Air Evac EMS, Inc. v. Texas

• Decision Date: 20 March 2017
• Docket Number: No. 16-51023,16-51023
• Citation: 851 F.3d 507
• Parties: AIR EVAC EMS, INCORPORATED, Plaintiff–Appellant v. State of TEXAS, DEPARTMENT OF INSURANCE, DIVISION OF WORKERS' COMPENSATION; David Mattax, Texas Commissioner of Insurance, in his official capacity; Ryan Brannan, Texas Commissioner of Workers' Compensation, in his official capacity, Defendants–Appellees v. Texas Mutual Insurance Company; Liberty Mutual Insurance Company; Zenith Insurance Company; Hartford Underwriters Insurance Company ; Twin City Fire Insurance Company; Transportation Insurance Company; Valley Forge Insurance Company; Truck Insurance Exchange, Intervenor Defendants–Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

851 F.3d 507

AIR EVAC EMS, INCORPORATED, Plaintiff–Appellant

v.State of TEXAS, DEPARTMENT OF INSURANCE, DIVISION OF WORKERS' COMPENSATION; David Mattax, Texas Commissioner of Insurance, in his official capacity; Ryan Brannan, Texas Commissioner of Workers' Compensation, in his official capacity, Defendants–Appellees

v.Texas Mutual Insurance Company; Liberty Mutual Insurance Company; Zenith Insurance Company; Hartford Underwriters Insurance Company ; Twin City Fire Insurance Company; Transportation Insurance Company; Valley Forge Insurance Company; Truck Insurance Exchange, Intervenor Defendants–Appellees

No. 16-51023

United States Court of Appeals, Fifth Circuit.

FILED March 20, 2017

Joshua Lee Fuchs, Houston, TX, Thomas F. Allen, Jr., Dallas, TX, Jones Day, for Plaintiff–Appellant.

Lisa Bennett, Assistant Solicitor General, Jennifer Settle Jackson, Assistant Attorney General, Office of the Attorney General for the State of Texas, Austin, TX, for Defendants–Appellees.

Matthew Birk Baumgartner, Boyce C. Cabaniss, Esq., Karen Shafrir Vladeck, Graves, Dougherty, Hearon & Moody, P.C., Paul W. Schlaud, Reeves & Brightwell, L.L.P., Austin, TX, for Intervenor Defendant–Appellee Texas Mutual Insurance Company.

Robert F. Josey, David Lawrence Plaut, Esq., Hanna & Plaut, L.L.P., Austin, TX, for Intervenor Defendant–Appellee Liberty Mutual Insurance Company.

James Michael Loughlin, Stone Loughlin & Swanson, L.L.P., Austin, TX, for Intervenor Defendants–Appellees Zenith Insurance Company, Hartford Underwriters Insurance Company, Twin City Fire Insurance Company, Transportation Insurance Company, Valley Forge Insurance Company, Truck Insurance Exchange.

George W. Hicks, Jr., Kirkland & Ellis, L.L.P., George W. Hicks, Jr., Bancroft, P.L.L.C., Washington, DC, for Amicus Curiae Air Methods Corporation.

Before JONES, BARKSDALE, and COSTA, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Primarily at issue is whether an air-ambulance company, claiming federal preemption of Texas' workers'-compensation scheme, satisfies the equitable exception to the Eleventh Amendment, as provided in Ex parte Young , 209 U.S. 123, 155–56, 28 S.Ct. 441, 52 L.Ed. 714 (1908). It does. For this and other reasons, federal jurisdiction exists. Moreover, we decline to abstain under Colorado River Water Conservation District v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). VACATED and REMANDED.

I.

Air Evac EMS, Incorporated, filed this action against, inter alia , the Texas Commissioner of Insurance and the Texas Commissioner of Workers' Compensation (state defendants), claiming that, as applied to air-ambulance entities, Texas' workers'-compensation system is federally preempted. Because the Airline Deregulation Act (ADA) expressly preempts all state laws "related to a price, route, or service of an air carrier", Air Evac maintains Texas may not use state laws to regulate air-ambulance services. 49 U.S.C. § 41713(b)(1).

Air Evac's air ambulances depart from more than 20 sites in Texas. And, Air Evac holds an assortment of licenses from federal and state regulators, including the United States Department of Transportation, Federal Aviation Administration, and Texas. Being an emergency-transportation service, Air Evac must accept patients regardless of either their ability to pay or the source of their payment. As a result, Air Evac often seeks payment for its services through the Texas Workers' Compensation Act (TWCA).

TWCA established a state-regulated insurance market, in which Texas licenses private insurers to sell workers'-compensation policies to employers. See Tex. Labor Code §§ 401.001 –419.007. Two critical features of this framework are relevant to the action at hand: a maximum-reimbursement system; and, a prohibition on "balance billing". Id. §§ 413.011 (reimbursement guidelines), 413.042 ("A health care provider may not pursue a private claim against a workers' compensation claimant").

As for the reimbursement program, TWCA authorizes health-care providers to seek payment directly from workers'-compensation insurers for services provided patients covered by TWCA. Id. § 408.027(a). The insurer then reimburses the health-care provider according to rate guidelines promulgated by the Texas Workers' Compensation Commission (commission). See id. These rates are generally based on corresponding Medicare rates. An insurer is not allowed to pay more than the maximum-reimbursement rate, regardless of whether the rate satisfies the health-care provider's billed amount. Id. § 413.011(d).

Therefore, under this system, the initial bill goes to the insurer rather than the patient. Furthermore, the balance-billing prohibition prevents a health-care provider from billing the patient for any portion of the bill in excess of the commission's rate. Id. § 413.042. If a health-care provider violates this prohibition, TWCA authorizes fines up to "$25,000 per day per occurrence". Id. § 415.021(a).

If a health-care provider believes it was underpaid, or the commission has not yet set a specific rate, it may dispute the fee with the Texas Department of Insurance, Division of Workers' Compensation (DWC). See id. § 413.031(a), (c). (Air Evac does not appeal the dismissal of DWC from this action.)

DWC serves as a first-level administrative adjudicator, with the healthcare provider and insurer participating as interested parties. See id. DWC's decisions are appealable to the State Office of Administrative Hearings (SOAH); SOAH's decisions, to the Travis County, Texas, district court. See id. § 413.031(k–1); Tex. Gov. Code Ann. § 2001.176. And, an appeal may be taken from a decision by that court. Tex. Gov. Code Ann. § 2001.901.

If the commission has not promulgated a reimbursement rate for a given service, DWC must determine a "fair and reasonable" rate through administrative proceedings. See 28 Tex. Admin. Code § 134.1(e)–(f). In 2002, DWC adopted a rule setting a general reimbursement rate of 125% of the Medicare rate. See id. § 134.203(d).

After adhering to this rule for ten years, numerous air-ambulance companies—including Air Evac—challenged the 125% rate in the state-administrative-dispute system, urging ADA preemption. Initially, DWC stated it believed Texas' reimbursement guidelines were preempted. In September 2015, however, following an extensive series of administrative hearings, an administrative law judge (ALJ) ruled TWCA's scheme was not preempted, and found the proper reimbursement rate to be 149% of the Medicare rate.

The lead entity in the administrative proceeding, PHI Air Medical, LLC, appealed the ALJ's ruling to the Travis County district court. See Tex. Mut. Ins. Co., et al. v. PHI Air Medical, LLC , No. D–1–GN–15–004940 (Tex. 53d Jud. Dist. 15 Dec. 2016). In mid-December 2016, that court ruled: TWCA is not preempted; and, a reimbursement rate of 125% of the Medicare rate is adequate under TWCA. Id. On 31 January 2017, PHI appealed to the court of appeals. In the meantime, hundreds of air-ambulance fee disputes have been held at the SOAH level, pending the outcome of PHI's judicial proceeding.

Approximately a year earlier, in January 2016, with the state proceeding ongoing, Air Evac filed this action, seeking: a declaratory judgment that ADA preempts TWCA with respect to air-ambulance companies; injunctive relief against enforcement of the maximum-reimbursement-rate system; or, in the alternative, declaratory and injunctive relief against the balance-billing prohibition. The district court granted a joint motion to intervene on behalf of numerous workers'-compensation insurers (insurers). Prior to the discovery conference, Air Evac moved for summary judgment and each defendant moved to dismiss.

The court granted defendants' Federal Rule of Civil Procedure 12(b)(1) motions to dismiss. Air Evac EMS, Inc. v. Texas , No. 1:16-CV-00060-SS, 2016 WL 4259552, at *9 (W.D. Tex. 11 Aug. 2016). In doing so, it first ruled subject-matter jurisdiction existed, based on Shaw v. Delta Air Lines, Inc. , 463 U.S. 85, 96 n.14, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (ruling preemption claims present a federal question because they rely on interpretation of federal statutes and the Supremacy Clause). Air Evac EMS , 2016 WL 4259552, at *5. The court continued to explain that, although Shaw confers federal-question jurisdiction under 28 U.S.C. 1331, the Supremacy Clause, ADA, and Declaratory Judgment Act do not provide a "private right of action". Id. at *5–6.

Therefore, in the light of the Eleventh Amendment, the court concluded: in order for this action to proceed, Air Evac must rely on a federal court's equitable jurisdiction to enjoin state officials under Ex parte Young . Id. at *6. Looking to Ex parte Young 's basic requirements, the court first acknowledged Air Evac: seeks prospective injunctive relief; and claims an ongoing violation of federal law. Id. at *6–7.

The court next considered Okpalobi v. Foster , 244 F.3d 405 (5th Cir. 2001) (en banc ), in which the lead, plurality opinion would have required defendants in an Ex parte Young action to, inter alia , "be specially charged with the duty to enforce the statute", as well as to "be threatening to exercise that duty". Air Evac EMS , 2016 WL 4259552, at *7 (quoting Okpalobi , 244 F.3d at 414–15 ). Relying on the duty-to-enforce requirement, the court noted TWCA's maximum-reimbursement scheme cannot be enforced against Air Evac because it constrains the amount insurers can pay , rather than the amount air-ambulance companies can charge . Id. at *8. Without direct enforcement against the health-care providers, the court concluded, the maximum-reimbursement system does not qualify as the basis for the Ex parte Young exception. Id.

Turning to Air Evac's alternative challenge to the balance-billing prohibition, the court recognized state defendants are charged with enforcing the provision against entities which violate the rule. Id. The court, however, held: "Air Evac's claims fail under Young , as Air Evac...