Petition for Writ of Certiorari — PHI Air Medical, LLC, Petitioner v. Texas Mutual Insurance Company, et al.
Supreme Court briefNov 23, 2020
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APPENDIX
TABLE OF APPENDICES
Appendix A
Opinion, Supreme Court of Texas, Tex.
Mut. Ins. Co. v. PHI Air Med., LLC,
No. 18-0216 (June 26, 2020)........................ App-1
Appendix B
Opinion, Texas Court of Appeals, Third
District, PHI Air Med., LLC v. Tex. Mut.
Ins. Co., No. 03-17-00081-CV (Jan. 31,
2018)........................................................... App-83
Appendix C
Final Judgment, Texas District Court,
53rd Judicial District, Tex. Mut. Ins. Co.
v. PHI Air Med., LLC, No. D-1-GN-15004940 (Jan. 11, 2017) ............................ App-104
Appendix D
Relevant Statutory Provisions ................ App-107
49 U.S.C. § 41713(b)(1) ..................... App-107
15 U.S.C. § 1012(b)............................ App-107
App-1
Appendix A
IN THE SUPREME COURT OF TEXAS
________________
No. 18-0216
________________
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.,
v.
Petitioners,
PHI AIR MEDICAL, LLC,
Respondent.
________________
Argued: Feb. 25, 2020
Decided: June 26, 2020
________________
OPINION
________________
JUSTICE BUSBY delivered the opinion of the Court,
in which JUSTICE GUZMAN, JUSTICE LEHRMANN,
JUSTICE BOYD, JUSTICE DEVINE, and JUSTICE
BLACKLOCK joined.
JUSTICE BLAND filed a concurring opinion, in
which JUSTICE LEHRMANN, JUSTICE BOYD, and
JUSTICE BLACKLOCK joined.
App-2
JUSTICE GREEN filed a dissenting opinion, in
which CHIEF JUSTICE HECHT 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 (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.
App-3
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 (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
App-4
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.
I
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 anticompetitive 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
1 PHI cites heavy discounts required for Medicare and Medicaid
patients.
App-5
sustain itself. The amount that air ambulance
providers may recover from workers’ compensation
insurers forms the basis of this dispute.
A
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
App-6
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
2 Section 413.011(d) provides:
Fee guidelines must be fair and reasonable and
designed to ensure the quality of medical care and to
achieve effective medical cost control. The guidelines
may not provide for payment of a fee in excess of the
fee charged for similar treatment of an injured
individual of an equivalent standard of living and paid
by that individual or by someone acting on that
individual’s behalf. The commissioner shall consider
the increased security of payment afforded by this
subtitle in establishing the fee guidelines.
3 An insurer is not required to reimburse the provider more
than the prescribed “maximum allowable rate,” defined as “the
maximum amount payable to a health care provider [without] a
contractual fee arrangement that is consistent with” Labor Code
section 413.011 and Division rules. 28 Admin. Code § 134.1(a). If
payment is determined under the fair and reasonable standard,
App-7
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).
B
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 filing fee disputes with
the Division, seeking to recover the full amount of
their billed charges. This particular suit represents a
fraction of the air ambulance fee disputes pending
agency review: it concerns thirty-three transports that
PHI provided between 2010 and 2013 to patients
covered by workers’ compensation insurance. No
contract between PHI and the insurers of those thirtythree patients (petitioners here) sets a predetermined
reimbursement amount. 4
that rate is deemed the maximum allowable rate. See id.
§ 134.203(d)(3), (f).
4 PHI has one contract for an agreed-upon price for intrastate
transports with the University of Texas Medical Branch at
Galveston. According to PHI, this contract covers less than 1% of
App-8
Before the Division, PHI argued that the federal
ADA preempted the TWCA’s fee schedules and
reimbursement standards. According to PHI, the
effect of ADA preemption was to require that the
insurers pay its billed charges in full. The Division
agreed. But an administrative law judge (ALJ)
disagreed following a contested case hearing, holding
that the ADA did not preempt the TWCA and its
reimbursement scheme. The ALJ relied on the
McCarran-Ferguson Act, a federal statute that saves
or “reverse-preempts” state laws regulating the
business of insurance. See 15 U.S.C. §§ 1011-15.
Having held that the McCarran-Ferguson Act
rendered ADA preemption inoperative, the ALJ
concluded that PHI was entitled to reimbursement
under the TWCA’s standards.
Concerning the amount of reimbursement
required, PHI argued that it should receive the full
amount of its billed charges and that the amount
previously paid by the insurers—125% of the Medicare
air ambulance rate—would reflect a loss on each
transport. The insurers argued that 125% of the
Medicare rate was appropriate under rule 134.203,
the Division’s fee guideline for providers other than
hospitals and pharmacies. See 28 Admin. Code
§ 134.203. 5 Alternatively, the insurers argued that
PHI’s annual transports, and the Branch is not a party to this
dispute.
5 The insurers contended that subsection (d)(1) of this rule
established 125% of the Medicare rate as the maximum allowable
reimbursement for air ambulances because a Medicare fee
schedule exists for air ambulances.
App-9
125% of the Medicare rate was a fair and reasonable
fee for PHI’s services.
The ALJ agreed with PHI that the Division’s fee
guidelines do not set reimbursement rates for air
ambulances at 125% of Medicare. 6 As the parties had
no contractual rate, the ALJ held that a fair and
reasonable rate—which he determined to be 149% of
the Medicare rate for air ambulances—must be paid.
28 Admin. Code §§ 134.1(e)(3), .203(d)(3), (f); see also
Lab. Code § 413.011(d).
After the ALJ rendered a final decision, PHI and
the insurers sought judicial review. Each requested a
declaratory judgment regarding preemption. The
insurers also challenged the conclusion that 149% of
6 Though the parties disputed rule 134.203’s applicability to air
ambulance providers, the ALJ did not decide whether that rule
applied because the fair and reasonable standard would
determine reimbursement either way. Assuming arguendo that
rule 134.203 did apply, the ALJ concluded that contrary to the
insurers’ assertions, subsection (d)(1) would not set
reimbursement at 125% of the Medicare rate for air ambulance
services. Subsection (d)(1) provides that the maximum allowable
reimbursement rate for certain services shall be 125% of the fee
prescribed in the Medicare Durable Medical Equipment,
Prosthetics, Orthotics, and Supplies fee schedule. 28 Admin.
Code § 134.203(d)(1). Because air ambulance fees are not
addressed in that fee schedule, the ALJ concluded subsection
(d)(1) would not apply to PHI. As subsection (d)(2) likewise would
not apply because there is no Texas Medicaid fee schedule for air
ambulance services, reimbursement would be decided according
to the fair and reasonable reimbursement standard per
subsection (d)(3). The same result would be true if rule 134.203
did not apply at all: rule 134.1 provides that reimbursement “in
the absence of an applicable fee guideline or a negotiated
contract” shall be determined by “a fair and reasonable
reimbursement amount.” 28 Admin. Code § 134.1(e)(3).
App-10
the Medicare reimbursement rate was fair and
reasonable for these transports. The Division
intervened, siding with the insurers in opposing
preemption. All parties moved for summary judgment.
Following a hearing, the trial court denied PHI’s
motion for summary judgment and granted summary
judgment for the Division and the insurers. The court
declared that the ADA does not preempt the TWCA’s
reimbursement provisions and that the insurers did
not owe more than 125% of the Medicare amount. PHI
appealed and the court of appeals reversed, holding
that the TWCA’s reimbursement provisions are
preempted by the ADA and are not saved by the
McCarran-Ferguson Act. 549 S.W.3d 804, 809, 816
(Tex. App.—Austin 2018). The Division and the
insurers sought our review, and we granted their
petitions.
II
A
In this Court, the parties again dispute whether
the ADA preempts the TWCA’s reimbursement
provisions and, if so, whether the McCarran-Ferguson
Act reverse-preempts those provisions because they
regulate the business of insurance. Because we
conclude that the ADA does not preempt the TWCA’s
reimbursement scheme, we do not decide whether the
McCarran-Ferguson Act applies.
Whether the ADA preempts the TWCA’s
reimbursement guidelines is a question of law we
review de novo. See Thompson v. Tex. Dep’t of
Licensing & Regulation, 455 S.W.3d 569, 571 (Tex.
2014) (per curiam); Baker v. Farmers Elec. Co-op., 34
F.3d 274, 278 (5th Cir. 1994) (“Preemption is a
App-11
question of law reviewed de novo.”). “When both sides
move for summary judgment and the trial court grants
one motion and denies the other, the reviewing court
should review both sides’ summary judgment evidence
and determine all questions presented.” FM Props.
Operating Co. v. City of Austin, 22 S.W.3d 868, 872
(Tex. 2000). The reviewing court should render the
judgment that the trial court should have rendered.
Id.
B
“Federal preemption of state law follows from the
Framers’ core commitment to dual sovereignty, which
is a defining feature of our Nation’s constitutional
blueprint.” Air Evac EMS, Inc. v. Cheatham, 910 F.3d
751, 760 (4th Cir. 2018) (cleaned up). “The
Constitution limited but did not abolish the sovereign
powers” the States claimed in declaring their
independence, leaving them “a residuary and
inviolable sovereignty.” Murphy v. Nat’l Collegiate
Athletic Ass’n, 138 S. Ct. 1461, 1475 (2018) (quoting
The Federalist No. 39, at 245 (Clinton Rossiter ed.,
1961)). Our constitutional structure “indirectly
restricts the States by granting certain legislative
powers to Congress” and including a Supremacy
Clause—a “rule of decision” instructing “that when
federal and state law conflict, federal law prevails and
state law is preempted.” Id. at 1476, 1479.
When acting within its enumerated powers,
“Congress’s choices range from complete reliance on
state policy to complete preemption of state law, with
many iterations of ‘cooperative federalism’ between
these extremes.” Air Evac, 910 F.3d at 761. Yet
congressional power is limited, and “all other
App-12
legislative power is reserved for the States, as the
Tenth Amendment confirms.” Murphy, 138 S. Ct. at
1476. “[C]onspicuously absent from the list of powers
given to Congress is the power to issue direct orders to
the governments of the States.” Id.
The States’ retained police powers include the
power to provide a compensation system for injured
workers, as Texas has done. See Alessi v. RaybestosManhattan, Inc., 451 U.S. 504, 524 (1981). 7 In many
States, a government entity acts as the employers’
insurer, paying benefits to injured workers and
reimbursing certain expenses they have incurred. In
Texas, however, employers contract with private
insurance carriers to perform these functions, and
state laws and regulations define the insurers’
obligations to reimburse health care providers for
their services to covered workers. See Lab. Code
§ 406.051. Each insurance policy incorporates these
laws and regulations, obligating the insurer to pay the
benefits they require.
The following Texas laws and regulations are
particularly relevant to our analysis of PHI’s
preemption challenge. Under the TWCA, as explained
above, a health care provider like PHI has a direct
claim for reimbursement from an insurer. Id.
§ 408.027(a). Because the ALJ determined the
Division has no fee guideline for air ambulance
services, the insurers are required to reimburse PHI
7 See also N.Y. Cent. R.R. v. White, 243 U.S. 188, 206 (1917);
Lykes Bros. S.S. Co. v. Esteves, 89 F.2d 528, 530 (5th Cir. 1937)
(“[T]he state in the exercise of its police power may impose
absolute liability upon the employer [for worker injuries]
regardless of the existence of actionable negligence.”).
App-13
for its services up to a “fair and reasonable” amount.
See id. § 413.011(d); 28 Admin. Code §§ 134.1(a), (e)(f), .203(d)(3), (f). The insurers reimbursed PHI less
than the full amount of its billed charges, and the
parties dispute whether the amount the insurers
reimbursed is fair and reasonable. Given the TWCA’s
prohibition against “balance billing,” PHI has not
billed its customers—the covered workers—for the
remainder. See Lab. Code § 413.042.
According to PHI, the federal act deregulating the
airline industry (the ADA) expressly preempts Texas’s
laws and regulations requiring insurers to reimburse
it a fair and reasonable amount for air ambulance
services; therefore, it is entitled to an order compelling
the insurers to reimburse its billed charges fully under
state law. The court of appeals erred in agreeing with
PHI for two reasons. As Part III shows, the federal
ADA does not preempt the Texas fair and reasonable
standard for reimbursement. Yet even if the ADA had
that preemptive effect, it does not—and, as a
constitutional matter, could not—provide PHI the
remedy it seeks, as we explain in Part IV.
III
A
“In 1978, Congress enacted the ADA, which
deregulated the airline industry in order to encourage
market competition, lower prices, advance innovation
and efficiency, and increase the variety and quality of
air transportation services.” Sabre Travel Int’l, Ltd. v.
Deutsche Lufthansa AG, 567 S.W.3d 725, 737 (Tex.
2019). “To ensure that the States would not undo
federal deregulation with regulation of their own,”
Congress included an express preemption clause.
App-14
Morales, 504 U.S. at 378. The clause provides that “a
State . . . may not enact or enforce a law, regulation,
or other provision having the force and effect of law
related to a price, route, or service of an air carrier.”
49 U.S.C. § 41713(b)(1).
The insurers do not challenge the power of
Congress to preempt state law on this subject. Rather,
the first disputed question is whether this clause
preempts the particular Texas laws and regulations
PHI challenges here. To answer that question
correctly, it is important to be clear about what PHI is
challenging and what it is not.
In this Court, PHI only briefs a challenge to
Texas’s general “fair and reasonable” standard, which
defines how much of PHI’s charges to its customers the
insurers are obligated to reimburse. PHI is not
presently challenging Texas’s prohibition on PHI
balance billing its customer directly. 8 In other words,
PHI would rather be paid by the insurers than by its
customers. This choice is understandable, as insurers
are likely more able to pay and balance billing has
become a subject of national concern. See Air Evac, 910
8 In the trial court, PHI sought a declaration in the alternative
that the balance-billing prohibition is preempted. The trial court
granted summary judgment against PHI on preemption. On
appeal, PHI ultimately told the court of appeals it was
challenging the balance-billing prohibition only in the
alternative. The court of appeals did not reach that challenge,
holding instead that the reimbursement standard is preempted.
See 549 S.W.3d at 816 (“We limit our decision to the rules and
statutes related to reimbursement rates and explicitly do not
address the balance-billing provision, as PHI has explained that
it only attacks that provision in the alternative and that it would
prefer to leave the balance-billing prohibition intact.”).
App-15
F.3d at 757. But the choice does have consequences for
our preemption analysis, as we explain below.
The preemption inquiry before us is whether the
state laws and regulations setting a general fair and
reasonable reimbursement standard for third-party
insurers are “related to a price . . . of an air carrier.”
49 U.S.C. § 41713(b)(1). The ordinary meaning of
“related to” is broad, reaching state provisions that
have “a connection with or reference to” air carrier
prices even if they are not “specifically addressed to
the airline industry” or their “effect is only indirect.”
Morales, 504 U.S. at 384, 386, 388. But the reach of
this statutory language is not unlimited, and “some
state actions may affect airline fares in too tenuous,
remote, or peripheral a manner” to be preempted. Id.
at 390 (cleaned up). For example, the ADA did not
deregulate reimbursement for air-related medical care
generally, 9 and PHI does not argue that the ADA
preempts the maximum fees States have set for
reimbursement of air ambulance services rendered to
customers covered by the federal Medicaid program. 10
To help courts determine whether a particular
state action falls on the preempted or non-preempted
side of this relatedness line, the U.S. Supreme Court
has developed the following test: state provisions that
“express[ly] reference” air carrier prices and establish
“binding requirements” are preempted. Id. at 388. But
the ADA preempts state provisions of general
9 The ADA did not displace preexisting federal Medicare and
Medicaid regulations that set air ambulance reimbursement
rates and prohibit balance billing. See Keefe ex rel. Keefe v.
Shalala, 71 F.3d 1060, 1062-63 (2d Cir. 1995).
10 See, e.g., 1 Admin. Code §§ 355.101(c), .8600(c)(1).
App-16
applicability only if they “have the forbidden
significant effect upon fares.” Id.
The Supreme Court has reiterated this test and
extended it to another similarly worded federal
preemption statute. Rowe v. N.H. Motor Transp. Ass’n,
552 U.S. 364, 370-71, 375 (2008). 11 And the Fifth
Circuit and federal courts nationwide have applied the
Supreme Court’s test consistently, including in cases
like this one involving state rules for reimbursement
of air ambulance services. Hodges v. Delta Airlines,
Inc., 44 F.3d 334, 336 (5th Cir. 1995) (en banc) (“Laws
of general applicability, even those consistent with
federal law, are preempted if they have the ‘forbidden
significant effect’ on rates . . . .”); see also, e.g., Air
Evac, 910 F.3d at 767; Bailey v. Rocky Mountain
Holdings, LLC, 889 F.3d 1259, 1271 (11th Cir. 2018);
EagleMed LLC v. Cox, 868 F.3d 893, 902 (10th Cir.
2017) (“[T]he court only needs to decide whether a
particular state law or claim has a ‘forbidden
significant economic effect on airline rates . . .’ when
the state law at issue does not ‘expressly refer to
airline rates . . .’ itself.”); Buck v. Am. Airlines, Inc.,
476 F.3d 29, 34-35 (1st Cir. 2007); Travel All Over the
11 Our dissenting colleagues suggest that Rowe broadens the
ADA preemption test to displace any state provisions that relate
to an air carrier’s price by “indirectly limit[ing] the amount that
[it] may charge for its services.” Post at ___ (Green, J.,
dissenting). But Rowe reaffirms that the ADA does not preempt
general state regulation unless it has “a ‘significant impact’ on
carrier rates, routes, or services.” 552 U.S. at 375 (quoting
Morales, 504 U.S. at 388).
App-17
World, Inc. v. Saudi Arabia, 73 F.3d 1423, 1433 (7th
Cir. 1996). 12
Here, Texas’s fair and reasonable standard for
reimbursement is generally applicable: it does not
reference air carrier prices. We therefore apply the
Supreme Court’s settled preemption test, asking
whether that standard has the forbidden significant
effect on PHI’s prices. Morales, 504 U.S. at 388.
B
On this record, we conclude PHI has not shown
that the fair and reasonable standard for third-party
reimbursement has a significant effect on its prices for
carrying injured customers by air. If we were
analyzing the prohibition on PHI billing its customers
(unchallenged here), it would be logical to expect that
prohibition to have a significant effect on PHI’s prices.
But it is not at all clear that adopting a reasonableness
standard for reimbursement by third parties, standing
alone, has a significant effect on the price of PHI’s
services to its customers. We recently explained in
Sabre Travel that “[i]ncreasing an airline’s cost does
not automatically lead to a corresponding increase in
airline ticket prices.” 567 S.W.3d at 738. The same is
true of limiting an air carrier’s reimbursement: PHI
must come forward with evidence proving that those
limits have a significant effect on price to obtain a
summary judgment of preemption.
12 The parties dispute whether the presumption against
preemption also comes into play in this express preemption case.
We need not reach that dispute because we conclude that the text
of the ADA’s express preemption clause as construed by the U.S.
Supreme Court does not preempt Texas’s general fair and
reasonable standard for reimbursement.
App-18
PHI disagrees, arguing that “price” as used in the
ADA’s preemption clause includes the amount a third
party may reimburse it for its services. That blanket
rule not only disregards PHI’s burden on summary
judgment, it distorts the meaning of “price” and would
expand the scope of ADA preemption dramatically,
leading to absurd results.
In 1994, the Legislature defined “price” in the
ADA to mean “a rate, fare, or charge.” 49 U.S.C.
§ 40102(a)(39). As dictionary definitions show, these
terms concern how much one charges or pays for a
good or service. 13 To the extent the terms are
concerned with who charges or pays a price, the
parties to the exchange are determined by the
transactional relationship. 14 Here, the parties to the
transaction are PHI and the injured customer it
transports by air ambulance.
E.g., Fare, MERRIAM-WEBSTER, https://www merriamwebster.com/dictionary/fare (last visited June 22, 2020) (“[T]he
price charged to transport a person.”); Price, BLACK’S LAW
DICTIONARY (11th ed. 2019) (“The amount of money or other
consideration asked for or given in exchange for something else;
the cost at which something is bought or sold.”); Rate, BLACK’S
LAW DICTIONARY (11th ed. 2019) (“An amount paid or charged for
a good or service.”); see also Rate, MERRIAM-WEBSTER,
https://www merriam-webster.com/dictionary/rate (last visited
June 22, 2020) (“[A] charge, payment, or price fixed according to
a ratio, scale, or standard . . . .”); Price, OXFORD DICTIONARY OF
ENGLISH (2017) (“[T]he amount of money expected, required, or
given in payment for something.”).
13
14
E.g., Fare, MERRIAM-WEBSTER, https://www.merriamwebster.com/dictionary/fare (last visited June 22, 2020) (“[T]he
price charged to transport a person.”); Price, AMERICAN HERITAGE
DICTIONARY (5th ed. 2020) (“The amount of money or goods, asked
for or given in exchange for something else.”).
App-19
PHI has no transactional relationship with a
third-party insurer, which simply receives PHI’s bill
for services already rendered to an injured customer
covered by the policy and determines how much it will
reimburse PHI on that customer’s behalf. Again,
evidence might show that the reimbursement rate has
a significant effect on the price of the air ambulance
service, but the reimbursement rate is not itself part
of the price PHI charges to transport customers, as
PHI contends.
The following example illustrates the results that
would follow from PHI’s blanket rule. The State Bar of
Texas—an administrative agency that is part of our
judicial branch 15—has a policy that it will reimburse
speakers at its continuing legal education courses for
“airline travel at coach rates,” but “such expenses
[must] be reasonable according to the usual cost of
products or services for which reimbursement is
requested as determined by similar reimbursement
requests of other participants, by practices applicable
to other public agencies and institutions of the State
of Texas, by other readily available reference
information, and by State Bar staff experience,” as
well as “location[] and other circumstances.” 16
Thousands of state agencies nationwide likely have
similar reasonableness standards for reimbursement
of airfares. Because this standard dictates the amount
15 Tex. Gov’t Code § 81.011(a).
16 STATE BAR OF TEXAS, BOARD OF DIRECTORS POLICY MANUAL
§ 7.03.08(A), (B), (C)(4) (Jan. 2020).
App-20
the State Bar will reimburse for air carrier services, it
would be preempted under PHI’s approach. 17
As the Supreme Court’s test instructs, we should
focus instead on the record of this case to determine
whether Texas’s fair and reasonable reimbursement
standard for workers’ compensation insurers has a
significant effect on air ambulance prices. PHI does
take note of the record, observing that the fair and
reasonable reimbursement amounts determined by
the trial court and some administrative actors were
less than the full amount it billed. This observation
misses the mark for both legal and factual reasons.
Legally, the full amount billed for air ambulance
services is not the starting point for measuring
significant effect. As two federal circuits have
explained, the ADA does not guarantee “any payment
of air-ambulance claims whatsoever,” EagleMed, 868
F.3d at 906, much less payment of “whatever an air
carrier may demand.” Air Evac, 910 F.3d at 769.
Moreover, the billed amount generally is not the
product of a transactional relationship, as PHI’s
injured customer has not agreed to pay it. See Ferrell
v. Air EVAC EMS, Inc., 900 F.3d 602, 608-10 (8th Cir.
2018) (discussing injured customer’s argument that he
did not assent to price before his transport). Absent an
agreement on price, the law implies a fair or
17 Although the reimbursement goes to the airline customer in
the State Bar example rather than directly to the air carrier as
here, the economic effect is the same: each standard limits the
amount available from a third party to pay for the carrier’s
services. We also note that, as explained in Part IV, PHI’s view
of preemption would prevent the State Bar from having any
reimbursement policy at all for airline travel.
App-21
reasonable price: exactly the same standard Texas has
adopted for determining reimbursement. See id. at
608-10 (explaining that result of air ambulance
provider’s suit against customer who did not agree to
pay billed amount would be to recover fair or
reasonable value of services provided); Bendalin v.
Delgado, 406 S.W.2d 897, 900 (Tex. 1966) (discussing
rule that when parties fail to specify price, courts
presume “that a reasonable price was intended”).
Nor do the facts bear out PHI’s position that it
would recover significantly less for its services under
the fair and reasonable reimbursement standard. The
Division concluded that the full amount billed by PHI
was fair and reasonable. The ALJ disagreed. Finding
that the average amount paid to PHI for services in
Texas during the relevant period was 149% of the
reimbursement amount under federal Medicare
regulations, the ALJ held this figure was a fair and
reasonable amount for workers’ compensation
insurers to reimburse PHI for its services to covered
employees. The trial court reduced this figure to 125%
of Medicare, which was the price that PHI agreed to
charge the one customer with which it had a contract.
The court of appeals did not reach this issue.
Thus, under the fair and reasonable standard, it
is possible that the amount of PHI’s reimbursement
for carrying covered workers could be either (1) the
full amount PHI billed, (2) the average price PHI is
paid for air ambulance services, or (3) a price PHI
bargained for in the market. These possibilities show
that the fair and reasonable standard does not have a
significant effect on PHI’s prices. Under Morales,
App-22
therefore, the ADA does not preempt that state
reimbursement standard.
C
PHI offers little authority to support its position
that a State’s general reasonableness standard for
workers’ compensation reimbursements has a
significant effect on air ambulance prices and thus is
preempted by the ADA. Although some federal circuits
have found preemption of workers’ compensation rules
regarding air ambulance services in other States,
those cases are different in three key respects: (1) the
state rules at issue expressly referenced air
ambulance prices, triggering a different part of the
Morales preemption test; (2) the rules established a
maximum fee cap and thus significantly affected air
ambulance prices; or (3) the air ambulance service
challenged a prohibition on billing its customer
directly. The reasoning employed by those courts
supports a holding of no preemption here.
For example, PHI relies heavily on the Tenth
Circuit’s decision in EagleMed v. Cox. There, the
Wyoming Workers’ Compensation Division set a rate
schedule under which it reimbursed a maximum
amount of “$3,900.66 plus $27.47 per statute mile” for
air ambulance services. 868 F.3d at 898. EagleMed
challenged this schedule as well as a statutory
prohibition on directly “billing the injured employee
for the expenses incurred.” Id. at 900. The court held
the ADA preempted these provisions because they
“expressly establish a mandatory fixed maximum rate
that will be paid by the State for air-ambulance
services,” and thus there was no need to apply the
Morales significant-effect standard. Id. at 902.
App-23
The challenge to direct billing was critical to the
court’s analysis. It reserved judgment on whether
preemption would apply if Wyoming gave air
ambulance
companies
an
option
to
seek
reimbursement at scheduled rates or to pursue a claim
against its customer directly. Id. at 901. And it
concluded that if the Wyoming statute were read “to
prevent air-ambulance companies from seeking
[payment] from the workers themselves,” it “would be
illegally regulating air-ambulance rates by preventing
any recovery from air-ambulance passengers, and the
proper remedy would seem to be the preemption of this
statute.” Id. at 906 n.3.
This analysis exposes a critical flaw in PHI’s
preemption argument. If any part of the Texas
workers’ compensation reimbursement scheme
significantly affects air ambulance prices, it is the
prohibition on PHI billing its customer for the price of
his or her flight, not reasonableness standards for
third-party reimbursement. 18 PHI cannot obtain
preemption of the latter by strategically declining to
challenge the former in this Court. There are larger
principles of federalism at stake here. Whether the
Supremacy Clause displaces state law regulating a
subject within its reserved powers should be decided
by considering the state statutory and regulatory
scheme as a whole, not just the particular provision
that an individual litigant prefers to challenge.
The Fourth Circuit reached a similar conclusion
in Air Evac EMS, Inc. v. Cheatham regarding West
18 In addition, Texas’s fact-driven standard of fair and
reasonable reimbursement differs from the fixed maximum fee
cap at issue in Eagle Med, as we discuss further below.
App-24
Virginia’s reimbursement scheme. The state adopted
a fee schedule of reimbursement rates for air
ambulance services, backed up by statutes providing
that those rates “are the maximum allowable
recovery” and customers “cannot be billed directly.”
910 F.3d at 758. The court concluded that these
provisions were related to air ambulance prices and
thus preempted because they “directly reference air
ambulance payments,” establish “maximum amounts
that the state will pay directly to air-ambulance
providers, and limit the ability of those providers to
seek recovery from anyone else.” Id. at 767 (citations
omitted).
As in EagleMed, however, the Air Evac court did
not address “whether the fee schedule could be
maintained without either the reimbursement caps
[fixing a maximum allowable recovery] or [the
customer] balance-billing provisions.” Id. at 769 n.3.
That is the situation presented here, as Texas does not
have fixed maximum reimbursement limits and PHI
is not challenging the balance-billing prohibition.
Indeed, the Texas system is even less likely to impact
price, as it uses a reasonableness standard—not a fee
schedule—to determine reimbursement for air
ambulance services.
Finally, the Eleventh Circuit’s decision in Bailey
v. Rocky Mountain Holdings is instructive because it
identifies Florida’s “balance billing provision” as the
“feature” of the state scheme that “has a significant
effect on air carrier prices.” 889 F.3d at 1270. There,
the court upheld an ADA preemption challenge to part
of Florida’s no-fault auto insurance law regarding air
ambulance services. That law allowed the insured to
App-25
choose one of two methods for determining
reimbursement: (1) the insurer would reimburse 80%
of reasonable expenses for medically necessary
services, and the provider could bill the insured for the
remainder of the reasonable fee; or (2) the insurer
would reimburse 80% of the fee listed in the Medicare
fee schedule, and the provider generally could not
balance bill the insured. Id. at 1262-63. The insured’s
policy elected that reimbursement would be paid
according to the second method, and the insurer
accordingly reimbursed the air ambulance provider an
amount less than its reasonable charges. Id. at 1263.
The court held this second method had the
“forbidden significant effect” on air carrier prices
because “the balance billing provision . . . reduces as a
matter of law the contract price of [air carrier] services
to [insured] patients,” limiting the provider to a
scheduled maximum fee that was less than a
reasonable fee. Id. at 1270-71. Texas’s fact-driven
standard—which requires insurers to pay 100% of fair
and reasonable charges—has no such effect, and PHI
is not challenging the balance-billing prohibition.
In sum, these cases show that PHI’s challenge is
misdirected. Each case supports our conclusion that
the ADA does not preempt the Texas laws and
regulations requiring third-party insurers to
reimburse PHI a fair and reasonable amount for
services rendered to covered workers.
IV
If the ADA did preempt these reimbursement
provisions, PHI contends it is entitled to an order
requiring the insurers to reimburse its billed charges
fully under state law. The court of appeals appeared
App-26
to agree with PHI, concluding that “the specific ratesetting provisions at issue” could be severed from the
overall Texas reimbursement scheme. 549 S.W.3d at
812 n.10.
We disagree with the court of appeals for two
reasons. First, if ADA preemption applies, neither
state nor federal law provides for full reimbursement
of air carrier bills—or for any reimbursement at all.
Second, the effect of federal preemption cannot be that
States must provide full reimbursement, as that
outcome would violate the Tenth Amendment. For
these reasons, the result of ADA preemption here
would not be full reimbursement—it would be no
reimbursement.
A
How much of Texas reimbursement law would
ADA preemption displace? Under PHI’s preemption
analysis, the ADA would override all state
reimbursement law as applied to air ambulance
services. PHI maintains that the amount the insurer
will pay for air ambulance services relates to the price
of an air carrier, and therefore a reimbursement
scheme dictating that amount is preempted. But if a
state standard requiring reasonable third-party
reimbursement is “related to” air carrier prices, 49
U.S.C. § 41713(b)(1), so is a standard requiring any
other amount of reimbursement—including full
reimbursement.
A full-reimbursement standard could not be
spared preemption on the theory that it is consistent
with the federal scheme. “Nothing in the language of
§ [41713(b)(1)] suggests that its ‘relating to’ preemption is limited to inconsistent state regulation.”
App-27
Morales, 504 U.S. at 386-87. Rather, the ADA’s “preemption provision . . . displaces all state laws that fall
within its sphere, even including state laws that are
consistent
with
[the
ADA’s]
substantive
requirements.” Id. at 387; see also Rowe, 552 U.S. at
370 (“[I]n respect to pre-emption [under such a
provision], it makes no difference whether a state law
is ‘consistent’ or ‘inconsistent’ with federal
regulation.”); Hodges, 44 F.3d at 336. Given the
comprehensive scope of ADA preemption, the court of
appeals was incorrect to indicate that portions of the
Texas reimbursement scheme could be saved by
severance.
Put differently, 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 U.S. Supreme Court rejected that
very argument in Dan’s City Used Cars. 569 U.S. at
265. There, a towing company relied on New
Hampshire law in disposing of a car for nonpayment
of towing and storage fees. Id. at 255. The car’s owner
alleged the company did not comply with the law’s
requirements for disposal and application of proceeds,
and he sued for compensation. Id. at 258-59. The
company contended that a preemption clause similar
to the ADA’s blocked the owner’s claims because they
“related to” the “service of a[] motor carrier . . . with
respect to the transportation of property.” Id. at 26466 (citing 49 U.S.C. § 14501(c)(1)).
The Supreme Court disagreed, explaining that “if
such state-law claims are preempted, no law would
govern resolution of a [disposal dispute] or afford a
App-28
remedy for wrongful disposal,” as “[f]ederal law does
not speak to these issues.” Id. at 265. The company’s
preemption position would eliminate not only the
owner’s remedy but also “the sole legal authorization
for a towing company’s disposal [of vehicles] that go
unclaimed. No such design can be attributed to a
rational Congress.” Id. “In sum,” the Court said, the
company “cannot have it both ways. It cannot rely on
[the state] regulatory framework as authorization for
[disposal] of [the owner’s] car, yet argue that [the
owner’s] claims, invoking the same state-law regime,
are preempted.” Id.
Similarly here, if the ADA preempts a state
reimbursement scheme dictating the amount an
insurer will reimburse, it also preempts the scheme’s
requirement that insurers provide reimbursement. 19
Nor can PHI rely on federal law to compel
reimbursement, as courts agree that “[f]ederal law
establishes no duty for states to pay”—or require
insurers to pay—”the air-ambulance claims of injured
workers who are covered by state workers’
compensation statutes.” EagleMed, 868 F.3d at 906
(noting federal law lacks requirement “to make any
payment . . . whatsoever, much less payment at
whatever rates [air ambulance carriers] choose to
charge”); accord Air Evac, 910 F.3d at 769. In
particular, the Tenth Circuit held in EagleMed that
the district court erred in “placing an affirmative duty
19 The workers’ compensation insurance policies do not
independently require reimbursement, as they rely on the state
statutory and regulatory requirements PHI claims are
preempted to define the insurers’ contractual reimbursement
obligations.
App-29
on state officials to reimburse in full all air-ambulance
claims” because “any such possible duty would exist as
a creation only of state, not federal, law.” 868 F.3d at
906. There is simply no authority for the notion that
Congress, in deregulating the airline industry, was
regulating the terms of state workers’ compensation
insurance policies.
In addition, like the company’s contention in
Dan’s City, PHI’s preemption position would
irrationally leave the parties without any governing
law or available remedy. As decisions of this Court and
the U.S. Supreme Court recognize, federal airline
regulators and federal courts are neither authorized
nor equipped to take the place of state regulators and
courts in handling issues regarding private insurers’
reimbursement of air ambulances for their services to
covered workers. “When Congress dismantled [the
federal airline regulatory] regime, . . . [it] indicated no
intention to establish, simultaneously, a new
administrative process for DOT adjudication of
private contract disputes.” Am. Airlines, Inc. v.
Wolens, 513 U.S. 219, 232 (1995). “Nor is it plausible
that Congress meant to channel into federal courts the
business of resolving, pursuant to judicially fashioned
federal common law, the range of contract claims
relating to airline rates, routes, or services.” Id.
In sum, the parties “lack . . . any vehicle for
resolving” disputes over reimbursement “other than
state court lawsuits” decided under state law. Cont’l
Airlines, Inc. v. Kiefer, 920 S.W.2d 274, 280 (Tex.
1996). If that law is preempted, then there is no
requirement for reimbursement at all. The court of
appeals’ suggestion that limits on reimbursement are
App-30
severable—allowing PHI to obtain reimbursement of
its full billed charges—cannot be reconciled with the
scope of ADA preemption as defined by the Supreme
Court.
As the insurers point out, 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, 20 the legislature is
considering either expanding Medicaid in order to
control such charges or making injured workers
responsible for the balance of their bills. 21 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.
B
Finally, PHI cannot be correct that the effect of
ADA preemption is to compel full reimbursement
under state law, as that is not a permissible result of
preemption in our federal system. If the Federal
Government does not like state regulation of a subject
that also falls within Congress’s enumerated powers,
the Supremacy Clause allows it to override that
20 See Air Methods/Rocky Mtn. Holdings, LLC v. State ex rel.
Dep’t of Workforce Servs., 432 P.2d 476, 485-87 (Wyo. 2018).
21 See Office of Injured Employee Counsel’s Amicus Curiae
Brief in Support of Petitioners at 17-18.
App-31
regulation with duly enacted laws of its own. See U.S.
CONST. art. VI, para. 2. But nowhere in the
Constitution did the States give the Federal
Government the power to order them to change their
own laws, as the Tenth Amendment confirms. See U.S.
CONST. amend. X (“The powers not delegated to the
United States by the Constitution, nor prohibited by it
to the States, are reserved to the States respectively,
or to the people.”).
“The anticommandeering doctrine . . . represents
the recognition of this limit on congressional
authority.” Murphy, 138 S. Ct. at 1476. The doctrine
acknowledges that the “Constitution . . . confers upon
Congress the power to regulate individuals, not
States.” New York v. United States, 505 U.S. 144, 166
(1992). “Where a federal interest is sufficiently strong
to cause Congress to legislate, it must do so
directly . . . .” Id. at 178. “Congress may not simply
commandeer the legislative processes of the States by
directly compelling them to enact and enforce a federal
regulatory program.” Id. at 161 (cleaned up). Thus,
“even where Congress has the authority under the
Constitution to pass laws requiring or prohibiting
certain acts, it lacks the power directly to compel the
States to require or prohibit those acts.” Id.
As the anticommandeering doctrine shows, courts
deciding preemption challenges may not rewrite
preempted state law so that it conforms to federal law.
Here, state law requires reasonable reimbursement,
and the federal ADA contains no reimbursement
requirement. Contrary to PHI’s contention, the result
of ADA preemption cannot be to grant it full
reimbursement under state law. That result would
App-32
amount to an illegal end run around the constitutional
anticommandeering doctrine. Thus, even if PHI’s
preemption position were otherwise correct, it cannot
constitutionally obtain the relief it seeks.
V
For these reasons, we hold PHI has not shown
that Texas’s fair and reasonable reimbursement
standard for air ambulance services has a significant
effect on its prices, and therefore the ADA does not
preempt that standard. And even if ADA preemption
applied, it would displace the very reimbursement
requirement on which PHI relies. We therefore
reverse the court of appeals’ judgment, reinstate the
portion of the trial court’s summary judgment
declaring no preemption, and remand for the court of
appeals to address other issues it did not reach. See
Tex. R. App. P. 60.2(c), (d).
J. Brett Busby
Justice
OPINION DELIVERED: June 26, 2020
App-33
JUSTICE BLAND, joined by JUSTICE LEHRMANN,
JUSTICE BOYD, and JUSTICE BLACKLOCK, concurring.
The Texas Workers’ Compensation Act “directly
regulate[s] the ‘business of insurance’ by prescribing
the terms of the insurance contract” and the parties’
performance of those terms. 1 The Act obligates
insurance carriers to directly remit payments to policy
claimants according to state-prescribed insurance
policies. This dispute centers on the Act’s mandated
claim process for one such policy claimant—an airambulance service.
The McCarran-Ferguson Act is a federal law that
insulates state insurance laws from federal
preemption. Because the Texas Legislature enacted
the Workers’ Compensation Act “for the purpose of
regulating the business of insurance,” 2 McCarranFerguson saves the challenged provisions from federal
preemption. The court of appeals concluded otherwise.
Accordingly, I concur in reversing its judgment.
See U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 502-03
(1993); see also Fredericksburg Care Co. v. Perez, 461 S.W.3d 513,
522 (Tex. 2015) (“Examples of practices that fall within the scope
of [the business of insurance] include . . . . the writing of
insurance contracts and the actual performance of those
contracts.”).
2 15 U.S.C. § 1012(b). See Tex. Lab. Code § 402.021(a)(3)
(providing that one of “the basic goals of the workers’
compensation system” is that “each injured employee shall have
access to prompt, high-quality medical care within the
framework established by this subtitle”), (b)(8) (stating that
system participants “include insurance carriers” and “health care
providers,” which must abide by its laws and regulations).
1
App-34
I
McCarran-Ferguson saves from preemption any
state law enacted “for the purpose of regulating the
business of insurance”:
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance, or
which imposes a fee or tax upon such
business, unless such Act specifically relates
to the business of insurance: Provided, That
after June 30, 1948, the Act of July 2, 1890,
as amended, known as the Sherman Act, and
the Act of October 15, 1914, as amended,
known as the Clayton Act, and the Act of
September 26, 1914, known as the Federal
Trade Commission Act, as amended, shall be
applicable to the business of insurance to the
extent that such business is not regulated by
State law. 3
Congress enacted McCarran-Ferguson to address
the concern that federal preemption had made
“inroads . . . on the tradition of state regulation of
insurance.” 4 It “was an attempt . . . to assure that the
3 15 U.S.C. § 1012(b). McCarran-Ferguson is divided into two
clauses—the second clause deals with antitrust matters and is
relevant here only to the extent that it informs our reading of the
first clause. See Fredericksburg, 461 S.W.3d at 518.
4 SEC v. Nat’l Sec., Inc., 393 U.S. 453, 458 (1969). McCarranFerguson was enacted after the Supreme Court’s decision in
United States v. South-Eastern Underwriters Ass’n, in which the
Court held that Congress had power under the Commerce Clause
to regulate insurance transactions stretching across state lines.
App-35
activities of insurance companies in dealing with their
policyholders would remain subject to state
regulation.” 5 As the Supreme Court has recognized,
“Congress’ purpose was broadly to give support to the
existing and future state systems for regulating and
taxing the business of insurance.” 6 Thus, McCarranFerguson is a “reverse-preemption” statute. 7
McCarran-Ferguson
precludes
preemptive
application of a federal statute if “(1) the federal
statute does not specifically relate to the ‘business of
insurance,’ (2) the state law was enacted for the
‘purpose of regulating the business of insurance,’ and
(3) the federal statute operates to ‘invalidate, impair,
or supersede’ the state law.” 8 Only the second element
is in dispute in this case. Thus, we examine whether
322 U.S. 533, 552-53 (1944). “Prior to that decision, it had been
assumed that ‘[i]ssuing a policy of insurance [was] not a
transaction of commerce,’ subject to federal regulation.” Fabe,
508 U.S. at 499 (first alteration in original) (citation omitted).
Before South-Eastern Underwriters, “the States enjoyed a
virtually exclusive domain over the insurance industry.” Id.
(quoting St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531,
539 (1978)).
5 Nat’l Sec., Inc., 393 U.S. at 459; see Fabe, 508 U.S. at 500
(“Congress moved quickly to restore the supremacy of the States
in the realm of insurance regulation.”).
6 Nat’l Sec., Inc., 393 U.S. at 458 (quoting Prudential Ins. Co. v.
Benjamin, 328 U.S. 408, 429 (1946)); see Fabe, 508 U.S. at 505
(“[T]he first clause of § 2(b) was intended to further Congress’
primary objective of granting the States broad regulatory
authority over the business of insurance.”).
7 Ante at __; see Safety Nat’l Cas. Corp. v. Certain Underwriters
at Lloyd’s, London, 543 F.3d 744, 748 (5th Cir. 2008).
8 Fredericksburg, 461 S.W.3d at 518-19 (quoting Munich Am.
Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir. 1998)).
App-36
the Texas Legislature enacted the Texas Workers’
Compensation Act “for the purpose of regulating the
business of insurance,” such that McCarran-Ferguson
protects its insurance-reimbursement provisions from
federal encroachment.
II
A
“[D]etermining a state’s purpose in enacting a law
is fundamental to . . . [McCarran-Ferguson’s]
inquiry.” 9 Under our “well-established rules for
discerning a statute’s purpose, . . . ‘[w]e determine
legislative intent from the entire act and not just
isolated portions.’” 10 Thus, we consider the Texas
Workers’ Compensation Act as a whole, together with
the position and role of the challenged provisions
found within it. 11
In SEC v. National Securities, Inc., the Supreme
Court recognized that state laws that govern “the type
9 Id. at 520.
10 Id. (alteration in original) (quoting 20801, Inc. v. Parker, 249
S.W.3d 392, 396 (Tex. 2008)).
11 See Tex. Lab. Code § 413.011 (reimbursement guidelines and
protocols); 28 Tex. Admin. Code §§ 134.1 (medical
reimbursement), .203 (medical fee guideline for professional
services); Fredericksburg, 461 S.W.3d at 525 (“Because the test
to determine whether laws are enacted for the purpose of
regulating the business of insurance is broad, it is possible that a
law, in its entirety, would fail to qualify for [McCarranFerguson’s] exemption from preemption, but a specific statutory
provision could qualify by ‘possess[ing] the end, intention, or aim
of adjusting, managing, or controlling the business of insurance.’”
(second alteration in original) (quoting U.S. Dep’t of Treasury v.
Fabe, 508 U.S. 491, 505 (1993))).
App-37
of policy” together with “its reliability, interpretation,
and enforcement” constitute “core” insurance
activities:
Congress was concerned with the type of state
regulation that centers around the contract of
insurance. . . . The relationship between
insurer and insured, the type of policy which
c[an] be issued, its reliability, interpretation,
and enforcement—these [are] the core of the
“business of insurance.” Undoubtedly, other
activities of insurance companies relate so
closely to their status as reliable insurers that
they to[o] must be placed in the same class. 12
Thus, “[s]tatutes aimed at protecting or regulating
this relationship, directly or indirectly, are laws
regulating the ‘business of insurance.’” 13
United States Department of Treasury v. Fabe is
the key case that examines McCarran-Ferguson’s first
clause, which is “intended to further Congress’
primary objective of granting the States broad
regulatory authority over the business of insurance.” 14
In Fabe, the Court considered whether an Ohio claimpriority statute governing bankrupt insurers’
obligations was enacted “for the purpose of regulating
the business of insurance.” 15 The Court held that it
12 393 U.S. 453, 460 (1969).
13 Id.
14 508 U.S. at 505.
15 Id. at 493, 504 (“[W]e must decide whether a state statute
establishing the priority of creditors’ claims in a proceeding to
liquidate an insolvent insurance company is a law enacted ‘for
the purpose of regulating the business of insurance,’ within the
meaning of § 2(b) of the McCarran-Ferguson Act.”). The Supreme
App-38
was: the statute “escape[d] pre-emption” because it
was “‘aimed at protecting or regulating’ the
performance of an insurance contract.” 16 The Court
emphasized that Congress, in enacting McCarranFerguson, made clear its “mission” to protect
“continued regulation” by the states. 17 It observed
that, even though “the Ohio statute does not directly
regulate the ‘business of insurance’ by prescribing the
terms of the insurance contract or by setting the rate
charged by the insurance company,” the “business of
insurance” is not “confined entirely to the writing of
insurance
contracts,
as
opposed
to
their
18
performance.” Accordingly, the Court concluded that
“[t]here can be no doubt that the actual performance
of an insurance contract falls within the ‘business of
insurance.’” 19 McCarran-Ferguson thus shields state
laws that prescribe either the terms or the
performance of insurance contracts.
The petitioners here—the Texas Division of
Workers’ Compensation and participating workers’
compensation insurers—have a stronger case than the
Ohio respondents in Fabe.
B
The Texas Workers’ Compensation Act is a
comprehensive regulatory structure for insurance
carriers, employers, employees, health care providers,
Court had only once before “had occasion to construe this phrase,”
in National Securities. Id. at 501.
16 Id. at 493, 505 (quoting Nat’l Sec., Inc., 393 U.S. at 460).
17 Id. at 500 (quoting 15 U.S.C. § 1011).
18 Id. at 502-03.
19 Id. at 503.
App-39
and others who claim benefits under a workers’
compensation policy. 20 “Insurance company” is a
defined term. Under the Act, it “means a person
authorized and admitted by the Texas Department of
Insurance to do insurance business in this state under
a certificate of authority that includes authorization to
write workers’ compensation insurance.” 21 As we have
recognized, “[i]n creating the Texas Workers’
Compensation Act, the Legislature carefully balanced
competing interests—of employees subject to the risk
of injury, employers, and insurance carriers—in an
attempt to design a viable compensation system, all
within
constitutional
limitations.” 22 Workers’
Under the Act, an “insurance carrier” is “an insurance
company.” Tex. Lab. Code § 401.011(27).
20
21 Id. § 401.011(28).
22 In re Poly-Am., L.P., 262 S.W.3d 337, 352 (Tex. 2008) (orig.
proceeding); see also Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d
430, 448 (Tex. 2012) (“The 1989 reforms were intended to reduce
the costs to employers and provide greater benefits to injured
employees in a more timely fashion. Achieving those goals
required, among other changes, reducing the disparity of
bargaining power between the employee and insurer . . . .”). We
further explained in In re Poly-America:
The Texas Legislature enacted the original Workers’
Compensation Act in 1913 in response to the needs of
workers who, despite a growing incidence of industrial
accidents, were increasingly being denied recovery. In
order to ensure compensation for injured employees
while protecting employers from the costs of litigation,
the Legislature provided a mechanism by which
workers could recover from subscribing employers
without regard to the workers’ own negligence, while
limiting the employers’ exposure to uncertain, possibly
high damage awards permitted under the common
law.
App-40
compensation policies in Texas are, inherently,
insurance; they are issued by private carriers, and
those carriers in turn provide state-mandated
coverage. Thus, “[t]he contract between a
compensation carrier and an employee creates the
same type of special relationship that arises under
other insurance contracts” 23 And “[r]ecovery of
workers’ compensation benefits is the exclusive
remedy of an employee covered by workers’
compensation insurance coverage.” 24
The Legislature has authorized the Texas
Department of Insurance to oversee the workers’
compensation system. 25 “Among the[] requirements [of
the Texas Workers’ Compensation Act] is the
legislative directive that only workers’ compensation
policies approved by the Texas Department of
Insurance are available in Texas.” 26 A mainstay of the
262 S.W.3d at 350 (citations omitted).
23 Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212 (Tex. 1988),
overruled on other grounds by Ruttiger, 381 S.W.3d at 433.
24 Tex. Lab. Code § 408.001.
25 Id. § 402.001(a). “The division of workers’ compensation is
established as a division within the Texas Department of
Insurance to administer and operate the workers’ compensation
system of this state as provided by this title.” Id. § 402.001(b).
26 Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d
653, 658 (Tex. 2008). These state-approved policies are contracts
between private insurance companies and employers; the
employees of subscribing employers are the beneficiaries, and
health care providers claim direct benefits under the policy. See
Tex. Lab. Code §§ 406.003, .051, 408.001. Though optional, the
Act incentivizes employers to obtain coverage. Id. §§ 406.004
(requiring employers who do not obtain coverage to notify the
Division), .007 (requiring notice of termination of coverage), .033
(forbidding an employer from using certain defenses in an action
App-41
Act is that insurance carriers are “liable for
compensation for an employee’s injury without regard
to fault or negligence,” including state-prescribed
medical benefits for covered employees who are
injured on the job. 27 The Division regularly reviews
insurers’ records “to ensure compliance” with the
Workers’ Compensation Act and the commissioner’s
rules. 28 As part of this state-mandated system of
insurance, insurance carriers and health care
providers claiming reimbursement are heavily
regulated. 29 By dictating the benefits that these
brought by an employee not covered by workers’ compensation
insurance). Similarly, though employees may opt out of coverage,
it is disfavored. See Port Elevator-Brownsville, L.L.C. v. Casados,
358 S.W.3d 238, 241 (Tex. 2012); Tex. Lab. Code § 406.034(b).
27 Tex. Lab. Code § 406.031(a).
28 Id. § 414.004(a); see
also id. § 414.002(a)(3) (“The division
shall monitor for compliance with commissioner rules, this
subtitle, and other laws relating to workers’ compensation and
the conduct of persons subject to this subtitle. Persons to be
monitored include . . . insurance carriers.”).
See, e.g., id. §§ 402.021(b)(8) (“It is the intent of the
legislature that . . . the workers’ compensation system of this
state must . . . effectively educate and clearly inform each person
who participates in the system as a claimant, employer,
insurance carrier, health care provider, or other participant of
the person’s rights and responsibilities under the system and how
to appropriately interact within the system.”), 408.021(d) (“An
insurance carrier’s liability for medical benefits may not be
limited or terminated by agreement or settlement.”), 408.024
(“[T]he commissioner may relieve an insurance carrier of liability
for health care that is furnished by a health care provider or
another person selected in a manner inconsistent with the
requirements of this subchapter.”), 415.002-.003 (enumerating
administrative violations by an “insurance carrier” and a “health
care provider”).
29
App-42
insurance policies must afford, the Legislature
regulates insurance policy terms. Participating
insurance companies thus “contract to secure an
employer’s liability and obligations and to pay
compensation by issuing a workers’ compensation
insurance policy.” 30 The “contract for coverage must be
written on a policy and endorsements approved by the
Texas Department of Insurance.” 31 Accordingly, “[t]he
terms of worker’s compensation insurance policies
include provisions of the worker’s compensation
statutes.” 32
Like the Workers’ Compensation Act as a whole,
the specific provisions challenged in this case regulate
the business of insurance. These payment provisions
require an insurance carrier to remit an amount
determined by the Division under the coverage
afforded. 33 An insurance carrier must remit this
payment directly to a claimant like PHI Air Medical,
LLC, the air-ambulance service provider in this case. 34
30 Id. § 406.051(a).
31 Id. § 406.051(b); see also Tex. Ins. Code § 2052.002(a) (“The
commissioner shall prescribe standard policy forms and a
uniform policy for workers’ compensation insurance.”).
32 Transcon. Ins. Co. v. Crump, 330 S.W.3d 211, 233 (Tex. 2010)
(Johnson, J., concurring). State law may itself form a term of the
insurance policy, incorporated by reference. Am. Bankers Ins. Co.
of Fla. v. Inman, 436 F.3d 490, 494 (5th Cir. 2006).
See Tex. Lab. Code § 413.011; 28 Tex. Admin. Code
§§ 134.1(a), (e)-(f), .203.
33
34 Tex. Lab. Code §§ 408.027(a) (“A health care provider shall
submit a claim for payment to the insurance carrier . . . .”),
413.042 (“A health care provider may not pursue a private claim
against a workers’ compensation claimant for all or part of the
cost of a health care service provided to the claimant by the
App-43
As PHI Air concedes, the Workers’ Compensation
Act “governs payment for claims for health care
providers—such as PHI—who provide services to
workers’ compensation patients.” PHI Air has no
contract with any workers’ compensation insurance
carrier. Rather, under the Act, PHI Air submits
invoices to insurance carriers directly as claims on
insurance policies. To facilitate uniform payments, the
Division has adopted reimbursement rates. If no
guideline exists for a particular service, the insurance
carrier must reimburse the provider the Division’s
determination of a “fair and reasonable amount,”
consistent with section 413.011 of the Texas Labor
Code. 35 Read separately and together, these
provider unless: (1) the injury is finally adjudicated not
compensable . . . ; or (2) the employee violates Section 408.22
relating to the selection of a doctor . . . .”).
35 See ante at __. Section 413.011 directs the commissioner to
“adopt health care reimbursement policies and guidelines that
reflect the standardized reimbursement structures found in other
health care delivery systems.” Tex. Lab. Code § 413.011(a). It
provides that the “[f]ee guidelines must be fair and reasonable
and designed to ensure the quality of medical care and to achieve
effective medical cost control.” Id. § 413.011(d). The rules specify
that “‘[m]aximum allowable reimbursement’ . . . is defined as the
maximum amount payable to a health care provider in the
absence of a contractual fee arrangement that is consistent with
§ 413.011 of the Labor Code, and Division rules.” 28 Tex. Admin.
Code § 134.1(a). Further, “fair and reasonable reimbursement”
must:
(1) be consistent with the criteria of Labor Code
§ 413.011;
(2) ensure that similar procedures provided in similar
circumstances receive similar reimbursement; and
App-44
provisions prescribe the benefits an insurance carrier
must afford to a health-care-provider claimant, like
PHI Air, which invokes the policy as a third-party
beneficiary of the insurance contract. 36
The Workers’ Compensation Act thus is the
foundation for every workers’ compensation insurance
policy issued in Texas. 37 Laws that “directly regulate
(3) be based on nationally recognized published
studies, published Division medical dispute decisions,
and/or values assigned for services involving similar
work and resource commitments, if available.
Id. § 134.1(f).
36 Ante at __ (“Each insurance policy incorporates these laws
and regulations, obligating the insurer to pay the benefits they
require.”); see also TEX. DEP’T OF INS., TEXAS WORKERS’
COMPENSATION AND EMPLOYERS’ LIABILITY MANUAL, WORKERS’
COMPENSATION & EMPLOYERS LIABILITY INSURANCE POLICY:
WC 00 00 00 B (2d reprt. 2011), https://www.tdi.texas.gov/wc/
regulation/documents/endform.pdf. The standard policy form
states: “We will pay promptly when due the benefits required of
you by the workers[’] compensation law.” Id. at Sec. B. It further
provides: “This insurance conforms to the parts of the workers[’]
compensation law that apply to . . . benefits payable by this
insurance.” Id. at Sec. H.
37 See Tex. Lab. Code § 406.051(b) (“The contract for coverage
must be written on a policy and endorsements approved by the
Texas Department of Insurance.”); Fairfield Ins. Co. v. Stephens
Martin Paving, LP, 246 S.W.3d 653, 658 (Tex. 2008) (“[I]f the
employer purchases workers’ compensation insurance, the
employer must adhere to the statutory and regulatory guidelines
of the Workers’ Compensation Act. Among these requirements is
the legislative directive that only workers’ compensation policies
approved by the Texas Department of Insurance are available in
Texas.”); see also Wausau Underwriters Ins. Co. v. Wedel, 557
S.W.3d 554, 557 (Tex. 2018) (noting that the Department of
Insurance has “promulgated and mandated [endorsements] for
use in Texas workers’-compensation policies” and opining that
App-45
the ‘business of insurance’” include those that
“prescrib[e] the terms of the insurance contract.” 38
Through its provisions, the Act prescribes payment
terms under workers’ compensation policies, without
reference to any separate contractual agreement. The
reimbursement amount, and the formula for
determining that amount, is part of every policy; it is
the payment responsibility assumed by a private
insurance company in the insurance contract. Unlike
some other states, the Texas workers’ compensation
system
operates
through
private
insurance
companies—there is no Texas workers’ compensation
without private insurance. 39 The “actual performance
of an insurance contract” includes paying benefits
under the policy, which is “an essential part of the
‘business of insurance.’” 40
the waiver at issue accordingly was “not freely negotiated by the
parties” and “no ordinary policy”).
38 U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 502-03 (1993).
39 Ante at __ (“In many States, a government entity acts as the
employers’ insurer, paying benefits to injured workers and
reimbursing certain expenses they have incurred. In Texas,
however, employers contract with private insurance carriers to
perform these functions, and state laws and regulations define
the insurers’ obligations to reimburse health care providers for
their services to covered workers.” (citing Tex. Lab. Code
§ 406.051)); see also Tex. Lab. Code §§ 406.002 (“Except for public
employers and as otherwise provided by law, an employer may
elect to obtain workers’ compensation insurance coverage.”), .003
(“An employer may obtain workers’ compensation insurance
coverage through a licensed insurance company or through selfinsurance as provided by this subtitle.”).
40 Fabe, 508 U.S. at 505.
App-46
Because Texas relies on private insurers, it is
different from states in which a state fund pays out
benefits. In EagleMed LLC v. Cox, the Tenth Circuit
held that McCarran-Ferguson did not shield
Wyoming’s workers’ compensation laws from
preemption. 41 But Wyoming has “an industrialaccident fund—financed by [the non-insurance]
industry and underwritten by the state.” 42 The Tenth
Circuit found this distinguishing feature critical,
observing that it was “not persuaded” that the
Wyoming statute “regulate[d] the business of
insurance simply because other states have structured
their workers’ compensation programs to operate
through private insurance companies.” 43 The court did
not view Wyoming’s state fund as one that spread
policyholder risk, which the Supreme Court has held
is an important feature of a law that regulates the
“business of insurance.” 44
In contrast, the Texas Workers’ Compensation
Act specifies the coverage a private insurer must
afford—and the payment of scheduled medical
benefits—in exchange for the premium paid by
employer-policyholders. The premium the insurance
carrier charges participating employers is based on
the coverage state law requires it to provide. If the
coverage afforded under the policy increases, it follows
that the premium charged to policyholders for that
41 868 F.3d 893, 905 (10th Cir. 2017).
42 Id. at 897.
43 Id. at 904 (emphasis added).
44 Id. at 905; see also Union Labor Life Ins. Co. v. Pireno, 458
U.S. 119, 129-30 (1982); Grp. Life & Health Ins. Co. v. Royal Drug
Co., 440 U.S. 205, 213-14 (1979).
App-47
coverage will increase too. 45 PHI Air insists that the
Workers’ Compensation Act does not apply to it and,
consequently, demands that it be paid more than the
Division’s regulations allow. But if insurance carriers
must pay PHI Air more than state law requires (i.e., if
the coverage under the policy is expanded to require a
higher reimbursement amount than the state’s
mandated rate), then premiums must rise to reflect
the change. Raising the premium is the way that the
risk of increased claims cost is spread across all
policyholders.
III
A
The Supreme Court’s decisions in Group Life &
Health v. Royal Drug Co. and Union Labor Life
Insurance Co. v. Pireno do not support PHI Air’s
argument that McCarran-Ferguson does nothing to
shield the Texas Workers’ Compensation Act from
federal encroachment.
In Royal Drug, the Supreme Court held that an
insurer’s third-party contracts with pharmacies were
not part of the business of insurance exempt from
federal antitrust laws. 46 The Court explained that
those third-party agreements were ancillary to the
promises made in insurance contracts because
“policyholders are basically unconcerned with
arrangements made between Blue Shield and
45 Thus, the argument in EagleMed that no risk is underwritten
or spread by Wyoming’s laws and regulations is inapplicable.
EagleMed LLC, 868 F.3d at 905.
46 Royal Drug Co., 440 U.S. at 210, 232-33.
App-48
participating pharmacies.” 47 The Court observed that
the
pharmacy
agreements
were
“legally
indistinguishable from countless other business
arrangements that may be made by insurance
companies to keep their costs low and thereby also
keep low the level of premiums charged to their
policyholders.” 48
Royal Drug involved third-party agreements. In
this case, however, the challenged payment terms are
dictated by state law and the insurance policy itself.
No similar state regulatory scheme was at issue in
Royal Drug—the relationship between the pharmacies
and the insurance company was not state-mandated,
nor did Royal Drug involve claims brought under an
insurance policy. Unlike the pharmacies in Royal
Drug, PHI Air has no ancillary agreement with a
private insurer that it seeks to enforce. And here, of
course, PHI Air seeks to charge insurance carriers
more than the amount afforded under state law and
their insurance policies.
Further, Royal Drug examines McCarranFerguson’s second clause, which exempts the
“business of insurance” from antitrust regulation, not
the first clause at issue in this case. 49 The second
clause is a “narrow[]” exemption from antitrust laws. 50
In contrast, the first clause covers a “broad category of
laws” that are “enacted ‘for the purpose of regulating
47 Id. at 214.
48 Id. at 215.
49 Id. at 210.
50 Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 126 (1982).
App-49
the business of insurance.’” 51 Recognizing this
distinction, the Supreme Court later noted in Fabe, a
first-clause case, that the first clause of McCarranFerguson’s section 2(b) is “not so narrowly
circumscribed”:
The language of § 2(b) is unambiguous: The
first clause commits laws “enacted . . . for the
purpose of regulating the business of
insurance” to the States, while the second
clause exempts only “the business of
insurance” itself from the antitrust laws. To
equate laws “enacted . . . for the purpose of
regulating the business of insurance” with
the “business of insurance” itself . . . would be
to read words out of the statute. 52
In Royal Drug, the Court explained that “[t]he
Pharmacy Agreements are not ‘between insurer and
insured.’ They are separate contractual arrangements
between [the insurance carrier] and pharmacies
engaged in the sale and distribution of goods and
services other than insurance.” 53 Here, in contrast, the
contractual arrangements between the covered
employee, subscribing employer, insurance carrier,
and medical provider claiming benefits under the
policy are not “separate.”
Like Royal Drug, the Pireno case also concerned
section 2(b)’s antitrust clause and its application to
third-party agreements not governed by insurance
51 U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 505 (1993).
52 Id. at 504 (alterations in original). The Supreme Court
“refuse[d]” to “read words out of the statute.” Id.
53 Royal Drug Co., 440 U.S. at 216.
App-50
policies. In Pireno, the Supreme Court considered
whether an outside peer-review committee that
advised an insurer about charges for chiropractic
services was “exempt from antitrust scrutiny as part
of the ‘business of insurance.’” 54 The Court held that
the insurer’s agreement with the peer-review service
did not implicate the business of insurance because
the peer-review process was “a matter of indifference
to the policyholder, whose only concern is whether his
claim is paid, not why it is paid.” 55 In contrast, the
payment provision that the air-ambulance service
challenges here is a part of the insurance contract that
is regulated by statute. There was no corresponding
policy provision or state statute requiring peer review
in Pireno. Instead, the insurers’ private agreements
with third parties were at issue.
Later, in Fabe, the Supreme Court clarified its
holdings in Pireno and Royal Drug, observing that the
cases “held only that ‘ancillary activities’ that do not
affect performance of the insurance contract or
enforcement of contractual obligations do not enjoy
the antitrust exemption for laws regulating the
‘business of insurance.’” 56
B
Pireno, though not directly applicable to this case,
outlined three “non-dispositive” 57 conditions for
deciding, in a second-clause case, whether a “practice”
54 458 U.S. at 126.
55 Id. at 132, 134.
56 Fabe, 508 U.S. at 503.
57 Fredericksburg Care Co. v. Perez, 461 S.W.3d 513, 521 (Tex.
2015).
App-51
pertains to the “business of insurance.” 58 Courts
should consider whether:
(1) the practice has the effect of transferring or
spreading a policyholder’s risk; (2) the practice is an
integral part of the policy relationship between the
insurer and the insured; and (3) the practice is limited
to entities within the insurance industry. 59 Applying
these conditions to a state statute (not an insurance
“practice”), does not change the result. 60 As the
Supreme Court later recognized in Fabe, a regulation
directed toward the “performance” of an insurance
contract satisfies the Pireno test. 61 An insurance
company’s payment to PHI Air is performance of a
58 Pireno, 458 U.S. at 129.
Fredericksburg, 461 S.W.3d at 521 (quoting Munich Am.
Reinsurance Co. v. Crawford, 141 F.3d 585, 590-91 (5th Cir.
1998)); see also Pireno, 458 U.S. at 129. In Fredericksburg, we
held that a law relating to agreements to arbitrate health care
liability claims under the Texas Medical Liability Act was not
enacted “for the purpose of regulating the business of insurance.”
461 S.W.3d at 528. Unlike the Texas Workers’ Compensation Act,
the law at issue in that case has “no bearing on whether a claim
is paid or coverage is denied, nor does it prescribe the terms of
insurance contracts or set the rates that insurance companies can
charge.” Id. at 525. In contrast, the Workers’ Compensation Act
mandates the “type” of policy that must be issued and payments
that a carrier is obligated to make under the policy. Establishing
an insurance framework is not central to the Medical Liability
Act. “Insurance carrier” and “insurance company” are not even
defined terms. See Tex. Civ. Prac. & Rem. Code § 74.001.
59
60 We applied the Pireno factors in Fredericksburg to assist with
our analysis of McCarran-Ferguson’s first clause, noting that
they were “non-dispositive.” 461 S.W.3d at 521.
61 Fabe, 508 U.S. at 503-04.
App-52
central policy obligation—the payment of medical
benefits under the policy.
The Texas Workers’ Compensation Act’s
reimbursement provisions dictate an insurers’
payment obligations for claims brought under the
policy, thereby defining the medical losses that the
insurer agrees to cover for its employer policyholders.
The costs of these covered claims are spread over all
policyholders through an insurance premium charged
to employer policyholders (whether or not they have
asserted a claim). Because the reimbursement
provisions that PHI Air challenges define the scope of
the coverage afforded for claims made under the
policies, those provisions are integral to the policy
relationship. And because the reimbursement
provisions spread an individual policyholder’s risk
associated with liability for an individual employee’s
injury to all who participate in the system, they
transfer a policyholder’s risk to the pool of
policyholders. The insurance carriers cover that risk
in the amount dictated by state law. 62
62 In Genord v. Blue Cross & Blue Shield of Michigan, the Sixth
Circuit held that McCarran-Ferguson did not shield Blue Cross
from a federal civil RICO claim. 440 F.3d 802, 803, 809 (6th Cir.
2006). In Genord, doctors sued to enforce their third-party billing
agreements with Blue Cross, alleging that Blue Cross
“systematically denied” payments, as the agreements required.
Id. at 804. Relying on Royal Drug, the Sixth Circuit held that
these third-party billing agreements did not have the “aim of
regulating a practice that has the effect of transferring or
spreading policyholder risk” and thus were ancillary to the policy
relationship. Id. at 806, 808. The Sixth Circuit instead
characterized the provisions as merely regulating “billing-code
invoicing arrangement[s] with health care providers.” Id. at 808.
Unlike the doctors in Genord, PHI Air does not seek to enforce a
App-53
The challenged reimbursement regulations reach
insurers, employer policyholders, employees, and
those directly claiming statutory benefits under the
policy of insurance (medical providers). The regulatory
framework governs the various aspects of the
intertwined relationships among those parties. The
Act thus meets Pireno’s “non-dispositive” factors.
IV
Ultimately, the air-ambulance service provider in
this case seeks the relatively secure direct payment of
insurance policy benefits in lieu of attempting to collect
from the users of its services in the private
marketplace. As PHI Air concedes, it directly billed
insurers under their insurance policies and seeks
payment under the coverage afforded. By
opportunistically relying on the Airline Deregulation
Act, PHI Air seeks to benefit from federal preemption
without the market forces of deregulation, and from
direct payment for its services without the state
regulations that constrain all others who seek
payments under workers’ compensation policies. In
other words, PHI Air charges and claims insurance
benefits under the Workers’ Compensation Act like a
health care provider, not like the air-taxi service that
purportedly brings it within the Airline Deregulation
Act.
It was this intrusion into state insurance
regulation by unrelated federal laws that Congress
third-party agreement, nor does it allege that an insurer has
failed to perform under a third-party agreement. To the extent a
reimbursement rate is mandated by Texas law as part of the
coverage afforded under the policy, it is an integral part of an
insurance policy.
App-54
stopped. Because the McCarran-Ferguson Act shields
the Texas Workers’ Compensation Act’s insurance
provisions from federal preemption, it is appropriate
that we reverse and remand. I therefore respectfully
concur.
Jane N. Bland
Justice
OPINION DELIVERED: June 26, 2020
App-55
JUSTICE GREEN, joined by CHIEF JUSTICE HECHT,
dissenting.
This case requires us to determine whether the
federal Airline Deregulation Act (ADA) preempts the
Texas Workers’ Compensation Act’s (TWCA)
reimbursement scheme as it relates to air-ambulance
transport claims. The Court concludes that it does not
because PHI Air Medical, LLC (PHI) cannot show that
the challenged reimbursement scheme “relate[s] to a
price, route, or service of an air carrier.” 49 U.S.C.
§ 41713(b)(1). Because I believe that a reimbursement
scheme that regulates the amount an insurer must
pay to reimburse an air carrier is such a law, I would
conclude that the challenged scheme is preempted by
the ADA. Additionally, I would conclude that the
McCarran-Ferguson Act (MFA) does not save the
reimbursement scheme because neither the TWCA
nor its reimbursement scheme was “enacted . . . for
the purpose of regulating the business of insurance.”
15 U.S.C. § 1012(b). Therefore, I respectfully dissent.
I.
Airline Deregulation Act
When Congress enacted the ADA, it included a
broad preemption provision to prevent states from
passing laws that would undo federal deregulation.
Morales v. Trans World Airlines, Inc., 504 U.S. 374,
383-84 (1992). That express preemption clause states
that the ADA preempts state “law[s] related to a price,
route, or service of an air carrier.” 49 U.S.C.
§ 41713(b)(1). Thus, for the ADA to preempt the
TWCA’s reimbursement scheme, that scheme must
App-56
(1) “relate[] to a price, route, or service” (2) “of an air
carrier.” 1 Id.
The United States Supreme Court has frequently
acknowledged the breadth of the ADA’s “related to”
provision and unequivocally stated that it “is much
more broadly worded” than comparable preemption
provisions. Nw., Inc. v. Ginsberg, 572 U.S. 273, 283
(2014); see Am. Airlines, Inc. v. Wolens, 513 U.S. 219,
229 n.5 (1995); Morales, 504 U.S. at 384-85; see also
Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364, 37071 (2008). The ADA preempts a state law if it “ha[s] a
connection with, or reference to [air] carrier ‘[prices],
routes, or services’”; if the state law affects a price,
route, or service, even indirectly; or if the state law has
a “significant impact” on Congress’s deregulatory or
preemption-related objectives. Rowe, 552 U.S. at 37071 (emphasis removed) (citations omitted). The ADA’s
preemption provision is not limited to only those state
laws that prescribe a price, route, or service. Morales,
504 U.S. at 385 (noting that if the ADA only
preempted state laws prescribing a price, then it
would have stated it preempts state laws that
“regulate” rather than “relate to” a price, route, or
service of an air carrier). Rather, it includes those
state laws that “encroach upon the area of exclusive
federal concern.” See Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 525 (1981). But the ADA will not
preempt a state law if it is related in “‘too tenuous,
remote, or peripheral a manner’ to have pre-emptive
1 I agree with the Court that PHI qualifies as an air carrier as
defined by the ADA.
App-57
effect.” Morales, 504 U.S. at 390 (quoting Shaw v.
Delta Air Lines, Inc., 463 U.S. 85, 100 n.21 (1983)).
The TWCA’s reimbursement scheme is related to
an air ambulance’s prices because it indirectly limits
the amount that an air carrier may charge for its
services. Under the TWCA, when an air-ambulance
transport renders a service that qualifies as a medical
benefit under Texas workers’ compensation insurance,
it must bill that amount to the insurer. Tex. Lab. Code
§ 408.027(a). And the insurer is responsible for paying
that claim. Id. § 408.027(b). Further, the payment
must be “in accordance with the fee guidelines
authorized under” the TWCA and its corresponding
regulations. Id. § 408.027(f). Consistent with this
authorization, the Labor Code and the Division of
Workers’ Compensation (Division) have standardized
the amount an insurance provider must pay for a
transport from companies like PHI. Namely, the
Labor Code identifies that the reimbursement amount
“must be fair and reasonable” in a way that “ensure[s]
the quality of medical care” and administers “medical
cost control.” Id. § 413.011(d); see 28 Tex. Admin. Code
§ 134.1(f). All parties agree that such a requirement
means an insurer may not pay, either by its own
determination or after review by the Division, an
amount that exceeds a “fair and reasonable” rate. See
Tex. Lab. Code § 413.011(d); 28 Tex. Admin. Code
§ 134.1(f).
Thus, rather than limit what price an air
ambulance
may
charge
the
insurer,
the
reimbursement scheme refocuses its limitation on the
amount the insurer must pay. In reality, there is no
difference. It does not matter whether PHI cannot
App-58
recoup the price of its services because it is limited in
what it can charge or because the insurer is limited in
what it must pay. Put differently, if state law required
PHI to bill an insurance company a “fair and
reasonable” rate, would that limit not relate to an air
carrier’s price, even though it would directly limit
what an air carrier may charge? I think it must. See
Valley Med Flight, Inc. v. Dwelle, 171 F. Supp. 3d 930,
942 (D.N.D. 2016) (holding that the ADA preempted a
North Dakota law limiting the amount that airambulance transports could bill to an amount
consistent with the insurance provider’s fee schedule).
Surely, then, “compelling or restricting” a specific
payment relates to a price. Morales, 504 U.S. at 389
(citing Ill. Corp. Travel, Inc. v. Am. Airlines, Inc., 889
F.2d 751, 754 (7th Cir. 1989)); Air Evac EMS, Inc. v.
Sullivan, 331 F. Supp. 3d 650, 663 (W.D. Tex. 2018)
(“Because the TWCA effectively determines what [an
air-ambulance transport company] can charge by
restricting the amount it can receive for its services,
the [reimbursement scheme] relate[s] to [an air
carrier]’s prices.”). Either statutory regime compels
the same result, and both would be “designed” to
relate to a price of an air carrier. See Morales, 504 U.S.
at 386 (quoting Ingersoll—Rand Co. v. McClendon,
498 U.S. 133, 139 (1990)) (“[A] state law may ‘relate to’
a benefit plan, and thereby be pre-empted, even if the
law is not specifically designed to affect such plans, or
the effect is only indirect.”). And Congress, when it
decided to deregulate air carrier prices, did so with the
understanding that its deregulation would allow air
carriers to set their own prices—not the state or those
who pay air carriers consistent with state guidelines.
See id. at 378.
App-59
Other courts have held that state-law caps on
insurer reimbursement for air-ambulance transports
are preempted by the ADA because such laws
establish a mandatory fixed maximum rate for
reimbursement. See EagleMed LLC v. Cox, 868 F.3d
893, 902 (10th Cir. 2017). And the Court today relies
on Cox to distinguish Texas’s reimbursement scheme.
The Court concludes that because the TWCA’s
reimbursement scheme is a generally applicable law
that does not expressly state what an insurer must
pay an air-ambulance provider, then it is preempted
only if it has a forbidden significant effect on PHI’s
prices. Ante at ___. The Court goes on to hold that,
because the fair and reasonable amount required by
the TWCA could be consistent with PHI’s billed price,
the reimbursement scheme does not relate to PHI’s
prices as a matter of law given that it does not always
have that forbidden effect. Ante at ___. Yet the
Supreme Court has stated that the ADA preempts
even those state laws “‘consistent’ . . . with federal
regulation.” Rowe, 552 U.S. at 370 (citing Morales, 504
U.S. at 386-87). Thus, evidence that a state regulation
could result in the same price that an air carrier would
set itself as a result of deregulation does not mean that
law does not “relate[] to” “a price” of an air carrier. 49
U.S.C. § 41713(b)(1). And the record reflects that the
reimbursement scheme does relate to PHI’s prices.
After the insurers paid PHI based on the
reimbursement scheme, PHI sought a medical fee
dispute resolution before the Division, which
ultimately concluded that reimbursement should be
“fair and reasonable,” amounting to 125 percent of
Medicare service rates. The administrative law judge
determined on appeal that the “fair and reasonable”
App-60
rate was 149 percent of Medicare service rates. PHI
asserted, in defense of its claim that insurers should
pay the price that they are billed, that the ADA
preempts the TWCA. See Scarlett v. Air Methods
Corp., 922 F.3d 1053, 1061 (10th Cir. 2019)
(concluding that the ADA could be used defensively to
entitle an air-ambulance provider to its billed charge).
The administrative law judge then ordered the
insurers to pay an amount consistent with this newly
determined “fair and reasonable” amount. Under both
approaches—125 or 149 percent—the amount owed
was less than the amount PHI charged. After the
adjustment, the requisite payment for each transport
would be between $9,989 and $28,000 less than the
price charged to the insurer. This underpayment
“surely ‘relates to’ price.” See Morales, 504 U.S. at 389
(citing Ill. Corp. Travel, 889 F.2d at 754).
The fact that the court in Cox struck both the
balance-billing prohibition and the limit on insurer
reimbursement is telling. 868 F.3d at 901. If the Court
is correct in its suggestion today that PHI is the victim
of its own pleading, ante at___, and the TWCA is not
preempted because the balance-billing prohibition
was only challenged in the alternative, then why is it
that Cox specifically concluded that limiting the
amount that an insurer can reimburse is related to
price? 868 F.3d at 901. In other words, if balance
billing is truly what relates to price here, then why
was a scheme that capped reimbursement at a fixed
amount relevant to whether that cap relates to price?
I see no distinction.
a
The TWCA’s reimbursement scheme plainly sets
maximum amount for which PHI can be
App-61
compensated by the insurer, which PHI is statutorily
required to bill for its services. See TEX. LAB. CODE
§ 408.027(a)-(b). That maximum amount is a fair and
reasonable price as determined by the insurer or the
Division. See id. § 413.011(d); 28 TEX. ADMIN. CODE
§ 134.1(f). At best, this is the price that these parties
believe the market would set, rather than the amount
that the market actually sets. See Morales, 504 U.S. at
378; see also EagleMed, LLC v. Travelers Ins., 424 P.3d
532, 539 (Kan. Ct. App. 2018) (concluding that the
ADA preempts “a price sanctioned by the State rather
than one determined by market forces as Congress
intended”). The scheme thus clearly relates to PHI’s
prices because it controls the amount that PHI is
entitled to collect from the insurer, the party from
whom the TWCA prescribes reimbursement of
medical benefits. See Tex. Lab. Code § 408.027(a)-(b).
In Sabre Travel International, Ltd. v. Deutsche
Lufthansa AG, 567 S.W.3d 725 (Tex. 2019), we
concluded that a tortious interference claim was “too
tenuous, remote, or peripheral” to an air carrier’s
prices to be preempted by the ADA. Id. at 738. The
tortious interference claim arose from a booking
company’s conduct that occurred after an airline ticket
was purchased and independently of determining the
price of a ticket. Id. We explained that the passive
booking costs imposed on an airline company by a
third-party booking agent went to airline cost alone,
and not price. Id. at 737-38. Sabre could not
demonstrate that those third-party costs were
anything more than costs, and thus those costs were
“too tenuous, remote, or peripheral” to the airline’s
prices for purposes of preemption. Id. at 738. Here,
PHI has shown that the TWCA’s reimbursement
App-62
scheme goes directly to price, as the scheme
determines the amount that insurers will reimburse
air-ambulance providers for their services. And the
record
indicates
that
application
of
that
reimbursement scheme to PHI has a clear effect on
what it collects from the insurers responsible for
payment of medical benefits.
The Supreme Court has said that the ADA “stops
States from imposing their own substantive standards
with respect to [prices], routes, or services, but not
from affording relief to a party who claims and proves
that an airline dishonored a term the airline itself
stipulated.” Wolens, 513 U.S. at 232-33. That is why
state laws that relate to price, and not breach-ofcontract claims that relate to price, are preempted by
the ADA. When breach-of-contract claims are at issue,
air carriers have electively set their own terms. Id.
“[T]he
ADA’s
overarching
deregulatory
purpose . . . mean[s] ‘States may not seek to impose
their own public policies or theories of competition or
regulation on the operations of an air carrier.’” Id. at
229 n.5 (citation omitted). The TWCA does just that.
It imposes standards that regulate the amount an air
carrier like PHI may collect from those required to pay
medical benefits, effectively limiting what it may
charge. For these reasons, I would hold that the
TWCA’s reimbursement scheme “relate[s] to a
price . . . of an air carrier.” 49 U.S.C. § 41713(b)(1).
II. McCarran-Ferguson Act
Although I would conclude that the ADA
preempts the TWCA’s reimbursement scheme, the
scheme can nevertheless be saved by the MFA’s
“reverse preemption” provision if the TWCA in
App-63
general, or its reimbursement scheme in particular,
qualifies as a law enacted for the purpose of regulating
the business of insurance. 15 U.S.C. § 1012(b).
Because the TWCA and its origins show that the
Legislature enacted the TWCA as a tort reform
measure, and the United States Supreme Court has
prescribed a particular meaning to the term “business
of insurance,” I would conclude that the statute, both
as a whole and with respect to the challenged
reimbursement scheme, was not enacted for the
purpose of regulating the business of insurance. 2
A. Purpose, Structure, and Effect of the TWCA
Analyzing whether the MFA reverse preempts a
state statute requires a two-tiered approach. First, we
“consider[]
the
overall
purposes,
structural
framework, and effect of the entire state law” in
determining
whether the
MFA saves the
reimbursement
scheme
from
preemption.
Fredericksburg Care Co. v. Perez, 461 S.W.3d 513, 521
(Tex. 2015). If the law in its entirety was not enacted
2 To be sure, parts of the TWCA very well may be laws enacted
for the purpose of regulating the business of insurance, and the
concurrence today notes a few in its analysis. However, those
provisions, while instructive on whether the TWCA was enacted
to regulate the business of insurance, do not transform the TWCA
into such a law. Rather, the MFA would protect those provisions
from preemption if challenged. See U.S. Dep’t of Treasury v. Fabe,
508 U.S. 491, 508-09 (1993) (holding that only part of an Ohio
statute prioritizing certain creditors and policyholders over the
federal government in bankruptcy was a law enacted for the
purpose of regulating the business of insurance). And, as
discussed in Part II.B, the provisions that are directly
challenged—the reimbursement scheme that regulates what an
insurer must pay a provider—fall short of how the Supreme
Court has interpreted and applied the MFA.
App-64
for the purpose of regulating the business of
insurance, then we proceed to determine whether the
specifically challenged provisions fall within the ambit
of the MFA. Id. at 525. Guiding this analysis, though,
is the language of the MFA itself. Although we analyze
the statute holistically and then particularly, we must
be mindful that the MFA is about “the relationship
between
the
insurance
company
and
its
policyholders.” Fabe, 508 U.S. at 501. State laws may
come within the scope of the MFA if they control “the
type of policy which could be issued, its reliability,
interpretation, and enforcement.” SEC v. Nat’l Sec.,
Inc., 393 U.S. 453, 460 (1969). Regardless of these
considerations, our focus should be on whether the
statute is “aimed at protecting or regulating [the
insurer-policyholder]
relationship,
directly
or
indirectly.” Id. Thus, I begin with whether the TWCA
was enacted to regulate the insurer-policyholder
relationship.
The concurrence relies on the fact that the TWCA
allows the Texas Department of Insurance to
“administer and operate the workers’ compensation
system” and directs the Department to approve those
policies administered in Texas to conclude that the
TWCA falls within the scope of the MFA. Ante at ___;
see Tex. Lab. Code § 402.001; Fairfield Ins. Co. v.
Stephens Martin Paving, LP, 246 S.W.3d 653, 658
(Tex. 2008). This approach, though, conflates
mechanisms with purpose. We have previously
recognized that while the TWCA may offer employees
relief as insurance beneficiaries and employers
coverage as policyholders, the TWCA exists to assist
both the employee and employer with job-related
injuries:
App-65
The purpose of the Act is to provide
employees with certainty that their medical
bills and lost wages will be covered if they are
injured. An employee benefits from workers’
compensation insurance because it saves the
time and litigation expense inherent in
proving fault in a common law tort claim. But
a subscribing employer also receives a benefit
because it is then entitled to assert the
statutory exclusive remedy defense against
the tort claims of its employees for job related
injuries.
Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 441
(Tex. 2012) (quoting HCBeck, Ltd. v. Rice, 284 S.W.3d
349, 350 (Tex. 2009)); see Tex. Workers’ Comp. Comm’n
v. Garcia, 893 S.W.2d 504, 511 (Tex. 1995). As the
Division recognizes, the TWCA offers an alternative to
the common law, under which “injured workers were
[often] denied recovery.” Garcia, 893 S.W.2d at 510
(citation omitted). This was in response to harsh
complete defenses employers could invoke to limit or
avoid liability. Id. The original act eliminated these
complete defenses in exchange for a prohibition on an
injured employee’s ability to bring a claim against a
subscribing employer in a variety of circumstances.
See Act of Mar. 29, 1913, 33d Leg., R.S., ch. 179, §§ 1,
3, 1913 Tex. Gen. Laws 429, 429-30. At the heart of
this exchange was the employer-employee relationship
and the resolution of job-related injuries. In this way,
the purpose of the original act was to ensure the
injured employee’s entitlement to certain benefits
App-66
while maintaining an employer’s limited liability. 3 Id.
§§ 3, 6-16, 1913 Tex. Gen. Laws 429, 430-32; see
Garcia, 893 S.W.2d at 510-11. We have explained:
The Employers’ Liability Act of 1913 replaced
the common law negligence remedy with
limited but more certain benefits for injured
workers. Acts of 1913, 33d Leg., ch. 179. The
Texas act, which was part of a nationwide
compensation movement, was perceived to be
in the best interests of both employers and
employees. . . . Employees injured in the
course and scope of employment could recover
compensation without proving fault by the
employer and without regard to their or their
coworkers’ negligence. Acts of 1913, ch. 179,
pt. I, §§ 7-12. In exchange, the employer’s
total liability for an injury was substantially
limited. Id. § 3. Although employers were
allowed to opt out of the system, the act
discouraged this choice by abolishing all the
traditional common law defenses for nonsubscribers. Id. § 1.
Garcia, 893 S.W.2d at 510-11 (footnote omitted).
Because the original workers’ compensation act
proved unsatisfactory for a variety of reasons, the
Legislature adopted a revised TWCA that attempted
to restore the tradeoff contemplated under the original
version. Id. at 511-12; see Tex. Lab. Code § 408.001(a);
3 The Act even said as much: “An Act relating to employers’
liability and providing for the compensation of certain
employe[e]s and their representative and beneficiaries. . . .” Act
of Mar. 29, 1913, 33d Leg., R.S., ch. 179, 1913 Tex. Gen. Laws
429, 429.
App-67
see also Tex. Lab. Code § 402.021(d). It did so without
modifying its intent. Even after the amendments, the
TWCA continues to protect both the injured worker
and the employer by ensuring recovery for on-the-job
injuries without regard to the employee’s own
negligence, while limiting the employer’s liability. See
Ruttiger, 381 S.W.3d at 441; In re Poly-Am., L.P., 262
S.W.3d 337, 350 (Tex. 2008). That the Legislature
offers the employee relief through private insurance
does not transform the entire TWCA into a law
enacted for the purpose of regulating the business of
insurance. See Fabe, 508 U.S. at 502-03, 508-09
(concluding that though a portion of a statute was
enacted for the purpose of regulating the business of
insurance, the entire statute was not). To conclude
otherwise would require that we ignore the history
and origins of the TWCA itself. See Waak v. Rodriguez,
___ S.W.3d ___, ___ (Tex. 2020).
The structure of the TWCA demonstrates that its
purpose is to provide a policy tradeoff between the
employer and employee with respect to on-the-job
injury claims. See Tex. W. Oaks Hosp., LP v. Williams,
371 S.W.3d 171, 186 (Tex. 2012). The concurrence
asserts that the TWCA is administered through
private insurers and thus cannot be accomplished
without private insurance contracts. Ante at ___.
While that is true for subscribing employers, the
concurrence fails to recognize that workers’
compensation insurance is but one remedy the
Legislature envisioned to improve an employee’s
recovery for on-the-job injuries and an employer’s
protection in that process. See Tex. Lab. Code
§ 406.033(a) (removing common law defenses in
workers’ compensation claims for non-subscribing
App-68
employers). When the structure of the TWCA is
examined, its purpose to offer employee and employers
alike a remedy for on-the-job injuries becomes visible. 4
First, the TWCA incentivizes employers to opt in.
See id. It encourages, but does not require, an
employer to elect into its provisions. See id.
§ 406.002(a) (“Except for public employers and as
otherwise provided by law, an employer may elect to
obtain workers’ compensation insurance coverage.”)
(emphasis added). If an employer elects to participate
in the workers’ compensation system, and the
employer’s employee does not opt out, then “employees
4 For instance, imagine there are two employees: Employee A
and Employee B. Employee A’s employer elects to opt into
workers’ compensation and Employee B’s employer does not. See
Tex. Lab. Code § 406.002(a). Both employees are injured. Ideally,
under the workers’ compensation laws, both Employee A and
Employee B should have a sufficient remedy to redress their
injuries. However, Employee B would not recover through
workers’ compensation insurance, but because the TWCA
forecloses non-subscribing employers from invoking common law
defenses to recovery. See id. § 406.033(a). The concurrence’s
understanding of the TWCA—that it was enacted for the purpose
of regulating the business of insurance—does not acknowledge
that the employer, and not insurance, is the source of Employee
B’s recovery. That is not how we interpret statutes. Instead, we
interpret statutes to give meaning to the statute as a whole and
render no part superfluous. See Tex. Gov’t Code § 311.021(2);
Ritchie v. Rupe, 443 S.W.3d 856, 898 (Tex. 2014) (Guzman, J.,
dissenting); In re Lee, 411 S.W.3d 445, 453 (Tex. 2013). A reading
that would leave unacknowledged half of an employee’s available
means of recovery does not honor that command. And this
hypothetical does not account for the possibility of a third
employee—Employee C—whose employer may utilize common
law defenses because the employer opted into workers’
compensation insurance while Employee C opted out. See Tex.
Lab. Code § 406.034(d).
App-69
are generally precluded from filing suit against [the
employer] and must instead pursue their claims
through an administrative agency against the
employer’s insurance carrier for benefits provided for
in the TWCA.” Tex. W. Oaks Hosp., 371 S.W.3d at 186;
see Tex. Lab. Code § 406.031(a) (directing that the
insurance carrier be liable for compensation arising
out of an employee’s on-the-job injury when the
employer elects to participate in the workers’
compensation system). If, however, “an employer
forgoes workers’ compensation coverage . . . it is
subject to suits at common law for damages.” Tex. W.
Oaks Hosp., 371 S.W.3d at 187. The employer that
forgoes coverage may not assert as a defense in such a
suit that “(1) the employee was guilty of contributory
negligence; (2) the employee assumed the risk of
injury or death; or (3) the injury or death was caused
by the negligence of a fellow employee.” Tex. Lab. Code
§ 406.033(a). To be successful in her suit, the employee
need only show that her injury was caused by a
negligent employer or its agent acting within the
course and scope of its agency. Id. § 406.033(d).
Second, the Legislature structured the TWCA to
discourage employees from opting out of their
employer’s elective participation in the workers’
compensation system. See Tex. W. Oaks Hosp., 371
S.W.3d at 186-87. The benefits offered to the employee
who remains in the system include medical benefits,
temporary income benefits, impairment income
benefits, supplemental income benefits, and lifetime
benefits. Tex. Lab. Code §§ 408.021-.162. The
insurance carrier is required by statute to initiate
claims within fifteen days of receiving timely notice of
the claim, ensuring prompt resolution. Id.
App-70
§ 409.021(a). And if a carrier refuses a claim for a
groundless reason, it is subject to administrative
penalties. Id. § 409.022(c). Further, the insurance
carrier is required to compensate the injury “without
regard to fault or negligence” of the employee or
employer. Id. § 406.031(a); see Tex. W. Oaks Hosp., 371
S.W.3d at 186 (“But employees need not prove the
employer’s negligence for workers’ compensation
recovery . . . .”). While the TWCA allows employees to
opt out of their employer’s participation in coverage,
Tex. Lab. Code § 406.034(a)-(b), the employer then
retains all common law defenses in a suit brought by
that employee, including the employee’s own
negligence. Id. § 406.034(d). For such an employee,
compensation occurs once litigation is complete or
settlement is reached.
Thus, the workers’ compensation construct
contemplates two systems, one in which
covered employees may recover relatively
quickly and without litigation from
subscribing employers and the other in which
non[-]subscribing
employers,
or
the
employers of employees who have opted not to
accept workers’ compensation coverage, are
subject to suit by injured employees to recover
for their on-the-job injuries.
Tex. W. Oaks Hosp., 371 S.W.3d at 187.
The United States Supreme Court has
consistently stated that first-clause MFA cases, 5 like
5 The first clause of the MFA reads: “No Act of Congress shall
be construed to invalidate, impair, or supersede any law enacted
by any State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such business . . . .”
App-71
the one before us, apply to state statutes whose
purpose is to regulate the relationship between
insurer and policyholder. Fabe, 508 U.S. at 501 (citing
Nat’l Sec., 393 U.S. at 460). Rather than regulating
the relationship between insurer and policyholder, the
structure of the TWCA supports a conclusion that its
purpose is to regulate the relationship between
employer and employee. Unlike Fabe, in which the
Supreme Court noted that the state “priority statute
was enacted as part of a complex and specialized
administrative structure for the regulation of
insurance companies from inception to dissolution,”
id. at 494, the TWCA creates a system that manages
on-the-job injury claims between employee and
employer.
Although the workers’ compensation system is
administered by private insurance providers,
resulting in private insurance contracts, that does not
obviate the fact that its purpose and structure is to
manage on-the-job injury disputes between employer
and employee. See 15 U.S.C. § 1012(b); Cox, 868 F.3d
at 904 (concluding that even if Wyoming’s workers’
compensation statute were similar to Texas’s
privatized approach, the MFA would not apply
because neither is directed at the business of
insurance). Thus, the effect of the TWCA’s
compensation system “is to empower the” employee
and employer to participate in the TWCA, not for
insurance carriers to provide insurance—although
15 U.S.C. § 1012(b). The second clause allows application of the
Sherman Act and Clayton Act “to the business of insurance to the
extent that such business is not regulated by State law.” Id.
App-72
that may also be a collateral consequence of the
system. See Fabe, 508 U.S. at 494.
In Fredericksburg Care Co., we rejected the
beneficiaries’ request to look past the purpose and
structure of the Texas Medical Liability Act to
conclude that its potential lowering of insurance
premiums meant that it was enacted for the purpose
of regulating the business of insurance. 461 S.W.3d at
524. Similarly, here, the fact that the system includes
the issuance of insurance contracts does not alter the
purpose and structure of the TWCA, which facilitates
resolution of on-the-job injury issues between
employers and employees.
B. Application of the TWCA’s Reimbursement
Scheme
Although the TWCA as a whole was not enacted
“for the purpose of regulating the business of
insurance,” its reimbursement scheme may still fall
within the scope of the MFA. 15 U.S.C. § 1012(b); see
Fabe, 508 U.S. at 505; Fredericksburg Care Co., 461
S.W.3d at 525. The approach to whether the MFA
applies nevertheless remains the same and focuses on
whether the challenged provision addresses “the
relationship between the insurance company and the
policyholder.” Fabe, 508 U.S. at 501 (quoting Nat’l
Sec., 393 U.S. at 460); see Fredericksburg Care Co., 461
S.W.3d at 526-27 (citations omitted) (“Much like the
rest of Chapter 74, section 74.451 has little to do with
the ‘relationship between the insurance company and
its policyholders.’”).
The concurrence concludes that the parties here
have a stronger case that the TWCA and its
challenged provisions regulate the business of
App-73
insurance than the parties in Fabe. Ante at ___. In
Fabe, pursuant to a state statute, the Ohio
Superintendent of Insurance ordered that the United
States, as an obligee, receive fifth priority in an
insurance company’s liquidation. 508 U.S. at 494-95.
This would place the United States, which under
federal law would normally receive first priority in
liquidation, see 31 U.S.C. § 3713(a)(1)(A)(iii), behind a
variety
of
creditors,
including
insurance
“policyholders’ claims” and “claims of general
creditors.” Fabe, 508 U.S. at 495. The Supreme Court
noted that while the Ohio priority statute fell short of
“prescribing the terms of the insurance contract
or . . . setting the rate charged by the insurance
company,” the statute nevertheless regulated the
business of insurance because giving priority to a
policyholder amounted to “the actual performance of
an insurance contract.” Id. at 502-03. The Court
distinguished Pireno, a second-clause case, by
reasoning that the Ohio law determined whether a
policy was performed, while Pireno dealt with why a
policy was performed. Id. at 503 (citing Union Labor
Life Ins. Co. v. Pireno, 458 U.S. 119, 132 (1982)).
The reimbursement scheme at issue here affects
the amount an insurance company must pay a service
provider, not whether the policyholder’s contract is
performed. See Pireno, 458 U.S. at 132 (holding that a
state law did not regulate the business of insurance
when it established a process that was “a matter of
indifference to the policyholder, whose only concern is
whether his claim is paid, not why it is paid”). Under
the TWCA, the benefit conferred to a policyholder and
beneficiary is that neither will be liable for services
that fall within the policy’s scope of coverage. Tex.
App-74
Lab. Code § 408.021. And the insurance company
assumes the payment obligation for those covered
services, including the medical benefit. Id.
§§ 401.011(31), 408.021. After the insurance company
has concluded that an air-ambulance transport falls
within the scope of the medical benefit, and the
insured has received the benefit promised to it under
the policy, the reimbursement scheme then
determines the amount that the insurance company
owes the medical service provider. Thus, the
reimbursement scheme does not operate to determine
whether a claim is covered; it operates to determine
the amount owed to the service provider. See Fabe, 508
U.S. at 503-04; Pireno, 458 U.S. at 132. Indeed, the
benefit conferred to the policyholder is not the amount
an insurance company will pay for the claim, but
rather that the insurance company will pay for
medical benefits arising under the policy. See
Sullivan, 331 F. Supp. 3d at 666-67 (“[The TWCA’s]
policy benefit conferred is the movement of the
obligation to pay an air ambulance provider from the
insureds to the insurer . . . .”). The employer and
injured employee, unlike the policyholders in Fabe,
need not rely on the challenged reimbursement
scheme to receive benefits under the workers’
compensation system. See 508 U.S. at 503-04.
The Tenth Circuit in Cox reached the same
conclusion in interpreting Wyoming laws that
regulated
reimbursement
for
air-ambulance
transports under Wyoming’s workers’ compensation
system. 868 F.3d at 897, 904-05. The Wyoming law
allowed
reimbursement
at
“a
reasonable
charge . . . not in excess of the rate schedule
established by the director,” id. at 898, similar to the
App-75
Texas reimbursement scheme. See Tex. Lab. Code
§ 413.011; 28 Tex. Admin. Code §§ 134.1(a), (e)-(f),
.203. The court held that the Wyoming law fell outside
the scope of the MFA’s first clause not because of how
Wyoming structured its law—that is, through a state
fund rather than private insurance—but because the
fee schedule was unrelated to the insurer-policyholder
relationship. Cox, 868 F.3d at 904-05 (citing St.
Bernard Hosp. v. Hosp. Serv. Ass’n of New Orleans,
Inc., 618 F.2d 1140, 1145 (5th Cir. 1980)) (“[E]ven if
we were to accept the argument that Wyoming’s staterun workers’ compensation system establishes a type
of insurance, we are not persuaded that [the
reimbursement scheme] are laws ‘regulating the
business of insurance.’”). The reimbursement scheme
here, too, exists separate and apart from the insurerpolicyholder relationship because it relates to the
payment of a service and not the scope of coverage. 6
The concurrence notes that the reimbursement scheme
identifies the scope of coverage, but the scope of coverage is
determined by the policy and whether the employee incurs a
medical benefit as determined by the policy. Ante at ___; see
Exxon Mobil Corp. v. Ins. Co. of the State of Pa., 568 S.W.3d 650,
657 (Tex. 2019). The reimbursement scheme dictates the amount
an insurer will pay for the policy obligation, and the Supreme
Court has recognized that an arrangement that will limit an
insurer’s costs for obligations arising under a policy is not the
business of insurance. See Grp. Life & Health Ins. Co. v. Royal
Drug Co., 440 U.S. 205, 213-14 (1979). And notably, but for the
balance-billing prohibition that prevents a health care provider
from recouping the remainder of the unpaid bill from the injured
employee, see Tex. Lab. Code § 413.042, any additional payment
would be sought from the injured employee and not the policyholding employer. Thus, the scope of the benefit is not the amount
6
App-76
The concurrence is correct that the first clause of
the MFA is broader than the second clause, but the
meaning of “business of insurance” is the same in both.
See Fabe, 508 U.S. at 504-05 (focusing on the meaning
of “laws ‘enacted . . . for the purpose of regulating’” to
conclude that the first clause is more expansive than
the second clause). That is, if a state law does not
involve “the business of insurance,” then it was not
“enacted . . . for the purpose of regulating the business
of insurance.” 15 U.S.C. § 1012(b); see Fabe, 508 U.S.
at 504-05. And in Group Life & Health Insurance Co.
v. Royal Drug Co., a second-clause case, the Supreme
Court addressed the meaning of business of insurance
in the context of payment arrangements between
insurers and third-party service providers. 440 U.S. at
213. There, the Supreme Court concluded that the
“business of insurance” did not extend to pharmacy
arrangements that existed to “minimize the costs” of
the insurer but provided no benefit to the insurer
other than that its costs would be fixed. Id. at 213-14;
see Genord v. Blue Cross & Blue Shield of Mich., 440
F.3d 802, 804-07 (6th Cir. 2006) (concluding that
reimbursement arrangements mandated by law are
not laws enacted for the purpose of regulating the
business of insurance). Similarly, here, the
reimbursement scheme exists to “minimize the costs”
of the workers’ compensation insurance carrier. Royal
Drug, 440 U.S. at 213; see Tex. Lab. Code § 413.011;
28 Tex. Admin. Code §§ 134.1(a), (e)-(f), .203. In this
context, the promise made to an employer is that “[the]
insurance carrier is liable for compensation for an
the service will cost but whether the service qualifies for the type
of coverage provided.
App-77
employee’s injury.” Tex. Lab. Code § 406.031(a). The
employer is indifferent to the reimbursement formula
that affects the insurer and a third-party service
provider. See Royal Drug, 440 U.S. at 214 (footnote
omitted) (“So long as [the policyholder’s prescription
cost is fixed], policyholders are basically unconcerned
with arrangements made between [the insurer] and
participating pharmacies.”).
And even if a reimbursement arrangement is
mandated by law, that does not mean the MFA
protects that arrangement. Genord, 440 F.3d 802.
Relying on Royal Drug, the Sixth Circuit in Genord
held that a Michigan law obligating health care
corporations
to
enter
into
reimbursement
arrangements with various medical service providers
was not a law enacted for the purpose of regulating the
business of insurance. Id. at 803, 808. The Michigan
law, like the law at issue here, mandated terms of the
reimbursement arrangement. Id. at 803-04; see Tex.
Lab. Code § 413.011; 28 Tex. Admin. Code §§ 134.1(a),
(e)-(f), .203. Although the law allowed an insurance
provider to enter into its own arrangements with
medical service providers in limited instances, the law
required that—similar to the Texas reimbursement
scheme—the service provider “accept payment at the
regulated rate.” Genord, 440 F.3d at 804 (citation
omitted); see Tex. Lab. Code § 413.011; 28 Tex. Admin.
Code §§ 134.1(a), (e)-(f), .203. Because the
reimbursement law did not relate to the coverage of
claims for policyholders, but instead to what was owed
to service providers, it was not an integral part of the
insurance relationship. Genord, 440 F.3d at 808
(citing Royal Drug, 440 U.S. at 214). Similarly, the
TWCA’s reimbursement scheme is not integral to the
App-78
insurance relationship because the policyholders are
unaffected
and
unconcerned
with
insurers’
reimbursement to service providers under the scheme.
See id. Instead, the prescribed amount that an
insurance carrier must pay a third party is not an
insurance benefit, but rather an attempt to control the
insurer’s costs. Thus, these provisions are not “aimed
at protecting or regulating” the performance of an
insurance contract, Nat’l Sec., 393 U.S. at 460, but
rather “the business of insurers.” Royal Drug, 440 U.S.
at 211.
Finally, applying the non-dispositive Pireno
factors produces the same conclusion that the
reimbursement scheme is not part of the “business of
insurance.” See Pireno, 458 U.S. at 129. Pireno
identified three non-dispositive criteria for evaluating
whether a practice is part of the “business of
insurance,” including whether: “(1) the practice has
the effect of transferring or spreading a policyholder’s
risk; (2) the practice is an integral part of the policy
relationship between the insurer and the insured; and
(3) the practice is limited to entities within the
insurance industry.” Fredericksburg Care Co., 461
S.W.3d at 521 (citations omitted). Having already
addressed how the provisions relate to the insuredinsurer relationship, I turn to the first and third
factors.
First, the TWCA’s reimbursement scheme does
not spread or transfer policyholders’ risk. Royal Drug
held that risk sharing occurs when the insurer spreads
the risk it assumes in offering a policy to a single
policyholder
by
offering
policies
to
other
App-79
policyholders. 7 440 U.S. at 211 & n.7. Risk reduction
through a reimbursement arrangement or scheme is
not risk sharing because the reduction affects only the
insurer’s liability under a given policy. Id. at 211 n.7.
Even if third-party cost constraints may “inure
ultimately to the benefit of policyholders,” those
7 The concurrence concludes that the reimbursement scheme
spreads policy risk because it assists in determining policy
premiums. Ante at ___. But a policyholder’s receipt of a benefit
through an insurance company’s reduced cost risk is not
spreading policyholder risk. Royal Drug, 440 U.S. at 211, 214.
Commonly referred to as the Law of Large Numbers, risk sharing
is risk aversion, which insurance companies accomplish by
increasing the number of policyholders within a pool to make
losses more predictable. See Michael Murray, The Law of
Describing Accidents: A New Proposal for Determining the
Number of Occurrences in Insurance, 118 Yale L.J. 1484, 1491-92
(2009). The Supreme Court in Royal Drug rejected the insurers’
argument that arrangements with third parties that limit the
amount insurers must pay for policyholder claims represent risk
sharing. 440 U.S. at 211 & n.7. Instead, the Court concluded such
arrangements are risk reduction. Id. Similarly, the TWCA’s
reimbursement scheme does not add to the pool of
policyholders—risk share—it limits the amount that an
insurance company must pay—risk reduction—to satisfy
obligations to a medical service provider. See id. Whether an
insurance company’s reimbursement obligation to a provider is
limited because the insurance company optionally entered into
such an arrangement, or because the arrangement was
prescribed by statute, has no bearing on whether the
arrangement amounts to risk sharing. Genord, 440 F.3d at 804,
806-07. This is true even if the reimbursement arrangement
results in benefits to the policyholder in the form of lower
premiums. Royal Drug, 440 U.S. at 214 (footnote omitted) (“Such
cost-savings arrangements may well be sound business practice,
and may well inure ultimately to the benefit of policyholders in
the form of lower premiums, but they are not the ‘business of
insurance.’”).
App-80
constraints are still not the business of insurance. Id.
at 214. At most, the reimbursement scheme is simply
that: a cost constraint that inures some benefit to an
employer. The limits merely represent what an
insurer must pay to satisfy its obligations to a service
provider. The insurer assumes the responsibility to
pay under the policy with the insured—risk shares—
and the reimbursement scheme operates as a
constraint on the insurer’s costs separate and apart
from the agreement with the insured. See id.; Pireno,
458 U.S. at 130-31.
Second, payments to air-ambulance transports
are not to entities within the insurance industry. The
Supreme Court held in Pireno that a New York law
allowing health insurers to use a peer-review system
to determine the necessity and use of chiropractic
treatments did not regulate the business of insurance.
458 U.S. at 134. In discussing the third Pireno factor,
the Supreme Court noted that the system “inevitably
involve[d] third parties wholly outside the insurance
industry—namely, practicing chiropractors.” Id. at
132.
The
business
of
insurance
excludes
“[a]rrangements between insurance companies and
parties outside the insurance industry.” Id. at 133.
Much like the chiropractors in Pireno, air-ambulance
transports offer a service that might satisfy a benefit
under an insurance policy. See id. at 122-23. However,
also like Pireno, that does not render limits on what
an insurer may pay an air-ambulance transport “the
business of insurance.” See id. at 132-33. The scheme
is akin to an agreement between insurance companies
and those outside the industry because the scheme
represents the amount that an insurance company
must pay to a third party to satisfy the insurer’s
App-81
obligations under a policy. See id. at 133; Genord, 440
F.3d at 808-09; Air Evac EMS, Inc., 331 F. Supp. 3d at
666. The reimbursement scheme’s cost limits are
directed not at insurers but rather at service
providers. That is, the reimbursement scheme is
directed at air-ambulance markets and does not
represent “‘intra-industry cooperation’ in the
underwriting of risks.” Pireno, 458 U.S. at 133
(citations omitted); see Genord, 440 F.3d at 808
(doctors providing gynecological services are not
within the insurance industry). Therefore, under
Pireno, the TWCA’s reimbursement scheme is not
aimed at protecting or regulating the performance of
an insurance contract and does not regulate the
business of insurance.
III. Conclusion
I cannot join the Court in concluding that the
TWCA’s reimbursement scheme avoids or is saved
from preemption. The reimbursement scheme relates
to a price of an air carrier, and is thus preempted by
the ADA, because it limits the amount that an air
carrier may charge for its services. Further, the MFA
does not reverse preempt the TWCA or its
reimbursement scheme because neither was enacted
for the purpose of regulating the business of
insurance, as understood by the United States
Supreme Court. The TWCA was enacted to manage
on-the-job injury claims by encouraging participation
in the workers’ compensation system and
discouraging parties from resorting to litigation.
Further, the reimbursement scheme regulates the
relationship between the insurer and third-party
service providers rather than the “business of
App-82
insurance.” Because I would affirm the court of
appeals’ judgment, I respectfully dissent.
Paul W. Green
Justice
OPINION DELIVERED: June 26, 2020
App-83
Appendix B
IN THE TEXAS COURT OF APPEALS
THIRD DISTRICT
________________
No. 03-17-00081-CV
________________
PHI AIR MEDICAL, LLC,
v.
Appellant,
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, ZENITH INSURANCE COMPANY,
and TEXAS DEPARTMENT OF INSURANCE, DIVISION OF
WORKERS’ COMPENSATION,
Appellees.
________________
Filed: Jan. 31, 2018
________________
Before Justices Puryear, Field, and Bourland
________________
OPINION
________________
This case arises out of a dispute over what
reimbursement is due to appellant PHI Air Medical,
LLC for its transporting of injured employees covered
by workers’ compensation insurance in Texas. The
App-84
parties sought judicial review of a decision by the
State Office of Administrative Hearings, and the trial
court rendered a final judgment in favor of the
appellee
insurers—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, and Zenith Insurance
Company (collectively “the Insurers”). Because we
conclude that certain provisions related to rates that
can be paid for air ambulance transports are
preempted by the Airline Deregulation Act (“the
ADA”), we reverse the trial court’s judgment and
remand the cause to the trial court for further
proceedings.
Statutory and Procedural Background
In 1978, Congress enacted the ADA to encourage
market competition, to advance efficiency and
innovation, to lower prices, and to increase the variety
and quality of air transportation services. Morales v.
Trans World Airlines, Inc., 504 U.S. 374, 378 (1992);
see 49 U.S.C. § 40101(a) (explaining policy
considerations involved in deregulation). The ADA
provides:
(b) Preemption. Except as provided in this
subsection, a State . . . may not enact or
enforce a law, regulation, or other provision
having the force and effect of law related to a
price, route, or service of an air carrier that
may provide air transportation under this
subpart.
49 U.S.C. § 41713(b).
App-85
At the state level, under the Texas Workers’
Compensation Act (“the Act”), see Tex. Lab. Code
§§ 401.001-419.007, employers may elect to self-insure
or to obtain private insurance coverage to cover onthe-job injuries to their employees, id. §§ 406.002(a),
.003. Under the Act, workers’ compensation insurance
generally pays benefits to an employee injured on the
job regardless of fault or negligence, and the employee
waives the right to sue for her injuries. Id. §§ 406.031,
.034. This case involves the following statutes and
rules:
•
•
•
section 413.011 of the Act, which (1) requires the
Commissioner of Workers’ Compensation to adopt
policies and guidelines “that reflect standardized
reimbursement structures found in other health
care delivery systems” by using Medicare and
Medicaid reimbursement methodologies and
policies and by developing appropriate conversion
and other adjustment factors, and (2) states that
the guidelines “must be fair and reasonable and
designed to ensure the quality of medical care and
to achieve effective medical cost control,” id.
§ 413.001;
provisions
governing
the
assessment
of
administrative penalties and sanctions for
violations of the Act, id. §§ 415.021-.036;
the administrative rule defining “maximum
allowable reimbursement” (“MAR”) that may be
paid to a health-care provider and stating that
certain health-care services shall be reimbursed in
accordance with the Workers’ Compensation
Division’s fee guidelines, a negotiated contract, or
if neither applies, “a fair and reasonable
reimbursement rate” consistent with section
App-86
413.011 of the Act, 28 Tex. Admin. Code § 134.1(e),
(f) (Tex. Dep’t of Ins., Medical Reimbursement);
and
the rule explaining that the MAR for certain coded
services 1 shall be 125 percent of a particular
Medicare fee schedule, 125 percent of the
published Texas Medicaid fee schedule rate for
that code if it is not included in the Medicare
schedule, or, if neither applies, the “fair and
reasonable” rate under section 134.1, as
summarized above, id. § 134.203(d), (f) (Tex. Dep’t
of Ins., Medical Fee Guideline for Professional
Services). 2
•
Health-care services are assigned “codes” under the
Healthcare Common Procedure Coding System, which allows for
more consistent billing and reimbursement. See Centers for
Medicare & Medicaid Servs., HCPCS—General Information,
HCPCS
Background
Information,
https://www.
cms.gov/Medicare/Coding/MedHCPCSGenInfo/index.html (last
visited Jan. 9, 2018). The list includes more than 6,000 codes that
encompass thousands of details related to the provision of health
care. See https://www.cms.gov/Medicare/Coding/HCPCSRelease
CodeSets/Alpha-Numeric-HCPCS.html (last visited Jan. 9,
2018). For example, there are codes for a patient’s left or right
side, for intravenous versus subcutaneous administration of a
drug, for the kind of wheelchair or wheelchair accessories
provided, for various cancer screenings, for hospital admission,
for different kinds of laparoscopic surgeries, for the
administration of specific drugs, for the provision of various kinds
of counseling services, and for speech or occupational therapy.
1
2 PHI also challenged the Act’s prohibition on “balancebilling”—which is a health-care provider’s billing of an injured
employee for all or part of the cost of a provided service. Tex. Lab.
Code § 413.042(a). However, in its reply brief, it states that it
only attacks the balance-billing provision in the alternative and
App-87
PHI provides air-ambulance services throughout
Texas and elsewhere in the country. It is certified and
regulated by the United States Department of
Transportation pursuant to the Federal Aviation Act.
When it is called upon to transport someone, it charges
for that service by billing a “per-trip charge” and an
additional charge for the miles transported. PHI and
the Insurers disagreed on the amount that PHI could
recover for its transport of injured workers covered by
workers’ compensation policies issued by the Insurers,
and the issue was brought before the Division, as
required by the Act. See Tex. Lab. Code § 413.031. The
Division determined that the applicable provisions of
the labor code and related rules were preempted by
the ADA, and the Insurers appealed, requesting a de
novo hearing at the State Office of Administrative
Hearings. An Administrative Law Judge heard the
matter and issued a final decision finding (1) that the
federal ADA did not preempt the Act and (2) that PHI
should recover 149% of the Medicare rate for such
services. The Insurers and PHI sought judicial review,
and the Division intervened. Following a hearing, the
trial court signed a final order declaring that the ADA
did not preempt the Act and that the Insurers could
not be asked to pay more than 125% of the Medicare
amount. PHI appealed.
Does the ADA apply to preempt the Act?
Our initial inquiry is whether the ADA preempts
the Act, first addressing the Insurers’ argument that
PHI’s services do not fall within the preemption
that it would prefer to see that provision left intact while the
provisions related to the reimbursement schedule are struck.
App-88
provision. The preemption provision bars a state from
enacting a law or rule “related to a price, route, or
service of an air carrier that may provide air
transportation under this subpart.” 49 U.S.C.
§ 41713(b-1). 3 The Insurers argue that PHI does not
“provide air transportation” subject to preemption
because it does not hold certificates under the
specified subpart, Subpart II. 4
Under Subpart II, “[e]xcept as provided in this
chapter or another law,” an air carrier “may provide
air transportation only if the air carrier holds a
certificate under this chapter.” Id. § 41101(a).
However, the Secretary of Transportation has the
authority to exempt certain classes of carriers if he
considers it necessary and “decides that the exemption
is consistent with the public interest.” Id. § 40109(c).
As applicable here, the Secretary of Transportation
has established “a classification of air carrier,
designated as ‘air taxi operators,’ which directly
engage in the air transportation of persons” but which
“[d]o not hold a certificate of public convenience and
necessity and do not engage in scheduled passenger
operations.” 14 C.F.R. § 298.3(a). We conclude that an
air-ambulance service, as an air taxi operator, is an air
carrier that may provide air transportation under
3 The ADA defines an “air carrier” as “a citizen of the United
States undertaking by any means, directly or indirectly, to
provide air transportation,” and “air transportation” as “foreign
air transportation, interstate air transportation, or the
transportation of mail by aircraft.” 49 U.S.C. § 40102(a)(2), (5).
4 The preemption provision is in Title 49, “Transportation,”
Subtitle VII, “Aviation Programs,” Part A, “Air Commerce and
Safety,” Subpart II, “Economic Regulation.”
App-89
Subpart II, 49 U.S.C. § 41101(a), while exempted from
certain certification requirements, id. § 40109(c). We
further conclude that the preemption provision
applies to such carriers. See id. § 41713(b); 5 see, e.g.,
Air Evac EMS, Inc. v. Cheatham, No. 2:16-CV-05224,
2017 WL 4765966, at *5 (S.D.W.Va. Oct. 20, 2017)
(appeal filed Nov. 22, 2017) (noting that no other
courts have ruled that air ambulances were not air
carriers under ADA, observing that Department of
Transportation licensed Air Evac as an air carrier, and
holding “that Air Evac’s practice of providing
emergency air ambulance services indiscriminately
when called upon by third party professionals,
together with its certification as an air carrier by the
DOT and court cases affirming this status, qualify Air
Evac as an air carrier under the ADA”); EagleMed,
LLC v. Wyoming ex rel. Dep’t of Workplace Servs., 227
F. Supp. 3d 1255, 1277-78 (D. Wyo. 2016), aff’d in part,
5 In a letter related to whether the ADA preempts a county’s
attempts to impose certain requirements on air ambulance
services, the Department of Transportation took the same
position, stating that “an air ambulance operator . . . that holds
DOT economic authority to operate as a registered air taxi under
14 CFR part 298, along with an FAA air carrier operating
certificate under 14 CFR part 135, is an ‘air carrier’ for purposes
of the ADA preemption provision.” Letter from Ronald Jackson,
Assistant Gen. Counsel for Operations, Dep’t of Transp., to
Thomas Cook, Vice Pres. & Gen. Counsel, REACH Air Med.
Servs., LLC (Feb. 25, 2016), located at https://www.
transportation.gov/sites/dot.gov/files/docs/Reach%20Letter%20F
inal%20OCR.pdf. The Attorney General of Texas has also
observed that “[t]he preemption provision has been applied to air
ambulance companies that are air carriers within the ADA
definition.” Tex. Att’y Gen. GA-0684, 2008 WL 4965344, at *2
(Nov. 20, 2008) (citing cases applying ADA to air ambulances).
App-90
rev’d in part by EagleMed LLC v. Cox, 868 F.3d 893,
904 (10th Cir. 2017) (finding that air ambulances are
“air carriers” under ADA); Med-Trans Corp. v. Benton,
581 F. Supp. 2d 721, 732-33 (E.D.N.C. 2008) (holding
that air ambulance service provider was common
carrier subject to preemption provision). 6 Therefore,
PHI, as a registered air taxi with all relevant and
required certificates, is an air carrier under Subpart
II. 7 We now turn to whether the provisions at issue are
preempted.
6 See also Hughes Air Corp. v. Public Utils. Comm’n of Cal., 644
F.2d 1334, 1337-38 (9th Cir. 1981) (holding “that Congress
intended to include carriers exempted from [Civil Aeronautics
Board] certification pursuant to section 416(b)(1) within the
scope of the preemption provision”); Hiawatha Aviation of
Rochester, Inc. v. Minnesota Dep’t of Health, 389 N.W.2d 507, 509
(Minn. 1986) (holding under similar preemption provision that
state was “preempted from controlling entry into the field of air
ambulance service” when air carrier “registers under 14 C.F.R.
§ 298 to operate as an air taxi and is authorized by the CAB to
provide an air ambulance service”).
7 We likewise disagree with the Insurers’ argument that the
rates charged by PHI are not “prices” as contemplated by the
ADA. The ADA defines “price” as a “rate, fare or charge,” 49
U.S.C. § 40102(a)(39), and regardless of whether PHI is paid
lowered charges under certain circumstances, its billed rate
cannot be considered anything other than a “price.” See Valley
Med Flight, Inc. v. Dwelle, 171 F. Supp. 3d 930, 942-43 (D.N.D.
2016) (provisions that had effect of capping reimbursement for
air ambulance services could only be considered to directly
impact prices and services under ADA); Tex. Att’y Gen. GA-0684,
2008 WL 4965344, at *2-3 (noting that ambulance subscription
program “involves an annual fee and a reduced charge for air
ambulance services” and that because “[t]he regulation of the
subscription program is related to the price of air ambulance
services,” ADA preempted statutes and rules “to the extent these
provisions relate to rates charged by air carriers providing air
App-91
Other courts that have considered the preemptive
effect of the ADA have noted the breadth of the
language chosen by Congress. See, e.g., Northwest, Inc.
v. Ginsberg, 134 S. Ct. 1422, 1430 (2014) (noting that
language of ADA’s preemption provision, which
applies to “a law, regulation or other provision having
the force and effect of law” (emphasis added), is “much
more broadly worded” than other legislation that
expressly applies only to “a law or regulation”);
Morales, 504 U.S. at 383-84 (ADA’s provision
“express[es] a broad pre-emptive purpose”); Cox, 868
F.3d at 899 (quoting from Morales’s discussion of
provision’s broad purpose, 504 U.S. at 383-84); Valley
Med Flight, Inc. v. Dwelle, 171 F. Supp. 3d 930, 940
(D.N.D. 2016) (“The phrase ‘related to’ in the ADA
preemption clause has been construed very broadly.”);
Bailey v. Rocky Mountain Holdings, LLC, 136 F. Supp.
3d 1376, 1380 (S.D. Fla. 2015) (observing that
Supreme Court has “held that the [preemption]
provision should be construed broadly and [has]
described its purposeful ‘sweeping nature’” (quoting
Morales, 504 U.S. at 384-85)). We agree. The relevant
statutes and rules set the rates that can be recovered
by PHI, as an air carrier, for transporting patients.
Under the plain language of the ADA preemption
provision, the ADA preempts those statutes and rules
as far as they attempt to regulate PHI’s rates. 8 See,
ambulance services”). If PHI receives an artificially low payment
for its provision of services, a rate not reasonably tied to market
costs such as fuel and other costs specific to air ambulances, its
“rates” as billed to recipients not a part of the workers’
compensation market will have to change to cover such losses.
8 We reject the Insurers’ argument that we should parse
Congressional intent in greater detail through a policy-related
App-92
e.g., Cox, 868 F.3d at 904; Cheatham, 2017 WL
4765966, at *6-8; Dwelle, 171 F. Supp. 3d at 941-43;
Benton, 581 F. Supp. 2d at 736-39.
Does the McCarran-Ferguson Act “reversepreempt” the Act?
We next ask whether the McCarran-Ferguson Act
removes the Act from ADA preemption or “reversepreempts” it. The McCarran-Ferguson Act provides:
(a) State regulation
The business of insurance, and every person
engaged therein, shall be subject to the laws
of the several States which relate to the
regulation or taxation of such business.
(b) Federal regulation
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance, or
lens. Although we agree with the Cox court’s observations about
the ADA’s intent as it relates to the setting of air-ambulance
rates, see EagleMed LLC v. Cox, 868 F.3d 893, 903-04 (10th Cir.
2017), the fact remains that the ADA preemption clause explicitly
states that any state attempts to regulate an air carrier’s rates
or services are preempted. See id. As for whether Congress knew
that air ambulances would be subject to the ADA, we agree with
PHI that the discussion about the possible inclusion of a subsidy
to upgrade air ambulance safety seems to indicate that Congress
had that knowledge when it enacted the ADA. Further, we
disagree with the Insurers’ assertions that the provision of air
ambulance services is not subject to market forces. Although such
services are not “shopped around” by the injured person before
the service is provided, the record contains evidence that the
market does influence the rates an air-ambulance provider will
charge.
App-93
which imposes a fee or tax upon such
business, unless such Act specifically relates
to the business of insurance: Provided,
That . . . the Sherman Act, and . . . the
Clayton Act, and . . . the Federal Trade
Commission Act, . . . shall be applicable to
the business of insurance to the extent that
such business is not regulated by State law.
15 U.S.C. § 1012. 9 The question we must answer is
whether the relevant provisions of the Act and its
associated rules were enacted “for the purpose of
regulating the business of insurance.” 10 See id. In this
For an explanation of the history and purpose behind the
McCarran-Ferguson Act, see U.S. Department of Treasury v.
Fabe, 508 U.S. 491, 499-500 (1993), and Group Life & Health
Insurance Co. v. Royal Drug Co., 440 U.S. 205, 217-20 (1979).
9
10 We note that the Administrative Law Judge stated that the
reimbursement provisions were a “non-severable part” of the
overall Act. We disagree. “The test for severability in the absence
of an express severability clause is one of legislative intent.”
Association of Tex. Prof’l Educators v. Kirby, 788 S.W.2d 827, 830
(Tex. 1990). The overall Act is largely not subject to preemption
and can be given effect separate and apart from the specific ratesetting provisions at issue here. See id. at 830-31 (quoting Texas
& P. Ry. Co. v. Mahaffey, 84 S.W. 646, 648 (Tex. 1905)). There is
no indication that the Legislature would not have passed the Act
without the rate provisions as they apply to air ambulances or
that the Act cannot function without those provisions as applied
here. See id.; Rose v. Doctors Hosp., 801 S.W.2d 841, 850 (Tex.
1990) (Phillips, C.J., dissenting) (“The inquiry, therefore, is
whether ‘the invalid part is so intermingled with all parts of the
act as to make it impossible to separate them, and so preclude
the presumption that the Legislature would have passed the act
anyhow.’” (quoting Sharber v. Florence, 115 S.W.2d 604, 606 (Tex.
1938))); see also Anderson v. Abbott Labs., No. 3:11-CV-1825-L,
App-94
inquiry, we are guided by the United States Supreme
Court and federal courts that have explained what is
meant by that language.
As explained by the Supreme Court, the focus of
the McCarran-Ferguson Act is on “the relationship
between
the
insurance
company
and
its
policyholders.” U.S. Dep’t of Treasury v. Fabe, 508 U.S.
491, 500 (1993). In other words, a statute that
regulates the business of insurance is one that is
aimed at protecting or regulating the relationship
between the insurer and the insured. Id. (quoting
Securities & Exch. Comm’n v. National Secs., Inc., 393
U.S. 453, 460 (1969)); see also Group Life & Health Ins.
Co. v. Royal Drug Co., 440 U.S. 205, 220-21 (1979)
(“References to the meaning of the ‘business of
insurance’ in the legislative history of the McCarranFerguson Act strongly suggest that Congress
understood the business of insurance to be the
underwriting and spreading of risk.”). A statute need
not directly regulate “the business of insurance,” such
as by mandating certain terms of an insurance
contract or setting premiums that may be charged by
an insurer, to fall within the ambit of the McCarranFerguson Act. Fabe, 508 U.S. at 502-03. “The broad
category of laws enacted ‘for the purpose of regulating
the business of insurance’ consists of laws that possess
the ‘end, intention, or aim’ of adjusting, managing, or
controlling the business of insurance.” Id. at 505
(quoting Black’s Law Dictionary 1236, 1286 (6th ed.
1990)).
2012 WL 4512484, at *6 (N.D. Tex. Sept. 30, 2012) (discussing
severability in context of preemption).
App-95
“Cases interpreting the scope of the McCarranFerguson Act have identified three criteria relevant to
determining whether a particular practice falls within
that Act’s reference to the ‘business of insurance’:
‘first, whether the practice has the effect of
transferring or spreading a policyholder’s risk; second,
whether the practice is an integral part of the policy
relationship between the insurer and the insured; and
third, whether the practice is limited to entities within
the insurance industry.’” Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 743 (1985) (quoting
Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129
(1982)). 11 A statute must do more than affect
insurance companies—it must focus “on the
relationship between the insurance company and the
policyholder.” See National Secs., 393 U.S. at 460
(holding that statute focused on insurance company
stockholders, not on “attempting to secure the
interests of those purchasing insurance policies,” and
so fell outside McCarran-Ferguson Act); see also
Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S.
329, 337-39 (2003) (noting in discussion of broader
Pireno and Royal Drug both dealt with “the scope of the
antitrust immunity located in the second clause of § 2(b)” of the
McCarran-Ferguson Act, not the broader first clause at issue in
this case. Fabe, 508 U.S. at 504; see Union Labor Life Ins. Co. v.
Pireno, 458 U.S. 119, 126 (1982); Royal Drug, 440 U.S. at 231-32.
However, despite their antitrust focus, Pireno and Royal Drug
are often cited for their discussions of factors to consider in
determining whether a statute regulates the business of
insurance, see, e.g., Kentucky Ass’n of Health Plans, Inc. v. Miller,
538 U.S. 329, 337-39 (2003); Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 50-51 (1987); Metropolitan Life Ins. Co. v. Massachusetts,
471 U.S. 724, 743 (1985), and we consider those factors in our
analysis.
11
App-96
ERISA reverse-preemption that McCarran-Ferguson
Act applies if law was enacted for purpose of
regulating business of insurance, not simply if it
affects insurance company’s business). In determining
whether the statutes and rules at issue should be
considered laws enacted for the purpose of regulating
the business of insurance, we consider how they fit
within the overall framework of the Act. See
Fredricksburg Care Co., L.P. v. Perez, 461 S.W.3d 513,
520 (Tex. 2015).
In Fabe, the Court determined that an Ohio
statute that established the priority in which an
insurance company’s assets are distributed upon
bankruptcy, placing governmental claims behind
policyholders’s claims and those of certain other
creditors, fell within McCarran-Ferguson because it
was “designed to carry out the enforcement of
insurance contracts by ensuring the payment of
policyholders’ claims despite the insurance company’s
intervening bankruptcy,” and thus its purpose was
“identical to the primary purpose of the insurance
company itself: the payment of claims made against
policies.” 508 U.S. at 504-06. In Royal Drug, the
agreements at issue limited the prices participating
pharmacies would be paid for drugs, thus minimizing
the insurance company’s costs and maximizing its
profits, and as the Supreme Court observed, such
agreements “may well be sound business practice, and
may well inure ultimately to the benefit of
policyholders in the form of lower premiums, but they
are not the ‘business of insurance.’” 440 U.S. at 214.
Further, those agreements were not between the
insurance company and its insureds but between the
insurer and pharmacies providing services to the
App-97
insureds. Id. at 216. And finally, in Pireno, a
chiropractor attacked an insurance company’s use of
peer-review committees to determine whether the
chiropractor’s charges were reasonable charges for
necessary care. 458 U.S. at 122-23. The Court
observed that the use of the peer-review committee did
not spread or underwrite a policyholder’s risk, was
“distinct from [the insurer’s] contracts with its
policyholders,” and was “not limited to entities within
the insurance industry” because it involved “third
parties wholly outside the insurance industry—
namely, practicing chiropractors.” Id. at 130-32.
“The
purpose
of
the
Texas
Workers’
Compensation Act is to provide employees with
certainty that their medical bills and lost wages will
be covered if they are injured.” HCBeck, Ltd. v. Rice,
284 S.W.3d 349, 350 (Tex. 2009); see Tex. Lab. Code
§ 402.021 (goals of workers’ compensation system are
that each employee be treated with dignity and
respect and that each injured employee have access to
fair and accessible dispute resolution process, prompt
and high-quality medical care, and services necessary
to facilitate his return to employment; in
implementing goals, system must promote safe and
healthy workplaces and provide income and medical
benefits in timely and cost-effective manner). 12
12 See also In re Poly-America, L.P., 262 S.W.3d 337, 349-50
(Tex. 2008) (orig. proceeding) (“The Texas Workers’
Compensation Act was enacted to protect Texas workers and
employees. The Texas Legislature enacted the original Workers’
Compensation Act in 1913 in response to the needs of workers
who, despite a growing incidence of industrial accidents, were
increasingly being denied recovery. In order to ensure
compensation for injured employees while protecting employers
App-98
Employees benefit under the Act because they are
saved th
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