On remand from the Texas Supreme Court’s reversal of its prior decision, the Austin Court of Appeals has ruled that federal law does not pre-empt the Texas Workers’ Compensation Act with regard to air ambulance services provided to injured workers covered by workers’ compensation insurance. The decision represents a victory for the integrity of the workers’ compensation system and the protection of workers’ from balance billing of excessive charges.

As you may recall, this case involved a challenge brought by an air ambulance company to the workers’ compensation reimbursement rates for ambulance services. In an amicus curiae brief filed with the Texas Supreme Court, TCJL argued that, contrary to the air ambulance company’s claim that the federal Aviation Deregulation Act pre-empted Texas law regarding the amount of reimbursement that may be paid to an ambulance service under the Texas workers’ compensation statute, this case in fact challenged the fundamental authority of the Texas Legislature to establish a workers’ compensation insurance system under which employees injured on the job receive prompt and certain benefits to enable them to return to work. In return for these benefits, an employee gives up the right to file a tort claim against his or her employer, with an uncertain outcome and the prospect of legal expenses. The employee is also protected from balance billing of any charges in excess of the “fair and reasonable” charges determined by the administrative process.

By payment of a premium to a workers’ compensation insurer, an employer can assure that an injured employee will receive necessary medical treatment, receive supplemental income benefits for time off the job, and return to employment in the shortest practicable time. Workers’ compensation insurance is thus a tripartite relationship between an employer who pays the premium, the employee who accepts coverage and waives the right to sue, and the insurer who pays statutorily defined benefits when the time comes. This is the precise nature of the quid pro quo that vindicates the system against attack on the basis of the Open Courts provision of Article I, §13, Texas Constitution.

TCJL’s brief argued further that PHI disingenuously sought to be treated like other health care service providers by the workers’ compensation system in order to take advantage of compulsory payments under the system. However, as to the amount of payment, it claimed that it really cannot be considered the same as every other health care vendor that provided a service to an injured employee because—lo and behold—it is really an air carrier that the State of Texas cannot regulate, thus entitling it to a huge mark-up of its rates, unlimited by workers’ compensation regulations. As of the date of our brief, almost 1,100 claims by PHI and others like it were pending at the Workers’ Compensation Division or State Office of Administrative Hearings involving more than $45 million in disputed charges—about $37,000 per claim.  In short, PHI wanted Texas to return to the days of setting rates for workers’ compensation by litigation.

In a 7-2 decision handed down on June 26, 2020, the Texas Supreme Court rejected the air ambulance company’s arguments. subscribe to the Texas workers’ compensation system. See Texas Mutual Insurance Company, et al. v. PHI Air Medical, LLC (No. 18-0216). Justice Busby’s majority opinion affirmed the 10th Amendment’s reservation of authority to the states to legislate in areas not pre-empted by Congress, specifically insurance regulation. In a closely reasoned opinion, Justice Busby picks apart PHI’s specious argument that federal deregulation of rates and fares charged by air carriers blocks states from treating air ambulances differently than any other provider of health care services under workers’ compensation laws. The opinion notes that that PHI tried to have its cake and eat it too by arguing that Texas Mutual was statutorily obliged to pay its full-bill charges while at the same time availing itself of the statute’s prohibition against balance billing the injured worker. Justice Busby pointed out that 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.”

The potential cost of an adverse decision in this case would have been staggering. As TCJL and Texas Mutual pointed out in their briefs, Justice Busby observed that “requiring full reimbursement could have serious consequences for the Texas workers’ compensation system. According to the insurers, almost $50 million in Texas air ambulance charges were already in dispute by January 2019, and PHI’s operating profit margin on its full billed charges ranges from 185% to 282%. In Wyoming, which has held that only limits on reimbursement are preempted, the legislature is considering either expanding Medicaid in order to control such charges or making injured workers responsible for the balance of their bills. The ADA was passed to deregulate the airline industry, not to upend the bargain struck in adopting a workers’ compensation scheme. As we have explained, there is no reason to interpret the ADA to have that effect.”

On remand, the Austin Court of Appeals determined that federal law did not pre-empt the reimbursement provisions of the workers’ compensation act. In order to find pre-emption, the air ambulance company would have to show that the “fair and reasonable” reimbursement standard under the act had a “significant effect” on its prices for transporting injured workers. The court of appeals agreed with the company that in order to make this determination, the court should consider the reimbursement provisions and the balance billing prohibition together, rather than in isolation (in accordance with SCOTX’s direction that courts must review a challenge in the context of the regulatory scheme as a whole). Performing this analysis, the court concluded that the workers’ compensation act had no significant effect on the amounts the company could recover for its services. Under the act’s “fair and reasonable” standard, the company could recover at least three different amounts: the full-billed charges, 125% of Medicaid reimbursement, or a bargained-for market rate. In fact, in this case the Division, the SOAH judge, and the trial court all reached different conclusions. Because the trial court dismissed the company’s challenge to SOAH’s determination as not timely filed, the court of appeals remanded for further proceedings.

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