Court Opinion

ID: 4668657
Source: CourtListenerOpinion
Date Created: 2021-03-17 16:00:35.229096+00
Date Added: 2024-06-11T08:03:04.328479
License: Public Domain

United States Court of Appeals
                           For the Eighth Circuit
                       ___________________________

                               No. 19-1343
                       ___________________________

                              Guardian Flight LLC

                                       Plaintiff Appellant

                                         v.

 Jon Godfread, in his capacity as North Dakota Insurance Commissioner; Wayne
         Stenehjem, in his capacity as North Dakota Attorney General

                                     Defendants Appellees

                            ------------------------------

America's Health Insurance Plans; National Association of Insurance Commissioners

                               Amici on Behalf of Appellee(s)
                        ___________________________

                               No. 19-1381
                       ___________________________

                              Guardian Flight LLC

                                        Plaintiff Appellee

                                         v.

 Jon Godfread, in his capacity as North Dakota Insurance Commissioner; Wayne
         Stenehjem, in his capacity as North Dakota Attorney General

                                     Defendants Appellants
                              ------------------------------

National Association of Insurance Commissioners; America's Health Insurance Plans

                                  Amici on Behalf of Appellant(s)
                                   ____________

                    Appeals from United States District Court
                    for the District of North Dakota - Bismarck
                                    ____________

                              Submitted: June 16, 2020
                               Filed: March 17, 2021
                                   ____________

Before GRUENDER, WOLLMAN, and KOBES, Circuit Judges.
                       ____________

WOLLMAN, Circuit Judge.

       Two provisions of North Dakota Senate Bill 2231 (SB 2231) are at issue in this
case. The first prohibits air ambulance providers from directly billing out-of-network
insured patients for any amount not paid for by their insurers (the payment provision).
N.D. Cent. Code § 26.1-47-09(3). The second prohibits air ambulance providers or
their agents from selling subscription agreements (the subscription provision). N.D.
Cent. Code § 26.1-47-08. Guardian Flight LLC filed this declaratory judgment
action, claiming that both provisions are preempted under the Airlines Deregulation
Act (ADA). Defendants Jon Godfread, in his capacity as North Dakota Insurance
Commissioner, and Wayne Stenehjem, in his capacity as North Dakota Attorney
General, responded that, even if preempted, the provisions were saved under the
McCarran-Ferguson Act.

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       Ruling on cross-motions for judgment on the pleadings, the district court
concluded that although the ADA preempted both provisions, the McCarran-Ferguson
Act saved the subscription provision. We agree with the court’s ADA preemption
analysis. We hold that the McCarran-Ferguson Act does not apply, however, because
the provisions were not enacted “for the purpose of regulating the business of
insurance.” Accordingly, we affirm in part, reverse in part, and remand with
instructions to enter judgment in favor of Guardian Flight.

                                    I. Background

      Guardian Flight is a federally licensed air carrier that provides air ambulance
services in North Dakota. Air ambulances transport critically ill or injured patients
to hospitals that are able to provide the level of care that the patients require. First
responders, attending physicians, and hospital emergency departments may call on
air ambulances to transport patients and to provide in-flight medical care. Because
air ambulances are used in emergencies, patients usually do not choose the provider.

       In accordance with federal and state law, Guardian Flight provides air
ambulance services regardless of whether the patients are insured or able to pay.
Guardian Flight receives payment for its services from various sources, including
private health insurance companies, Medicaid and Medicare, and patients themselves.
The amount a private insurer pays depends on the patient’s coverage and whether
Guardian Flight has entered a contract with the insurer to join the insurer’s provider
network. Medicare and Medicaid reimbursement rates are substantially less than the
amount Guardian Flight charges, and Guardian Flight recovers little from uninsured
patients.

      When a privately insured patient receives air ambulance services from an in-
network provider, the insurer and provider have agreed upon the rates for those
services. An out-of-network provider sets its own rates, however, and then bills the

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insured for the difference between the amount charged and the amount the insurer
paid—a practice known as balance billing. Because air ambulance services are
expensive and because rates have increased dramatically in recent years, the balance
owed by the insured can be substantial.1

       Several privately insured individuals complained to the North Dakota
Insurance Department regarding unexpected bills from air ambulance providers.
According to the forty-some complaints received between 2014 and early 2018,
insureds often were billed more than $20,000 for air ambulance transport—and
sometimes more than $40,000—which represented the balances remaining after the
insurers paid their portions. The North Dakota Legislative Assembly attempted to
address balance billing in 2015, but the district court enjoined enforcement of the
legislation. See Valley Med Flight, Inc. v. Dwelle, 171 F. Supp. 3d 930 (D.N.D.
2016). As set forth more fully below, SB 2231 represents North Dakota’s second
attempt to address the practice.

        Before the 2017 enactment of SB 2231, Guardian Flight offered a subscription
membership program in North Dakota as part of the AirMedCare Network, an
affiliation of four air ambulance providers owned by the same parent company. The
program cost subscribers less than $100 per year and guaranteed that if an
AirMedCare Network ambulance provided transportation, the enrollee would have
“no out-of-pocket flight expenses.” Guardian Flight would instead deem prepaid any
air ambulance costs beyond those covered by insurance, other benefits, or third
parties. The subscription agreement did not guarantee that Guardian Flight or an

      1
       Air ambulance providers are not permitted to bill Medicare patients for
ambulance services beyond deductibles and coinsurance requirements. 42 C.F.R.
§ 414.610. Air ambulance providers that participate in a state’s Medicaid program
are required to accept the Medicaid payment as payment in full and are prohibited
from collecting any additional amounts from Medicaid patients, other than authorized
cost-sharing amounts. 42 C.F.R. § 447.15.

                                        -4-
affiliated provider would be dispatched to transport an ill or injured subscriber,
however, and Guardian Flight would not pay for any services provided by an
unaffiliated air ambulance.

       SB 2231’s payment provision prohibits air ambulance providers from balance
billing and deems payment by the insurer to be full and final payment. It provides:

      For purposes of settling a claim made by the insured for air ambulance
      services, a payment made by an insurer under the plan in compliance
      with this section is deemed to be the same as an in-network payment and
      is considered a full and final payment by the insured for out-of-network
      air ambulance services billed to the insured.

N.D. Cent. Code § 26.1-47-09(3). The subscription provision prohibits air ambulance
subscription agreements and authorizes a civil fine of up to $10,000 for violations.
It states, in relevant part:

      An air ambulance provider, or an agent of an air ambulance provider,
      may not sell, solicit, or negotiate a subscription agreement or contract
      relating to services or the billing of services provided by an air
      ambulance provider.

N.D. Cent. Code § 26.1-47-08.

      Guardian Flight filed suit in January 2018, seeking a permanent injunction
prohibiting the defendants from enforcing the provisions. After Godfread and
Stenehjem answered the complaint, the parties moved for judgment on the pleadings,
which, as set forth above, the district court granted and denied in part. The
defendants were permanently enjoined from enforcing or seeking to enforce the
payment provision, with the subscription provision being allowed to remain in effect.

                                         -5-
                                   II. Discussion

                              A. Standard of Review

      We review de novo the district court’s determination that the ADA preempts
North Dakota’s payment and subscription provisions, as well as its determination that
the McCarran-Ferguson Act does not apply to the payment provision but saves the
subscription provision from preemption. See Watson v. Air Methods Corp., 870 F.3d
812, 815 (8th Cir. 2017) (en banc) (reviewing de novo whether claim was preempted
by the ADA); Ludwick v. Harbinger Grp., Inc., 854 F.3d 400, 403 (8th Cir. 2017)
(reviewing de novo whether claim was saved under the McCarran-Ferguson Act); see
also Lansing v. Wells Fargo Bank, N.A., 894 F.3d 967, 970 (8th Cir. 2018)
(reviewing de novo grant of judgment on the pleadings).

                                B. ADA Preemption

       The ADA expressly preempts states from “enact[ing] or enforc[ing] 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). The Supreme Court has
defined the phrase “related to” to give effect to the statute’s “broad pre-emptive
purpose.” Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383 (1992).
Accordingly, a state law is preempted by the ADA if it “ha[s] a connection with or
reference to” an air carrier’s price, route, or service. Id. at 384.

       Godfread and Stenehjem argue that the ADA does not preempt the payment
and subscription provisions, contending that the provisions are “too tenuously related
to airline rates to be preempted.” Appellees’ Br. 41. The payment provision
effectively caps certain air ambulance prices, however, by mandating the acceptance
by an out-of-network provider of the insurer’s payment and prohibiting the provider
from billing the insured for any remaining balance. The insurer must reimburse out-

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of-network providers at a rate “equal to the average of the insurer’s in-network rates
for air ambulance providers,” N.D. Cent. Code § 26.1-47-09(1), with the air
ambulance service provider being required to accept that rate. Similarly, the
subscription provision prohibits air ambulance providers from entering into price-
establishing subscription agreements with consumers. These two provisions are
clearly “related to” and “hav[e] a connection with” the price that air ambulance
providers charge for their services. See Air Evac EMS, Inc. v. Cheatham, 910 F.3d
751, 767 (4th Cir. 2018) (holding that state statutes establishing state-paid maximum
amounts to air ambulance providers and limiting the providers’ ability to seek
recovery from anyone else “clearly have a connection to air ambulance prices”). We
thus conclude that the ADA preempts both the payment provision and the
subscription provision. See id. at 769-70; Bailey v. Rocky Mountain Holdings, LLC,
889 F.3d 1259, 1272 (11th Cir. 2018) (holding that the ADA preempts the
enforcement of a state statute prohibiting an air ambulance provider’s balance
billing); EagleMed LLC v. Cox, 868 F.3d 893, 902-04 (10th Cir. 2017) (holding that
the ADA preempted a state statute that “expressly establish[ed] a mandatory fixed
maximum rate that [would] be paid by the State for air-ambulance services provided
to injured workers covered by the Worker’s Compensation Act”).

                  C. McCarran-Ferguson Act Inverse Preemption

       The McCarran-Ferguson Act precludes inadvertent federal preemption of state
insurance-regulating statutes. See 15 U.S.C. § 1012(b). The first clause of section
2(b) of the Act provides, “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 . . . unless such Act specifically relates to the business of
insurance . . . .” Id. Having determined that the ADA preempts (and thus supersedes)
the disputed North Dakota statutory provisions and because the ADA does not
specifically relate to the business of insurance, we must determine whether North
Dakota’s payment and subscription provisions were enacted “for the purpose of

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regulating the business of insurance.” If they were, the McCarran-Ferguson Act
saves them from federal preemption.

       The Supreme Court has twice considered whether a state law was enacted “for
the purpose of regulating the business of insurance.” In Securities & Exchange
Commission v. National Securities, Inc., the SEC attempted to unwind an allegedly
fraudulent merger of two insurance companies. 393 U.S. 453 (1969). National
Securities argued that the McCarran-Ferguson Act barred the SEC action because, as
required by state law, the state director of insurance had approved the merger. Id. at
457. The Supreme Court determined that because the state laws at issue were “aimed
at protecting the interests of those who own securities in insurance companies,” id.
at 458, rather than protecting or regulating the relationship between the insurer and
the insured, the McCarran-Ferguson Act did not apply, id. at 460.

       In United States Department of Treasury v. Fabe, the Supreme Court
considered a state statute that gave claims of policyholders priority over those of the
federal government. 508 U.S. 491 (1993). The Court determined that the statutory
scheme protected policyholders “by ensuring the payment of [their] claims despite the
insurance company’s intervening bankruptcy.” Id. at 504. The scheme thus
safeguarded the performance of insurance contracts, an essential part of the “business
of insurance.” Id. at 505. The Court concluded that “[t]he 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. (internal quotation marks and citation omitted). The state statute
thus was saved from preemption under the McCarran-Ferguson Act to the extent it
protected policyholders. Id. at 508-09.

      In deciding Fabe, the Supreme Court considered Group Life & Health
Insurance Co. v. Royal Drug Co., 440 U.S. 205 (1979), and Union Labor Life
Insurance Co. v. Pireno, 458 U.S. 119 (1982), both of which concerned whether a

                                         -8-
practice constituted the “business of insurance” for purposes of the second clause of
section 2(b) of the Act, which provides that federal antitrust laws “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(b). Pireno set forth the criteria relevant in determining
whether a practice constitutes “the business of insurance.”

      [F]irst, 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.

458 U.S. at 129. The performance of insurance contracts in Fabe satisfied the Pireno
test, but the Court refused “[t]o equate laws ‘enacted . . . for the purpose of regulating
the business of insurance’ with the ‘business of insurance’ itself.” 508 U.S. at 504.
As the Court explained, the category of laws enacted for the purpose of regulating the
business of insurance “necessarily encompasses more than just the ‘business of
insurance.’” Id. at 505.

       We conclude that the payment provision was enacted not for the purpose of
regulating the business of insurance, but rather for the purposes of reducing air
ambulance providers’ permissible prices and of prohibiting the practice of balance
billing. Air ambulance pricing and billing practices do not have the effect of
transferring or spreading a policyholder’s risk. Nor are they an integral part of the
policy relationship between the insurer and the insured. The insurance company will
have already completed its policy obligations to the insured before the insured
receives a bill for the balance of air ambulance charges. The payment provision thus
regulates the relationship between the insured and the service provider and does not
“possess the end, intention, or aim of adjusting, managing, or controlling the business
of insurance.” See Fabe, 508 U.S. at 505 (internal quotation marks and citation
omitted). Accordingly, the McCarran-Ferguson Act does not bar ADA preemption of

                                           -9-
the payment provision. See Bailey, 889 F.3d at 1274 (“Because the balance billing
provision concerns the relationship between the insured and medical providers—not
the relationship between the insurer and insured—the MFA does not reverse the
ADA’s preemptive effect in this case.”); see also Fabe 508 U.S. at 501 (“[T]he focus
of McCarran-Ferguson is upon the relationship between the insurance company and
its policyholders.”).

        We also hold that the subscription provision was not enacted for the purpose
of regulating the business of insurance. In so holding, we find First National Bank
of Eastern Arkansas v. Taylor, 907 F.2d 775 (8th Cir. 1990), controlling. In Taylor,
we concluded that First National Bank’s debt cancellation contracts did not involve
“the business of insurance” under the first clause of section 2(b) of the McCarran-
Ferguson Act. Id. at 780. We explained that the Act “was designed to preserve
traditional state regulation and taxation of insurance companies,” id. at 779, not
banks, and that debt-cancellation contracts did not implicate the “primary and
traditional concern behind state insurance regulation—the prevention of insolvency,”
id. at 780.

       Like the debt-cancellation contracts in Taylor, the subscription agreements here
do not involve traditional state regulation of insurance companies, nor do they
address the concern of insurer insolvency. See id.; Royal Drug Co., 440 U.S. at 226
(“States which regulated prepaid health-service plans at the time the Act was enacted
either exempted them from the requirements of the state insurance code or provided
that they shall not be construed as being engaged in the business of insurance under
state law.” (internal quotation marks and citation omitted)). Although the
subscription agreements transfer some risk from the subscriber to Guardian Flight,
they are not insurance contracts. They do not guarantee that Guardian Flight or an
affiliated provider will provide services to subscribers needing air ambulance
transport. Nor do the subscription agreements require Guardian Flight to indemnify
the subscriber or make post-service provided payments to a third party. Guardian

                                         -10-
Flight thus does not incur an insurance company’s investment risk. Instead, for a flat
fee, Guardian Flight considers prepaid any services that it (or its affiliates) may
render to members, which is a practice not limited to insurance-industry entities. See
Air Evac EMS, Inc. v. Dodrill, No. 2:21-cv-00105, 2021 WL 781679, at *8 (S.D.W.
Va. Mar. 1, 2021) (order enjoining state insurance commissioner from regulating an
air ambulance membership program) (comparing air ambulance memberships to auto
club memberships that provide roadside service and to home and other extended
warranties that cover the expense of repairing or replacing appliances or other items).
Because North Dakota’s subscription provision seeks to regulate the relationship
between only a consumer and an air ambulance company, it cannot be said that it was
enacted for the purpose of regulating the business of insurance. See Nat’l Sec., Inc.,
393 U.S. at 460; Fabe, 508 U.S. at 505; Taylor, 907 F.2d at 779-80. The McCarran-
Ferguson Act thus does not save the subscription agreement from ADA preemption.

                                     Conclusion

       The judgment is affirmed in part and reversed in part, and the case is remanded
for entry of judgment in favor of Guardian Flight.
                       ______________________________

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