Valley Med Flight, Inc. v. Dwelle

Citations: 171 F. Supp. 3d 930; 2016 U.S. Dist. LEXIS 70282; 2016 WL 2937457Docket: Case No. 1:15-cv-070

Court: District Court, D. North Dakota; March 21, 2016; Federal District Court

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The court grants Valley Med Flight, Inc.’s motion for judgment on the pleadings regarding its claims against two North Dakota laws. Valley Med, a licensed air ambulance service operating under FAA and DOT regulations, seeks to prevent enforcement of North Dakota House Bill 1255 and certain provisions related to workers' compensation, asserting they are preempted by the Airline Deregulation Act (ADA) and the Emergency Medical Treatment and Active Labor Act (EMTALA). House Bill 1255 mandates that air ambulance operators must be participating providers with specific health insurance companies to be listed on a primary call list for services. This bill was passed by the North Dakota Legislature in April 2015 and requires documentation of participation from air ambulance providers. The defendants include Terry Dwelle, M.D., the State Health Officer, and Bryan Klipfel, Executive Director of the North Dakota Workforce Safety Insurance. Valley Med's complaint consists of seven counts seeking declaratory and injunctive relief against the enforcement of these laws.

The department is tasked with creating air ambulance service response zones for rotary wing aircraft, focusing on response times and patient safety. Emergency medical services personnel, licensed hospitals, or public safety answering points must inform requesters of estimated response times for air versus ground transport. If a request for air ambulance services is withdrawn, the service is not obligated to fulfill it.

When emergency medical services personnel request air ambulance services, the responding party must follow a priority system: first, contact an air ambulance provider from the primary list in the designated response zone; if unavailable, inform the requester and contact a secondary provider; if that provider is also unavailable, notify the requester and provide options outside the zone.

Air ambulance service providers must supply their fee schedules upon request from the department or a potential patient/legal guardian, which will be compiled and distributed to relevant healthcare entities. Hospitals must make reasonable efforts to inform patients or their guardians about air ambulance fees before referrals, unless doing so would compromise patient health or safety.

The state health council is responsible for adopting rules that establish requirements for air ambulance service providers, including transport plans, protocols for auto launch and cancellation, medical necessity, and informed consent. Additionally, the council will set quality care standards and other necessary regulations for these providers.

Under N.D.C.C. 23-27-04.10, the Department of Health is mandated to establish and maintain primary and secondary call lists for air ambulance service providers in North Dakota. To qualify for the primary list, providers must supply documentation showing participation with health insurance carriers covering at least 75% of the state's market share. The Department will distribute these lists to emergency services, hospitals, and public safety entities. Additionally, it will define service response zones for rotary wing aircraft based on response times and patient safety.

When air ambulance services are requested, responders must first contact a primary call list provider in the designated zone, escalating to the secondary list if necessary. If no responders are available, options outside the zone will be communicated. Providers must also supply their fee schedules upon request, which will be disseminated to relevant medical and emergency entities. Patients or their guardians must be informed of air ambulance fees before referrals, unless doing so would compromise patient safety.

Blue Cross Blue Shield of North Dakota (BCBS) dominates the state's health insurance market, controlling over 50%. Therefore, to be listed on the primary call list, air ambulance providers must participate with BCBS, as it is integral to reaching the 75% coverage requirement. Valley Med was excluded from the primary call list post-House Bill 1255 due to its lack of participation with BCBS, which resulted from unresolved reimbursement rate negotiations. Although Valley Med signed a one-year agreement with BCBS in May 2015 to qualify for the primary list, it claims that the accepted reimbursement rates are significantly lower than market rates and threaten its operational sustainability in North Dakota.

WSI (Workers' Compensation System) has the authority to set and enforce a fee schedule for air ambulance services in North Dakota, as established by N.D.C.C. 65-02-08. Providers rendering medical treatment to injured employees in North Dakota must adhere to WSI's fee schedules. WSI has published specific air ambulance rates, and according to North Dakota Administrative Code 92-01-02-45.1(22), medical service providers cannot bill patients or other insurers for amounts exceeding WSI's fees, a practice known as "balance billing." Valley Med has filed multiple claims for air ambulance services provided to injured employees between September 2013 and April 2015, but WSI has only compensated these claims based on the Workers’ Compensation Fee Schedule, rejecting Valley Med's higher rates. Valley Med intends to continue providing services and submitting claims at its rates, which WSI is expected to refuse.

The document also outlines the standard for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure, indicating that such a motion is appropriate when no material facts remain in dispute, allowing for a judgment as a matter of law. It emphasizes that courts must accept all factual allegations in the complaint as true and construe them in the plaintiff's favor. The standard for judgment on the pleadings is aligned with that for dismissals under Rule 12(b)(6), and while courts generally disregard materials outside the pleadings, they may consider public records and documents necessarily embraced by the pleadings.

Additionally, the excerpt discusses the principle of federal preemption under the Supremacy Clause of the U.S. Constitution, which renders state laws invalid if they conflict with federal laws. This principle is illustrated through various court cases, confirming that federal law takes precedence when state laws interfere.

Federal law can supersede state law under the Supremacy Clause in three main ways: 1) express preemption, where Congress explicitly states its intent to preempt; 2) field preemption, inferred from comprehensive federal regulation of a specific area; and 3) conflict preemption, where state law conflicts with federal law, making compliance with both impossible or creating obstacles to federal objectives. The Airline Deregulation Act (ADA) includes an express preemption clause prohibiting states from enacting laws affecting an air carrier's prices, routes, or services. The Supreme Court has clarified the ADA's preemption scope, emphasizing that any state law with a connection to airline rates, routes, or services is preempted, even if the impact is indirect. This interpretation aims to prevent states from undermining federal deregulation efforts. In Morales v. Trans World Airlines, the Court ruled that state deceptive business practice laws related to airline fare advertisements were preempted, and in Am. Airlines, Inc. v. Wolens, it confirmed that certain claims under state consumer protection laws were preempted while others, like breach of contract claims, were not. The ADA's broad preemption clause seeks to maintain uniformity in the airline industry by limiting state regulatory power.

The Supreme Court clarified that the airline's frequent flyer program, which offered mileage credits for free tickets and upgrades, was related to rates and services, thereby implicating the Consumer Fraud Act. However, the Consumer Fraud Act was preempted by the Airline Deregulation Act (ADA) due to its prescriptive nature aimed at regulating airline marketing practices. Breach of contract claims were not subject to preemption because they involve self-imposed obligations rather than state-imposed ones. The Court emphasized that the ADA's intent was to enhance market efficiency and uphold private contract enforcement. In Northwest, Inc. v. Ginsberg, the Court held that an airline customer's claim regarding the implied covenant of good faith and fair dealing was preempted by the ADA, as it was broadly worded to include all state laws, including common law, that could undermine its purpose. The claim was linked to "rates, routes, or services" since it sought reinstatement in the frequent flyer program. The Court noted that because the implied covenant is a state-imposed obligation, it does not constitute a voluntary agreement between parties. The discussion then shifts to the applicability of the ADA's preemption over specific North Dakota Century Code sections regulating air ambulance service providers, with Valley Med asserting that Section 23-27-04.10 significantly impacts prices, routes, and services. The defense argued otherwise, but this position is weakened by established precedents indicating that ADA preemption is broadly construed.

The ADA preempts certain state laws regarding air carrier services, as established in various court cases. For example, a New York law mandating airlines to provide basic necessities during delays was deemed preempted because it related to air carrier service (Air Transport Ass’n of Am. v. Cuomo). Similarly, state requirements for licensing air ambulance services were found preempted under the Federal Aviation Act, which mirrors the ADA’s preemption clause (Hiawatha Aviation of Rochester, Inc. v. Minn. Dep’t of Health). A court ruled that a certificate of need requirement for air ambulance services significantly interfered with operations and prices, thus violating ADA provisions (Med-Trans Corp. v. Benton). The Supreme Court's ruling in Morales reinforces that states cannot regulate air carriers in ways that could prevent their operation, further supporting the preemption of laws that impact prices, routes, or services.

In the specific context of North Dakota law, Section 23-27-04.10 imposes requirements on air ambulance service providers to be included on a primary call list, affecting their operational viability. Providers must meet certain qualifications and become participating providers with major insurance carriers like BCBS, which dominates the market. The law effectively obliges air ambulance services to accept predetermined reimbursement rates, limiting their operational choices and competitive standing. Providers on the primary call list gain dispatch priority, leading to increased service demand compared to those on the secondary list, thus impacting competition and service delivery under the ADA.

Providers on the secondary call list for air ambulance services face significant limitations due to North Dakota's Section 23-27-04.10, which is preempted by the Airline Deregulation Act (ADA). Citing Med-Trans and Morales, the document emphasizes that state regulations hindering market participation are contrary to Congressional intent. The law mandates that air ambulance providers become participating providers for Blue Cross Blue Shield (BCBS) and accept its lower reimbursement rates, thereby affecting pricing and potentially driving secondary providers out of the market. The intent of the legislation is to protect consumers from unexpected fees, which aligns with types of laws Congress aimed to preempt, as established in Cuomo. Furthermore, the requirement for providers to disclose their fee schedules relates directly to pricing, mirroring advertising regulations deemed preempted in Morales. Ultimately, the court concludes that Section 23-27-04.10 is preempted by the ADA, noting that despite the state's good intentions, Congress has exclusive authority in air carrier regulation. The law disproportionately favors one health insurer in pricing negotiations, and the state's argument for severability of the law lacks merit. Additionally, Valley Med argues that other North Dakota laws related to air ambulance pricing are also preempted by the ADA.

Section 65-02-08 mandates that all fees for medical and hospital services provided to injured employees align with fee schedules established by the organization, which includes air ambulance services as per N.D.A.C. 92-01-02-29(12, 13). The Workers' Compensation System (WSI) utilizes these fee schedules as part of its managed care program to ensure cost-effective medical solutions. According to N.D.A.C. 92-01-02-45.1(22), providers cannot charge claimants for the difference between the maximum allowable fees in the organization's schedule and customary charges, nor can they bill additional fees beyond what is covered by the organization. Valley Med argues these regulations set reimbursement rates for air ambulance services and improperly limit balance billing, conflicting with the Employee Retirement Income Security Act (ERISA) preemption clause. The Court concurs that these provisions significantly influence Valley Med's pricing and services under ERISA, with the State acknowledging their applicability to air ambulance services. The State asserts that the McCarran-Ferguson Act's reverse preemption clause protects these provisions from ERISA preemption since they regulate the insurance business. The McCarran-Ferguson Act allows state laws regulating insurance to prevail over federal laws unless the federal law specifically pertains to insurance and would invalidate or impair the state law. Relevant case law supports that state laws aimed at regulating insurer-insured relationships qualify as regulating the "business of insurance."

The McCarran-Ferguson Act primarily addresses the relationship between insurance carriers and policyholders, encompassing both the creation and execution of insurance contracts. The Supreme Court has established three criteria to determine if a law regulates the "business of insurance": (1) whether the practice transfers or spreads a policyholder's risk; (2) whether it is integral to the insurer-insured relationship; and (3) whether it is confined to entities in the insurance industry. 

In Union Labor Life Ins. Co. v. Pireno, it was ruled that a chiropractic peer review committee's role did not fall under the "business of insurance," thus not exempting it from federal antitrust laws. The court is tasked with assessing whether Section 23-27-04.10 was enacted to regulate the "business of insurance," as the ADA includes an express preemption clause that invalidates it. The State argues that Section 23-27-04.10 is aimed at regulating insurance while Valley Med contends it regulates air ambulance service fees. 

The court finds the State's argument unconvincing, determining that Section 23-27-04.10's purpose is to protect patients from high air ambulance charges not covered by their insurance due to non-participation of the service provider. The first prong of the Pireno test, which assesses risk transfer, concludes that risk transfer is complete upon entering an insurance contract. The performance of such contracts falls within the "business of insurance," but the regulation in question pertains to air ambulance services, not insurance contract performance.

The second prong of the Pireno test examines whether the practice is critical to the insurer-insured relationship. It emphasizes that the relationship is defined by the insurance contract, which Section 23-27-04.10 does not alter or regulate. Instead, it influences the connection between air ambulance providers and insurance carriers, compelling providers to become preferred providers to avoid being placed on a secondary call list.

The third prong of the Pireno test evaluates whether a practice is confined to entities within the insurance sector. Section 23-27-04.10 pertains specifically to air ambulance services, which, while they can bill insurers, act as third parties to the insurer-insured relationship. According to Supreme Court precedent, arrangements between insurers and third-party providers are seen as cost-saving measures rather than part of the “business of insurance.” The court concludes that Section 23-27-04.10 seeks to protect patients by incentivizing air ambulance providers to become participating providers with insurers, rather than regulating the insurer's business practices. The McCarran-Ferguson Act primarily addresses the relationship between insurance carriers and policyholders. In this case, since Section 23-27-04.10 changes the dynamics between providers and insurers, it does not pertain to the “business of insurance.” The court suggests that if the section had modified policy terms to safeguard policyholders from air ambulance charges, the conclusion might differ. 

Additionally, regarding N.D.C.C. 65-02-08, the ADA does not specifically address the “business of insurance,” implying its application would invalidate these provisions. The State argues that Title 65 of the North Dakota Century Code and related administrative rules were created to regulate workers’ compensation insurance, asserting that the ADA’s preemption is countered by the McCarran-Ferguson Act. However, Valley Med counters that WSI is not an insurance company, does not issue insurance policies, and falls outside the North Dakota Department of Insurance's jurisdiction. The court finds the State's argument unconvincing, noting that Title 65 addresses the workers’ compensation system, which aims to replace tort systems with guaranteed relief for injured workers. Several states, including North Dakota, have adopted this public workers' compensation system that does not compete with private insurance and cannot be classified as insurance.

The North Dakota Supreme Court has established that workers' compensation is distinct from insurance, as demonstrated in multiple cases including Sandlie v. N.D. Workmen’s Comp. Bureau and Beyer’s Cement, Inc. v. N.D. Ins. Guar. Ass’n. Workers’ compensation does not function as life, accident, or general social insurance and is not classified as an insurance fund. The court noted that the Workers' Compensation System (WSI) operates as a monopolistic, state-mandated program rather than a conventional business or insurer; it does not issue insurance contracts, and benefits are disbursed according to state law rather than insurance policies. The North Dakota Century Code's Title 26.1 regulations do not apply to WSI, which is governed under Title 65, emphasizing the employer-employee relationship. The court determined that WSI is not engaged in the "business of insurance" as defined by the McCarran-Ferguson Act. Applying the Pireno factors, the court found no elements of an insurance contract, policyholder relationship, or risk transfer present in the workers' compensation framework. This conclusion aligns with a similar ruling in Brown v. Cassens Transp. Co., where the Sixth Circuit ruled that Michigan's workers' compensation laws did not equate to insurance and were not enacted to regulate insurance business, thereby affirming that federal RICO claims could proceed without being preempted by state law.

The Sixth Circuit determined that Michigan’s workers compensation laws do not pertain to the “business of insurance” because they serve as a mandatory public regulation of the tort-liability relationship between employers and employees, rather than regulating the contractual insurance relationships typical of the “business of insurance.” The court found the State's reliance on prior cases concerning workers compensation insurance contracts by private companies to be misplaced, emphasizing that in the cited cases, the employers had insurance policies, unlike the self-insured employer in the case at hand. North Dakota's system mandates all employers to participate in a public workers compensation system, eliminating the option for private market insurance. The court adopted the reasoning from the Sixth Circuit's opinion in Brown, asserting that because workers compensation benefits are not considered insurance, certain provisions of the North Dakota Century Code and related administrative codes were not designed to regulate the business of insurance, and thus the McCarran-Ferguson Act does not protect these provisions from being preempted by the ADA. Consequently, the court granted the Defendants’ Motion for Judgment on the Pleadings, permanently enjoining the enforcement of the specified North Dakota laws and regulations, and noting that further arguments related to EMTALA and the Commerce Clause need not be addressed. Additionally, a portion of House Bill 1255 may have been codified, but it was not discussed in Valley Med's filings, so the court did not consider it.