Court Upholds Invalidation of Air Ambulance Fee Schedule

Friday, August 25, 2017 | 0

The U.S. 10th Circuit Court of Appeals this week ruled that Wyoming cannot regulate the prices of air ambulance services provided to workers’ compensation claimants.

While air ambulance providers have successfully argued in several federal trial courts that the Airline Deregulation Act bars states from limiting the amounts they charge, the 10th Circuit is the first appellate court to arrive at this conclusion.

The ADA expressly prohibits states from enforcing any law or regulation related to the price, route or service of an air carrier.

But the comp systems in many states — including Alabama, Alaska, Georgia, Hawaii, Illinois, Ohio, Tennessee, Washington and the District of Columbia — have fee schedules for air ambulances.

Wyoming had capped the fee for transportation by helicopter at $3,900.66, plus $27.47 per mile.  

EagleMed, Air-Methods Corp., Rocky Mountain Holdings and Med-Trans Corp. filed a declaratory judgment action two years ago, asserting the limitation ran afoul of the ADA.

U.S. District Judge Alan B. Johnson agreed and granted summary judgment in favor of the air ambulance companies in May 2016. Johnson also awarded injunctive relief, ordering that the state pay the full amounts charged by the air ambulance companies in the future.

The Wyoming Department of Workforce Services appealed, arguing that the state fee schedule didn’t violate the ADA because it imposes no compulsory obligations on air ambulance companies. 

“Air ambulance companies are free to decide to seek payment outside of the workers’ compensation program,” the state argued. So if they choose to bill the Workers’ Compensation Division, “it is by choice and with knowledge that payment will be made according to a published fee schedule.”

The state further argued that there was a triable issue as to whether its fee schedule had a significant and adverse effect on air ambulance prices, and that the judge lacked authority to issue an injunction when no state enforcement action was threatened or imminent.

The Texas Mutual Insurance Co. last fall filed an amicus brief supporting the state’s position. The carrier has been litigating the same ADA pre-emption issue in state and federal courts in Texas.

Last year, the carrier secured a ruling from a Texas state judge upholding the ability of the Texas Division of Workers' Compensation to set air ambulance rates.

The Texas state court judge found that the McCarran-Ferguson Act, which grants authority to the states to regulate the business of insurance, served to reverse pre-empt the ADA’s application to the Texas comp system’s reimbursement scheme.

In its amicus brief, Texas Mutual urged the 10th Circuit to take the same approach as the Texas state judge. It also argued that federal pre-emption of state regulations on air ambulance rates is not serving the congressional purpose of “further(ing) efficiency, innovation and low prices” that was a motivating force behind the ADA.

The 10th Circuit on Tuesday acknowledged that there was “some persuasive force” to Texas Mutual’s argument, but it said policy reasons cannot trump the plain language of the ADA.

“The plain language of the Airline Deregulation Act requires us to hold that the Wyoming Workers' Compensation Act and rate schedule are pre-empted to the extent that they set mandatory fixed rates for reimbursement of air ambulance claims,” the court said.

Even if it were to accept the idea that Wyoming’s state-run workers’ compensation system establishes a type of insurance, the court added, it was not persuaded that the state’s fee schedule was a law “regulating the business of insurance” for purposes of the McCarran-Ferguson Act.

The court further rejected the state’s argument that it provides air ambulance companies with the voluntary option to obtain reimbursement at the scheduled rates in lieu of pursuing the full amount against the injured worker directly.

“While such a system might perhaps be an effective way for a state to structure its payments of air ambulance workers’ compensation claims without running afoul of the Airline Deregulation Act — a question we do not here reach — the Wyoming statute as it currently exists simply does not establish a voluntary contractual relationship,” the court said.

But the court went on to find that the injunctive relief granted to the air ambulance providers “went well beyond what was necessary” to remedy the state’s violation of the ADA, as no federal law requires the state to make any payment of air ambulance claims, much less payment at whatever rates are charged.

“Principles of comity and federalism require us to limit the remedy ordered to correct the federal violation without otherwise interfering in defendants’ interpretation of and application of state law,” the court said.

Joshua Fuchs, an attorney with Jones Day, said he saw the court's ruling as confirming the position that his client, the parent corporation of EagleMed and Med-Trans, has taken in various ADA disputes across the country.

“We believe that the court got the ADA analysis right,” he said.

Fuchs noted that the weight of precedent has also been on the side of air ambulance carriers.

Last year, a federal trial judge in North Dakota invalidated the state's fee schedule for air ambulance providers serving workers' compensation claimants because he found the state rules were pre-empted by the ADA. And a year before that, a federal trial judge in Florida found that the ADA barred a class-action suit over air ambulance providers' billing and collection practices.

Fuchs said there have also been recent civil cases in Oklahoma and Arkansas where the ADA pre-emption argument has been successful.

While the 10th Circuit reversed the injunction for the providers, Fuchs said he didn’t think it necessarily meant that the companies will not be able to collect the full amount of their bills.

He said he understood the 10th Circuit to be saying that the state “gets the first pass” at figuring out how to make its comp system comply with the ADA, and he believed “the only way to do that is to provide payment of the full billed charges," but the trial judge “essentially jumped the gun” by ordering the state to provide such payments.

Mary Nichols, general counsel for Texas Mutual, said she disagreed with the 10th Circuit’s conclusion, but she thought the most important aspect of the decision was that it reversed the injunction ordering the payment of the air ambulance providers’ billed rates.

From her review of the opinion, Nichols said, it was apparent that the court was “very aware that bills are skyrocketing” and there is “nothing remotely like a free market” for air ambulance services.

She noted that the court voiced “great skepticism” about the business practices of the air ambulance providers by referring to “the warped market” and “unscrupulous pricing behaviors.”

Nichols said she also had the impression that the court believed its ruling “yields a very bad result,” as it referred to the intersection of the ADA with state comp system cost-control measures as being “ill-conceived.”

She also made the point that the 10th Circuit decision won’t be binding on the state and federal courts for Texas. She said other jurisdictions may not agree with the 10th Circuit if they have a chance to address the ADA issue.

“If push comes to shove, courts don’t want absurd results, even following a plain text reading,” Nichols said. She said the ADA pre-emption issue is “still very much in play.” 

Khale J. Lenhart and Richard A. Mincer of Hirst Applegate represented EagleMed and Med-Trans before the 10th Circuit, along with Matthew Smith of Holland & Hart.

Fellow Holland & Hart attorneys Christina F. Gomez and Jessica Smith represented Air Methods, together with George Hicks of Kirkland & Ellis.

Matthew Smith and Hicks also represented Rocky Mountain Holdings, with Michael P. Manning of Holland & Hart.

The attorneys either declined comment or could not be reached on Thursday.

Wyoming Attorney General Peter Michael on Thursday said his agency was still reviewing the decision and that the state would have no immediate comment.

To read the decision, click here.