Tex. Mut. Ins. Co. v. Phi Air Med., LLC

Decision Date26 June 2020
Docket NumberNo. 18-0216,18-0216
Citation610 S.W.3d 839
Parties TEXAS MUTUAL INSURANCE COMPANY, Hartford Underwriters Insurance Company, TASB Risk Management Fund, Transportation Insurance Company, Truck Insurance Exchange, Twin City Fire Insurance Company, Valley Forge Insurance Company, et al., Petitioners, v. PHI AIR MEDICAL, LLC, Respondent
CourtTexas Supreme Court

James Michael Loughlin, Daniel Joseph Price, Stone Loughlin & Swanson, LLP, Austin, for Petitioners Hartford Underwriters Insurance Company, TASB Risk Management Fund.

Lisa A. Bennett, Assistant Solicitor General, Adrienne R. Butcher, Texas Attorney General, Administrative Law Division, Jeffrey C. Mateer, Texas Attorney General's Office, First Asst. Attorney General, Kyle D. Hawkins, Office of the Attorney General, Solicitor General, W. Kenneth Paxton Jr., Attorney General of Texas, Office of the Attorney General, Austin, for Petitioner Texas Department of Insurance, Division of Workers’ Compensation.

Matthew B. Baumgartner, Mary A. Keeney, P. M. Schenkkan, Graves Dougherty Hearon & Moody PC, Bryan Wilkerson Jones, Mary Barrow Nichols, Austin, for Petitioner Texas Mutual Insurance Company.

James Michael Loughlin, Daniel Joseph Price, Stone Loughlin & Swanson, LLP, Austin, for Petitioners Transportation Insurance Company, Truck Insurance Exchange, Twin City Fire Insurance Company, Valley Forge Insurance Company, Zenith Insurance Company.

Craig T. Enoch, Amy L. Saberian, Shelby L. O'Brien, Enoch Kever PLLC, Austin, for Respondent.

Dale Wainwright, Justin Bernstein, Greenberg Traurig, Austin, for Amicus Curiae American Property Casualty Insurance Association.

Jamie R. Welton, Barnes & Thornbug LLP, Dallas, for Amici Curiae Association of Air Medical Services, Texas Association of Air Medical Services

Gina Elizabeth McCauley, Jessica Barta, Austin, for Amicus Curiae Office of Injured Employee Counsel.

George S. Christian, Austin, for Amicus Curiae Texas Civil Justice League.

Justice Busby delivered the opinion of the Court, in which Justice Guzman, Justice Lehrmann, Justice Boyd, Justice Devine, and Justice Blacklock joined.

This is a case about federalism. When joining our Union, each State retained fundamental aspects of its sovereignty. This sovereignty includes the police power to provide a compensation system for injured workers. Although the Federal Government can preempt a State's exercise of sovereignty by enacting an inconsistent federal law on a subject within its constitutionally enumerated powers, it has no power to order that State to regulate the subject in a particular way. The questions presented here include (1) whether Texas's exercise of its police power to require that private insurance companies reimburse the fair and reasonable medical expenses of injured workers is preempted by a federal law deregulating aviation; and, if so, (2) whether that federal law requires Texas to mandate reimbursement of more than a fair and reasonable amount for air ambulance services.

We answer both questions no. As to the first, because Texas's general reimbursement standards do not refer expressly to air ambulance providers like respondent PHI, they are preempted by the federal Airline Deregulation Act (ADA) only if they have a "forbidden significant effect upon fares." Morales v. Trans World Airlines, Inc. , 504 U.S. 374, 388, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992). The record does not show that the price of PHI's service to injured workers is significantly affected by a reasonableness standard for third-party reimbursement of those services, so the ADA does not preempt that standard.

Regarding the second question, the relief PHI seeks through preemption is an order requiring the insurance company petitioners to reimburse its billed charges fully under Texas law. This request misunderstands the nature and scope of federal preemption of state law.

Courts agree that the ADA does not require States to provide for payment of air ambulance charges. Instead, PHI is trying to use the ADA's preemption clause to have it both ways under state law: PHI relies on Texas law requiring that private insurers reimburse it for air ambulance services to injured workers, yet it argues that the Texas standards governing the amount of that reimbursement are preempted. The Supreme Court of the United States unequivocally rejected this stratagem in Dan's City Used Cars, Inc. v. Pelkey , observing that any preemption under a similarly worded federal law would displace the entire state-law regime. 569 U.S. 251, 265, 133 S.Ct. 1769, 185 L.Ed.2d 909 (2013). Thus, PHI would be substantially worse off if it succeeded on its preemption claim, as insurers would no longer have any obligation to reimburse it at all.

Moreover, PHI's attempt to use federal preemption to compel full reimbursement under state law runs headlong into the Tenth Amendment to our Federal Constitution. As the federal anticommandeering doctrine recognizes, Congress lacks the power to change state law. Litigants cannot invoke preemption to avoid this constraint, which is fundamental to the structure of our government.

For these reasons, we hold that the ADA does not preempt Texas's general standard of fair and reasonable reimbursement as applied to air ambulance services, nor does it require that Texas compel private insurers to reimburse the full charges billed for those services. We therefore reverse the judgment of the court of appeals and reinstate the trial court's judgment declaring that Texas law is not preempted.


PHI Air Medical, LLC is one of the country's leading providers of emergency air ambulance services, and it has significant operations in Texas. PHI is licensed to operate as an air carrier by the Federal Aviation Administration and as an air taxi by the United States Department of Transportation. PHI is thus subject to federal oversight, including laws and regulations that address safety and unfair or anti-competitive practices. See, e.g. , 49 U.S.C. § 41712(a) ; 14 C.F.R. pt. 135. But PHI need not obtain a certificate of public convenience and necessity or comply with the associated federal economic regulations. See 14 C.F.R. § 298.3(a)(b) (2005).

Upon the request of first responders or medical professionals, PHI provides its services without regard to a patient's insurance status or ability to pay. See 25 Tex. Admin. Code § 157.36(b)(9)(10), (14). In recent years, PHI alleges its costs have risen; simultaneously, it says, payors in the industry—often insurers—have increasingly sought to avoid paying PHI's billed charges in full. These factors and others,1 PHI claims, have pressed PHI to raise prices to sustain itself. The amount that air ambulance providers may recover from workers' compensation insurers forms the basis of this dispute.


In 1913, the Texas Legislature enacted the Texas Workers' Compensation Act (TWCA) to respond "to the needs of workers, who, despite escalating industrial accidents, were increasingly being denied recovery." SeaBright Ins. v. Lopez , 465 S.W.3d 637, 642 (Tex. 2015) (quoting Kroger Co. v. Keng , 23 S.W.3d 347, 349 (Tex. 2000) ). In enacting the TWCA, the Legislature balanced two competing interests: providing compensation for injured employees and protecting employers from the costs of litigation. Id. The Legislature struck a balance between these interests by permitting workers to "recover from subscribing employers without regard to the workers' own negligence" while "limiting the employers' exposure to uncertain, possibly high damages awards permitted under the common law." Id. The TWCA thus "allows employees to receive ‘a lower, but more certain, recovery than would have been possible under the common law.’ " Id. (quoting Kroger Co. , 23 S.W.3d at 350 ). The Legislature revamped the TWCA in 1989 and created the Texas Workers' Compensation Commission—now the Division of Workers' Compensation at the Texas Department of Insurance—to implement and enforce its provisions. Tex. Workers' Comp. Comm'n v. Patient Advocates of Tex. , 136 S.W.3d 643, 646–47 (Tex. 2004) (citing TEX. LAB. CODE § 402.061 ).

Under the TWCA, employers may purchase insurance from private companies to cover workers who are injured on the job. When PHI transports an injured worker covered by such insurance, Title 5 of the Texas Labor Code and its associated regulations apply. See LAB. CODE §§ 401.007– 419.007. A health care provider that treats injured workers, like PHI, has a direct statutory claim for reimbursement from a workers' compensation insurer, id. § 408.027(a), and the provider may contract with the insurer to determine the amount of reimbursement. Id. § 413.011(d-4). Absent a contract, the reimbursement amount is governed by fee guidelines promulgated by the Division. Id. §§ 413.011, .012. These guidelines establish maximum reimbursement amounts for providers. Id. § 408.028; 28 Admin. Code § 134.1(a).

When the Division has not adopted an applicable guideline, the insurer must reimburse the provider for its services up to a "fair and reasonable" amount. LAB. CODE § 413.011(d) ;2 28 Admin. Code § 134.1(a), (e)(f).3 If the insurer does not reimburse the full amount of the provider's billed charges, the provider generally may not "balance bill" its customer—the covered worker—directly for the unpaid portion. See LAB. CODE § 413.042. A provider dissatisfied with the amount an insurer pays may seek review by the Division. Id. § 413.031(a). In turn, a party who disagrees with the Division's ruling is entitled to a contested case hearing conducted by the State Office of Administrative Hearings and, ultimately, to judicial review. Id. § 413.031(k), (k-1).


Until 2012, when this dispute arose, insurers had been reimbursing PHI for its services at 125% of the Medicare rate for air ambulance services, citing the Division's fee guideline for providers other than hospitals and pharmacies. See 28 Admin. Code § 134.203(d)(1). But in 2012, PHI and other air ambulance providers began...

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