguson Act, a federal law that insulates state insurance laws from federal preemption, supersedes the deregulation act’s application to state insurance rates.
The majority did not reach that issue but Justice Jane Bland filed a concurring opinion, stating that McCarran-Ferguson saves the challenged provisions of the workers’ compensation law from federal preemption. Bland did not join the majority opinion. Three justices who agreed with Busby joined Bland’s opinion.
Justice Paul Green, joined by Chief Justice Nathan Hecht, said the state reimbursement regulation limits the amount an air carrier may charge for its services and is preempted by the deregulation act. And, Green said, because the state law was not enacted to regulate the business of insurance, it is not saved under McCarran-Ferguson.
Matthew Baumgartner of Graves Dougherty Hearon & Moody represents the workers’ comp insurers. Assistant Solicitor General Lisa Bennett represents the Texas Department of Insurance. Craig Enoch and Amy Saberian of Enoch Kever represent PHI.
Read the opinion, the concurring opinion, and the dissenting opinion in Texas Mutual Insurance Co., et al v. PHI Air Medical.