5th Circuit Bars Texas From Regulating Air Ambulance Fees

A federal appellate court ruled Wednesday that the Texas Workers’ Compensation Division may not enforce a law that regulates fees charged by air ambulance companies that transport injured workers from accident scenes.

The panel decision by the 5th Circuit Court of Appeals joined the 4th and 10th circuits in ruling that the Airline Deregulation Act, signed into law by President Jimmy Carter in 1978, prevents the states from imposing price regulations on interstate air carriers.

The decision contradicts a 2020 decision by the Texas Supreme Court that the McCarran–Ferguson Act, which leaves it to the states to regulate the “business of insurance,” pre-empts the ADA.

“But the price regulations at issue here do not govern ‘the business of insurance,'” the 3-0 opinion written by Circuit Judge James C. Ho says. “The McCarran–Ferguson Act concerns state efforts to regulate the relationship between insurers and insureds—not between insurers and providers.”

The decision affirms an Aug. 2., 2018 ruling by Senior US District Judge Sam Sparks, who issued an order that permanently enjoined the Texas workers’ compensation commissioner from enforcing the state law and regulations that established a fee schedule for air ambulance services.

Air Evac EMS in January 2016 filed a lawsuit seeking injunctive and declaratory relief, after the Texas legislature passed a law that allowed the state Division of Workers’ Compensation to adopt regulations that establish “a fair and reasonable reimbursement amount” for air ambulance services. The law also prohibited “balance billing” by air ambulance services, meaning billing injured workers for any portion of their fees not paid by workers’ compensation carriers.

Air Evac said in its complaint that the State Office of Administrative Hearings ruled that a fair and reasonable rate was 149% of the maximum amount allowed under Medicare’s fee schedule. The company said that decision allowed it to collect from workers’ compensation carriers only a fraction of the usual amount invoiced.

Air Evac said it and its affiliates operate customized helicopters from 40 bases in Texas and must hire four pilots for each aircraft, along with a team of trained paramedics. The company said the fee caps endanger the existence of life-saving air ambulance services.

Eight insurance carriers intervened in the lawsuit, including Texas Mutual, Liberty Mutual and the Hartford. They argued that the ADA prohibition against regulations on the “price” of services applies only to competitive markets, which does not exist for air ambulances.

Mary Nichols, general counsel for Texas Mutual, wrote in an editorial posted by the Claims Journal that air carriers regularly charge 500 to 700 percent of their costs and “common sense” regulations are needed to prevent unreasonable fees.

The 5th Circuit did not agree.

“A law ‘relate[s] to’ price under the ADA so long as it has a ‘connection with or reference to’ price or presents a “significant effect” on the price of air services,” the opinion says, quoting a 2014 US Supreme Court decision that concerned the ADA.

The 5th Circuit was also not persuaded by the Texas Supreme Court’s 7-2 decision in a separate case that was tried in state court. The opinion noted that only four of the justices opined that the McCarran-Ferguson Act pre-pre-empted the ADA; the other justices who joined the majority expressed a different rationale.

“We hold that the TWCA regulations concerning the reimbursement of air ambulance providers like Air Evac are preempted by the ADA, and are not saved by the McCarran–Ferguson Act,” the 5th Circuit panel concluded.