According to a recent U.S. Fifth Circuit Court of Appeals decision, states do not have the power to regulate the cost of an air ambulance flight. The court held that medevac helicopter and airplane companies should be regulated like airlines. This means that states can no more fix the cost of an emergency offshore medevac than they can the cost of a seat on any other commercial passenger flight—that is to say: not at all.

Texas Versus Federal Law

The lawsuit arose out of a conflict between Texas and federal law. The Texas Workers’ Compensation Act (“TWCA”) fixed the price at which a private workers’ compensation insurer would reimburse an air ambulance company for flight services. The TWCA not only capped the price that the insurance company would pay, but also barred the air ambulance company from seeking additional compensation from either the employee who received the service or his employer.

On the other hand, the federal Airline De-Regulation Act (passed in 1978) makes it illegal for any state to enact any law that regulates the price of any “air carrier”—any American company that provides air transportation services.

Air Evac EMS, Inc. is a medevac and air ambulance company. It sued various Texas officials, claiming that it was an “air carrier,” and thus that the Airline De-Regulation Act made it illegal for the TWCA to regulate air ambulance prices.

Fifth Circuit Ruling

The court ultimately sided with Air Evac EMS, concluding that air ambulance companies were “air carriers” and were exempt from reimbursement schedules like the kind in the TWCA.

The court applied a longstanding principle that where state and federal law conflict, federal law will win the day. This lawsuit is a classic case of that doctrine—called “pre-emption.” It found that the federal Airline De-Regulation Act “pre-empted” the state TWCA.

The court cited a history of other cases that have treated air ambulance companies as “air carriers.” It also pointed out that medevac companies are held to most of the same regulatory and compliance requirements as airlines. Admittedly, Congress’s intent in passing the Airline De-Regulation Act may have been limited to mainstream airlines. But the court would not second-guess what Congress intended when the statute’s text itself clearly states that it applies to any “air carrier.”

TWCA Versus airline de-regulation act

The Texas officials unsuccessfully argued that the TWCA is closer to the state realm of workers’ compensation regulation than it is to the federal realm of airline regulation. They also took the position that the TWCA did not truly regulate price, because workers’ compensation does not and never has been a competitive price market.

The court rebuffed both arguments, noting that the Airline De-Regulation Act has been interpreted broadly—giving effect to a wide variety of laws that impact the airline industry. It has been used to strike down any law that has a “connection with or reference to” the price of air transportation. The TWCA clearly has such an effect.

The Texas officials mounted one other defense of the TWCA price caps. They argued that they were exempt from federal law under the “McCarran-Ferguson Act”—a federal statute that lets state regulations conflict with federal law when it comes to the relationship between an insurer and its policyholder. The Texas officials argued that the TWCA fell under the McCarran-Ferguson Act because it regulated workers’ compensation insurers.

The court rejected this argument as well. The court determined that the workers’ compensation reimbursement schedule governed the relationship between an insurer and a medical care provider—not between the insurer and its policyholder. The TWCA only governs the amount of money that a medical care provider can recover from an insurance company. Its reimbursement schedule does not consider the policyholder in any capacity. Therefore, Texas could not shield the TWCA under the McCarran-Ferguson Act. The TWCA was still pre-empted by the Airline De-Regulation Act.

Up In the Air: Billing

Absent from the court’s decision, however, was any discussion of how air ambulance companies will bill their patients and their patients’ insurers moving forward. States can no longer force the companies to cap their bills at a certain amount per medevac flight. However, it is unclear whether workers’ compensation insurers will simply be expected to pay any bill that an air ambulance company issues—or whether the insurers will be permitted to pay only a portion of the bill and pass the balance on to their policyholders.

Fifth Circuit’s Decision: A Win for Providers

While the Fifth Circuit’s decision was limited to workers’ compensation claims, the court’s logic could reasonably be applied to any medevac flight. In a world where airlifting a patient routinely cost multiple tens of thousands of dollars, this decision raises the question of what—if anything—will apply a downward market pressure on air ambulance prices. In a climate of rising medical transportation costs nationwide, the Fifth Circuit’s decision is a clear win for the providers.