A Flight of Fancy: Air Ambulance Fee Disputes in Workers' Comp

Friday, July 24, 2015 | 0

Injured workers are sometimes transported by air ambulance helicopter due to their injuries. The transport may either be from the scene of an injury to a hospital or from one hospital to another for a higher level of care. Recently, the number of fee disputes over the amount of reimbursement owed for these transports has exploded.  
 
Air ambulance fee disputes make up the single largest category of active medical fee disputes at the division by a wide margin. As of Jan. 22, 2015, there were 575 active air ambulance fee disputes versus 292 “professional” fee disputes, the second largest category. The 575 active disputes at the division do not include the disputes that have already been appealed to the State Office of Administrative Hearings.

The disputed amount in most cases is the difference between the air ambulance providers’ billed charges and 125% of the Medicare rate. The average disputed amount for the disputes currently at the division is $28,126.16. Most carriers have reimbursed air ambulance services at 125% of the Medicare rate pursuant to the division’s Medical Fee Guideline because it was understood by most system participants that the fee guideline applies to ambulance services.

The average disputed amount will continue to grow as air ambulance providers rapidly increase their charges. One of the largest commercial air ambulance providers in Texas is PHI Air Medical. According to the division’s medical bill/payment public use data files, PHI Air Medical’s base rate increased from $11,492.00 in 2010 to $26,177.00 in 2014, a 128% increase. At the same time, its mileage rate increased from $150 per mile to $290 per mile, an increase of 93%.   

The Disputed Issues

There are three main issues in the air ambulance fee disputes:

• Are Texas laws governing reimbursement for air ambulance services provided to injured workers preempted by the federal Airline Deregulation Act?
• Does the division’s Medical Fee Guideline apply to ambulance services?
• If not, what is the “fair and reasonable” rate of reimbursement for the air ambulance services provided in each dispute?

This article will provide an overview of the air ambulance disputes and a discussion of events as it relates to the disputed issues. It concludes with a recommendation.  

The Division’s Medical Fee Guideline

The division adopted its first Medicare-based fee guideline in 2002 pursuant to the Texas Legislature’s statutory directive to adopt the Medicare payment policies with minimal modifications, only as necessary to meet occupational injury requirements. Texas Labor Code Section 413.  
    
Generally, the 2002 Medical Fee Guideline provided for reimbursement at 125% of the Medicare payment rate for services covered by the guideline 28 Tex. Admin. Code § 134.202. The division re-adopted this guideline in 2008. 28 Tex. Admin. Code § 134.203.   

Medicare Reimbursement for Air Ambulance Services

The Medicare Ambulance Fee Schedule lists the fees that Medicare pays for ambulance services. The fees are listed by CPT code. There are just two CPT codes for air ambulance services: A0431 is the base rate and A0436 is the mileage rate. Under Medicare’s Ambulance Fee Schedule, the payment rate is determined by the point of pick-up zip code. There is a 50% add-on to each CPT code for any patient pick-up that occurs in a zip code designated “rural” by Medicare. The payment rates are updated annually by Medicare.  

Early Air Ambulance Fee Disputes in the Texas Workers’ Compensation System

Prior to 2012, medical fee disputes filed by air ambulance providers sought payment under the division’s Medical Fee Guideline. The issue in these cases was whether the carrier properly calculated the guideline reimbursement at 125% of the Medicare rate.  

For example, in a 2008 fee dispute filed by PHI Air Medical, the division summarized PHI Air Medical’s position as follows: “PHI has received payment that is not in accordance with TWCC guidelines Rule 134.202(d)(1, 3)… .” PHI Air Medical v. FedEx Ground Package System, Inc., M4-08-6395-01 (Oct. 31, 2008).

In another 2008 dispute, PHI’s position was summarized by the division as follows: “PHI has received payment…that is not in accordance with TWCC guidelines Rule 134.202(d)(1, 3)…With correct calculations, PHI Air Medical is due an additional for payment $2331.80….” PHI Air Medical v. ACIG Ins. Co., M4-09-2551-01 (Dec. 10, 2008).

Finally, in a 2009 dispute, PHI’s position was, “Per TWCC, we accept 125% of Medicare allowable.” PHI Air Medical v. Sompo Japan Ins. Co. of America, M4-08-6757-01 (May 15, 2009).

Other air ambulance providers also filed fee disputes seeking additional reimbursement pursuant to the division’s Medical Fee Guideline. See, e.g., Med-Trans Corp. v. Liberty Ins. Corp., M4-10-5224-01 (July 16, 2012) (“State Fee Schedule 125% of Medicare allowable.”); Med-Trans Corp. v. Deep East Texas Self Insurance, M4-10-0834-01 (July 16, 2012); Med-Trans Corp. v. Comppac Trust of Texas, M4-10-0867-01 (July 16, 2012); Med-Trans Corp. v. New Hampshire Ins. Co., M4-11-3510-01 (July 16, 2012).

The division’s decisions in these cases acknowledge that its fee guideline applies to ambulance services. For example, in tracking number M4-08-6757-01, the division states as follows:

HCPCS Code A0431 is defined as “Ambulance service, conventional air services, transport one way (rotary wing).” Per Rule 134.203(d)(1), HCPCS Level codes A, E, J, K and L, reimbursement to an ambulance provider of service shall be 125% of the fee listed.  

PHI Air Medical v. Sompo Japan Ins. Co. of America, M4-08-6757-01 (May 15, 2009) (emphasis added). These decisions also explain in detail how to calculate reimbursement under the fee guideline at 125% of the Medicare rate. Id.  

A New Approach by PHI Air Medical and Others

In January 2012, PHI Air Medical began filing numerous requests for medical fee dispute resolution with the division, arguing that it was entitled to its billed charges.
PHI argued that the division’s fee guideline rate is preempted by the federal Airline Deregulation Act, which stipulates that states may not regulate “air carriers” with respect to “prices, routes, and services.”

PHI argued that as a result of federal preemption under the ADA, the division did not have jurisdiction to apply its medical fee guideline to these disputes but that it did have jurisdiction to hear the disputes and issue an order for its billed charges.  

The division agreed with PHI that the division’s statutes and rules were preempted by the ADA. However, the division did not award PHI payment of its billed charges. Instead, the division dismissed PHI’s requests for medical fee dispute resolution explaining in its dismissals that if it could not enforce its laws, it could not decide the dispute and order payment either.  

SOAH – Round One

PHI appealed the division’s dismissals to the State Office of Administrative Hearings. There were 65 dismissals appealed involving multiple insurance carriers. The cases were assigned to Administrative Law Judge Craig Bennett.

Judge Bennett consolidated the cases for purposes of deciding the threshold legal issue of whether “the fees for air ambulance services are regulated by federal law such that the State of Texas’s workers’ compensation regulatory scheme and jurisdiction are preempted.”  

PHI repeated its argument that the division is preempted by the ADA from applying its fee guideline but not from hearing the dispute and ordering payment of its billed charges.  

The carriers argued that pursuant to the McCarran-Ferguson Act, there is no preemption under the ADA because the ADA does not regulate the business of insurance.

The McCarran-Ferguson Act

The McCarran-Ferguson Act is a federal statute which provides that federal laws that do not expressly purport to regulate the "business of insurance" will not preempt state laws or regulations that do regulate the "business of insurance.”  

Judge’s Bennett’s Ruling

On November 13, 2013, Judge Craig Bennett ruled in favor of the insurance carriers holding that the ADA does not preempt the division’s rules and guidelines that establish the reimbursement allowed for air ambulance services.
 
Judge Bennett held that “the medical fee guidelines and other payment rules are part of the business of insurance and, pursuant to the McCarran-Ferguson Act, the Airline Deregulation Act does not preempt and invalidate them—even when applied to air ambulance services.”

Judge Bennett remanded the cases back to the division for dispute resolution on the merits.

The Division’s Decisions on Remand

On Jan. 31, 2014, the division issued its first decision on the merits following remand. The first issue decided by the division was whether the ADA preempts the division’s jurisdiction to consider the dispute. This time, the division held that it does not.  

The division quoted at length from Judge Bennett’s analysis of the McCarran-Ferguson Act concluding, “The division agrees with the findings of the ALJ.” PHI Air Medical v. Texas Mutual Insurance, MFDR Tracking Number M4-12-1496-02 (Jan. 31, 2014).

The Division Reverses Itself on the Applicability of the Guideline

The second issue decided by the division was whether the division’s Medical Fee Guideline applies to air ambulance services. This issue was raised by the division and not the parties. The division held that there is not a fee guideline rate for ambulance services and therefore, the amount of reimbursement owed is governed by the “fair and reasonable” standard that applies in the absence of a fee guideline. Id.

This holding was contrary to the earlier division decisions discussed above applying the fee guideline rate to air ambulance services. The division’s decision came as a surprise to everyone because for many years carriers had paid under the guideline at 125% of the Medicare rate, air ambulance providers had sought reimbursement under the guideline, and the division had awarded reimbursement under the guideline.  

Based on its conclusion that there is no fee guideline rate for ambulance services (both ground and air), the division then proceeded to decide whether PHI’s billed charges were fair and reasonable. The division held that they were not.

Following this first decision on remand, the division did not issue any more decisions.  Then, on May 7, 2014, the division sent a letter to the parties in the air ambulance fee disputes requesting “feedback” on whether the “fair and reasonable” standard should be applied to air ambulance services. The letter also provided the parties an opportunity to provide additional information and documentation to support their positions.

The Division Decides Billed Charges are “Fair and Reasonable”

In September 2014, the division began to issue more decisions in the air ambulance cases. The division once again held that it does not have a fee guideline rate for ambulance services and therefore, the amount of reimbursement owed for air ambulance services is governed by the “fair and reasonable” standard.  

This time, however, it held that the air ambulance providers’ billed charges are fair and reasonable. The division rejected the carriers’ arguments that 125% of the Medicare rate is fair and reasonable. The division instead found that the providers’ billed charges are fair and reasonable and ordered payment of that amount. The decisions are not well-reasoned.    

The decisions are also surprising since the division has always rejected payment of billed charges as contrary to the fair and reasonable standards, including the requirement to achieve effective medical cost control. The reason is because payment of billed charges allows the provider to determine its own reimbursement since there are no regulations governing a provider’s charges. Therefore, a provider can raise its charges whenever it wants by however much it wants.       

Since Sept. 1, 2014, the division has issued 234 decisions in air ambulance fee disputes.  The carriers have presented abundant evidence in these cases that 125% of the Medicare rate meets the standards for fair and reasonable reimbursement and that payment of the air ambulance provider’s billed charges does not.  

Regardless of the evidence presented by the carrier, however, the division has so far reached the same conclusion in every dispute – the provider’s billed charges are fair and reasonable.  

SOAH -- Round Two

Many carriers have appealed the division’s decisions to SOAH. There are currently 86 air ambulance disputes pending at SOAH. Judge Bennett has been assigned all of the disputes. 

The disputes referred to SOAH prior to December 2014 were joined for hearing under a lead docket number since they all involve the same issue: “the proper reimbursement for air ambulance services provided by PHI Air Medical.”  

A total of 33 cases were joined for hearing under the lead docket. The cases referred to SOAH after the December 2014 cutoff have been abated pending the outcome of the hearing in the lead docket. There are a total of 53 abated air ambulance cases at SOAH.  

The hearing in the lead docket was held April 22, 2015, through April 24, 2015. SOAH already decided the preemption issue. Therefore, the remaining issues for the hearing were as follows: Does the division’s medical fee guideline apply to ambulance services?

If not, what is the “fair and reasonable” rate of reimbursement for the air ambulance services provided in each dispute?

The carriers argued that reading the guideline as a whole in light of the purpose for which it was adopted, the only reasonable interpretation is that it applies to ambulance services.  

The carriers had the burden of proof at SOAH because they were appealing the division’s decisions finding PHI Air Medical’s billed charges “fair and reasonable.”

The carriers’ first witness was Jeff Frazier, a partner in Sentinel Air Medical Alliance, which is a firm that assists payers in payment disputes with air ambulance providers. He was called as an industry expert to provide background on the economics of the air ambulance industry.  

The carriers’ second witness was Ron Luke, Ph.D., J.D., a health care economist and expert on reimbursement in the Texas workers’ compensation system. He testified that payment of PHI Air Medical at 125% of the Medicare rate in these cases satisfied the statutory standards for reimbursement and that payment of billed charges, as ordered by the division, does not.        

PHI Air Medical called three witnesses. Graham Pierce, Director of Independent Programs for PHI, testified generally about PHI’s operations in Texas. Jeff Stanek, Director of Finance for PHI Air Medical, LLC, testified about PHI’s finances.  

John E. Schneider, Ph.D., with Avalon Health Economics, was called as an expert witness. He offered two main opinions. First, that PHI’s charges were usual, customary, and reasonable relative to other air ambulance providers’ charges in the same time frame.  Second, that PHI would lose money if all payers that currently pay more than 125% of the Medicare rate began paying 125% of the Medicare rate.  

A decision is expected in the lead docket by Aug 31, 2015. The parties are currently drafting post-hearing briefings. The parties’ initial briefs are due June 5, 2015, rebuttal briefs are due June 26, 2015, and proposed findings of fact and conclusions of law are due July 2, 2015. Once the record closes in the case, the judge will then have 60 days to issue a decision.

The decision in the lead docket will likely be appealed to district court by one or both sides given the high stakes in the case.

Air Ambulance Charges Are Not Just a Texas Problem  

An article in the May 5, 2015, New York Times demonstrates that air ambulance charges are a problem nationwide. The article, entitled, “Air Ambulances Offer a Lifeline, and Then a Sky-High Bill,” discusses the economic forces at work in the air ambulance industry.  

According to the article, air ambulance companies have “consistently raised their rates and aggressively expanded their networks, adding scores of expensive new helicopters.”  
The article states, “Strong revenue over the last decade fed explosive growth in the number of air ambulances, creating an inefficient system in which too many helicopters are chasing too few patients, according to some air ambulance operators and emergency care experts.”  

To offset the reduction in the number of flights per helicopter as more helicopters are added, the air ambulance providers have consistently increased their charges.        

These are the same trends at work in Texas based on the evidence presented at SOAH.  And, as of 2014, Texas had more air ambulances than any other state except California.  

A Comparison to Medicare

As air ambulance providers continue to rapidly increase their charges, the division’s position that those charges are fair and reasonable will only grow more absurd.

Phi Air Medical had a base charge in 2014 of $26,177.00 and a per mile charge of $290. For 2014, Medicare’s rural base payment rate is $5,167.61 and its rural mileage rate is $33.65.  Therefore, PHI’s billed charges are 507% of Medicare’s rural base payment rate ($26,177.00/$5,167.61 = 506.56%) and 862% of Medicare’s rural mileage rate ($290.00/$33.65 = 861.81%).  

The comparison to Medicare’s urban rates is even more staggering. For 2014, Medicare’s urban base payment rate is $3,445.07 and its urban mileage rate is $22.43. Therefore, PHI’s billed charges are 759.84% of Medicare’s urban base payment rate ($26,177.00/$3,445.07 = 759.84%) and 1,292.91% of Medicare’s urban mileage rate ($290.00/$22.43 = 1,292.91%).  

The division has never adopted a payment adjustment factor anywhere close to these levels.

Will We Still be Litigating Air Ambulance Disputes a Decade from Now?

If the division is going to maintain its position that its medical fee guideline does not apply to ambulance services, it must adopt a fee guideline for ambulance services.

The division’s first decision holding the guideline does not apply was issued Jan. 31, 2014. Sixteen months later, the division has taken no public steps to propose a fee guideline.

The longer the division waits, the worse the problem will become. The history of the ambulatory surgical center, hospital outpatient and stop-loss disputes all show where the air ambulance cases are headed. The division did not adopt an ASC fee guideline until 2004 and it was not until 2008 that they adopted a new hospital outpatient fee guideline that did not include a stop-loss provision. It took more than a decade to adopt a new inpatient hospital guideline to replace the 1997 guideline that spawned so many stop-loss disputes. The fee disputes continued to pour in until the division adopted these guidelines.  For some providers, every bill became a new dispute. These disputes pile up, they clog the system, and they linger for years. The ASC, hospital outpatient and stop-loss disputes are still being litigated today. In many of these cases, the dates of service stretch as far back as 2002. These disputes are expensive for the division to process and the parties to litigate.   
 
Hopefully, there won’t still be air ambulance disputes being litigated a decade from now. In order to avoid that likelihood, however, the division must adopt an ambulance fee guideline.

Mechanically, this is not difficult to do. The division’s fee guidelines must be Medicare-based. Therefore, the starting point is the rates from Medicare’s ambulance fee schedule.  All the division has to do is adopt a payment adjustment factor based on the statutory standards for reimbursement in Texas Labor Code section 413.011(d).    

To further simplify the matter, there are only a handful of ambulance codes and only two rotary wing air ambulance codes: A0431 (the base rate) and A0436 (the mileage rate). The division can also look to other states for guidance. There are at least eight states that have adopted rates for codes A0431 and A0436 when those services are provided to their injured workers.  

These states are Alabama, Georgia, Illinois, North Dakota, Ohio, Washington, Wyoming, and Tennessee. For example, Wyoming reimburses code A0431 at $3,900.66, which is 113% of the 2014 Medicare urban base rate, while Tennessee caps reimbursement for air ambulance services at 150% of the Medicare rate. None of these states come even remotely close to the billed charges currently seen in Texas.  

The bottom line is that air ambulance fee disputes are a significant problem that is only going to get worse unless the division adopts a new ambulance fee guideline in a timely manner.

The article was originally published in the June 2015 edition of the Insurance Council of Texas’ (ICT) workers’ compensation newsletter – the Texas Workers’ Compensation Update – and has been republished by WorkCompCentral with the permission of the article’s author, James Loughlin of Stone Loughlin & Swanson, L.L.P., and ICT. Loughlin is a partner with the Austin law firm of Stone Louglin & Swanson, LLP. He represents various insurance carriers in the lead docket for the air ambulance cases at SOAH.