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Airline deregulation does not preempt Texas law

air ambulance

The Texas Supreme Court dismissed an air ambulance company’s argument that the state had no authority to regulate its fees because its power was preempted by the federal law.

In PHI Air Medical LLC v. Texas Mutual Insurance Co., the Lone Star state’s high court held in a 5-2 decision Friday that federal law does not require Texas to mandate that insurance companies reimburse air ambulance providers more than what is “a fair and reasonable amount.” 

Texas had been reimbursing Phoenix-based PHI Air Medical LLC, an emergency air ambulance service provider, for workers compensation air ambulance services at 125% of Medicare. In 2012, however, PHI and other air ambulance providers began filing fee disputes in the state seeking reimbursement for the full amount of their billed charges for transporting injured workers. The medical transport companies argued that the federal Arline Deregulation Act preempted The Texas Workers Compensation Act’s fee schedule.

An administrative law judge dismissed PHI’s argument but did raise the level of reimbursement to 149% of Medicare. Texas Mutual, along with the Texas Department of Workers Compensation and a half dozen other insurers, joined together to seek judicial review of the decision.

A trial court found in favor of Texas Mutual, but an appellate court reversed, holding that the state’s reimbursement provisions were preempted by the federal Act.

The Texas Supreme Court agreed to hear the case, and oral arguments began Feb. 25. The court reversed the appellate decision, dismissing PHI’s argument that the ADA “expressly preempts” Texas law requiring insurers to reimburse air ambulance services at a “fair and reasonable amount” and is therefore entitled to full reimbursement.

The court noted that two federal circuit courts have found that the ADA does not guarantee “any payment of air ambulance claims whatsoever,” or payment of “whatever an air carrier may demand.” PHI has no transactional relationships with third-party insurers — who simply receive a bill for services rendered to a covered injured worker — and the injured customer has not agreed to pay it, the court said.

The court also noted that PHI did not challenge the state’s prohibition on balance billing of customers, just insurers, and concluded that the air ambulance company failed to show that the “fair and reasonable standard for third-party reimbursement” under Texas law had any “significant effect” on its prices for carrying injured workers by air.

The Supreme Court also dismissed PHI’s argument that it is entitled to an order requiring the insurers to reimburse its billed charges fully under state law, holding that if the ADA presumption applied, neither state nor federal law provides for any reimbursement at all, since that would violate the state’s rights provisions conferred by the 10th Amendment.

“PHI cannot have it both ways: it cannot rely on state law requiring reimbursement of air carriers while arguing that a particular state standard for measuring that reimbursement is preempted,” wrote Justice J. Brett Busby.

Justice Paul Green wrote in his dissent that he believes that the ADA does preempt Texas’s reimbursement scheme, concluding that neither “TWCA nor its reimbursement scheme was “enacted . . . for the purpose of regulating the business of insurance.”







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