United States: North Dakota Laws Establishing Primary Call List And Fee Schedule For Air Ambulance Operators Held Preempted

Judy Nemsick is a Partner in Holland & Knight's New York office

In an important preemption decision for the air ambulance industry,1 the US District Court for the District of North Dakota permanently enjoined the State of North Dakota from enforcing state laws that give preferential treatment to one air ambulance provider over another and that limit fees an air ambulance provider may charge in workers' compensation cases. The decision is significant because it ultimately encourages investment in critical care services by rejecting state governmental control over market entry and the setting of artificially low and manipulated rates. Notably, several air ambulance providers are currently challenging similar laws in other states that restrict services and pricing.

State Laws Impact Operator's Services and Prices

The preempted North Dakota laws include: (1) a statute establishing a primary call list for air ambulance operators who become "participating providers" with insurance companies in the State;2 and (2) state workers' compensation laws that set a fee schedul for reimbursement of air ambulance transportation in cases managed by the State-run workers' compensation system.3 The court determined that the Airline Deregulation Act4 expressly preempts the foregoing laws because they improperly regulate an operator's services and prices.

Although the State argued that becoming a participating provider is a "business decision" by the air ambulance operator, the court determined that the operators have "no choice" – otherwise, they would be placed on a secondary call list and lose dispatch priority. The court further found that the statute interferes with "market participation," "grant[s] preferential treatment to certain [] operators," and "severely restricts" the ability of those providers on the secondary call list from servicing the market. The law also indirectly impacts operators' prices by effectively requiring them to accept an insurer's reimbursement rates.

Regarding the state workers' compensation laws, the court held that the agency's fee schedule for air ambulance transportation and its prohibition on balance billing "collectively mandate the reimbursement rates for air ambulance services" and "directly impact" prices and services under the ADA.

No Reverse Preemption

The court notably rejected the application of the McCarran-Ferguson Act (MFA), which generally preserves state regulation of the insurance industry, finding that "the provisions in question were not enacted 'for the purpose of regulating the business of insurance.'" Applying the three-part test in Union Labor Life Ins. Co. v. Pireno,5 the court concluded that the statute creating a primary call list did not "alter or in any way directly affect any policy of insurance;" rather, it affects the relationship between the air ambulance service provider and the insurance carrier by compelling an operator to become a preferred provider. Significantly, the court held that the Pireno test was unmet because "while an air ambulance service provider may submit bills to insurance providers, [it] remains a third-party to the contract between the insurer and insured."

The court also rejected reverse preemption of the workers' compensation fee schedule, finding that North Dakota's Workforce Safety & Insurance (WSI), the agency charged with managing the State workers' compensation system, is not an insurance company. Rather, WSI "is a monopolistic state-mandated program" that "does not issue insurance contracts" and "is not subject to oversight by the North Dakota Department of Insurance." Because benefits are paid pursuant to state law and not pursuant to any policy of insurance, the court concluded that WSI is not engaged in the "business of insurance" and the MFA is inapplicable.

Footnotes

1. Valley Med Flight, Inc. v. Dwelle et al., No. 1:15-cv-070 (D.N.D. Mar. 21, 2016). Holland & Knight LLP represented the air ambulance service provider.

2. N.D.C.C. § 23-27-04.10. To be placed on a primary call list, the operator must become a participating provider with insurance carriers which collectively control 75% of the North Dakota market. Participating providers are required to accept the reimbursement rates offered by the insurance carrier.

3. N.D.C.C. § 65-02-08 (mandating that all fees on claims for medical services provided to an injured employee must be in accordance with the adopted fee schedules); N.D. Admin. Code § 92-01-02-45.1(22) (prohibiting balance billing to workers' compensation claimant).

4. 49 U.S.C. § 41713(b)(1).

5. 458 U.S. 119 (1982). In deciding whether a particular law regulates the "business of insurance," courts examine: "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." Id. at 129.

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