Another Air Ambulance Ruling Goes Against Carriers

A Federal District Judge in Austin has joined several courts nationally in ruling that the Federal Airline Deregulation Act preempts state laws that attempt to place limits on the amount that air ambulances can charge workers’ compensation carriers for their services. In so doing, the Federal Court concluded that the McCarran-Ferguson Act, which commits the regulation of the business of insurance to the States and preempts the Federal government from interfering in those regulatory systems, does not reverse preempt the ADA because, it reasoned, the Texas Workers’ Compensation Act is not a regulation having to do with “the business of insurance.”

To be fair to Defendants, there is evidence supporting the argument that the Texas Legislature enacted the TWCA as a whole to regulate the business of insurance. In instituting the TWCA, the Texas Legislature attempted to design a workers’ compensation system by balancing the interests of the two types of insureds employees subject to the risk of injury and employers and insurance companies. In re Poly-Am., 262 S.W.3d at 352; see also Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212 (Tex. 1988) (stating the TWCA addresses a three-party insurance agreement entered into by the employer, employee, and insurance carrier), overruled on other grounds by Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012). But, to the extent the TWCA restricts the relationship between insurers and third-party service providers, the TWCA regulates the “business of insurance companies” rather than the “business of insurance.” See Pireno, 458 U.S. at 132 (“To grant the [cost savings] practices a § [101 2](b) exemption on such a showing would be plainly contrary to the statutory language, which exempts the ‘business of insurance’ and not the ‘business of insurance companies.” (internal quotation marks and citation omitted)).

The court’s opinion, authored by Senior Federal District Judge Sam Sparks, is likely headed to the Fifth Circuit Court of Appeals and, very possibly, to the U.S. Supreme Court after that. The Federal litigation is being played out in concert with a similar case pending at the state court level.

In the state court case, PHI Air Medical v. Texas Mutual Insurance Co., et al., the Austin Court of Appeals reversed a trial court ruling that had recognized the Division’s jurisdiction to regulate air ambulance charges in the Texas workers’ compensation system. The Court of Appeals reached its decision by concluding two things: 1) that the Division’s jurisdiction was preempted by the Federal Airline Deregulation Act; and 2) that the ADA’s preemption of state law was not “reverse preempted” by the Federal McCarran-Ferguson Act.

The Austin Court’s January 31, 2018 opinion has been appealed to the Texas Supreme Court, where briefing is ongoing. The Texas Supreme Court is expected to decide whether to take up the state case sometime later this fall.

The National Council on Compensation Insurance is monitoring the issue for the industry. So is the National Association of Insurance Commissioners, which has posted a resource page for system stakeholders interested in following the issue.

As we pointed out last year, one national commentator, Thomas A. Robinson, wonders whether this air ambulance decision (and other similar cases around the country) suggest that the barrier to Federal involvement in workers’ comp may be decaying. In a column called “Is the Wall Strong Enough?” Professor Robinson writes:

Since its enactment in 1945, the MFA has provided safe cover for state regulators responsible for controlling and otherwise regulating the “business of insurance” at the state level. Many workers’ compensation practitioners and state administrators have assumed that because of the close interconnection between an employer’s obligation to provide workers’ compensation coverage for its employees and the state’s duty/obligation to regulate insurance carriers within its borders, that the MFA operates as a firewall between a state’s workers compensation law and the federal government. Yet, is that really true?

For example, could Congress establish a national standard mandating that impairment ratings for all injured workers must be established by utilizing the AMA Guides, Sixth Edition? Could Congress pass legislation requiring the utilization of particular medicine practice guidelines for injured workers (e.g., those established by the American College of Occupational and Environmental Medicine (ACOEM)? Could it legislate laws and/or rules governing the treatment of work-related back injuries by chiropractors? Could it establish some sort of mandatory national drug formulary for use in cases involving employee injuries and/or occupational diseases?

Note that my question is not should Congress do so, or even does Congress desire to do so? Rather, my question—and I admit that based on my own research, I don’t fully know the answer yet—is could Congress make such laws?

More than 600 air ambulance disputes remain pending on a holding docket at the State Office of Administrative Hearings while the legal standard is being litigated.