FARGO -- Ivan Mitchell was jolted when he received a $54,000 bill for an air ambulance flight last year that transported his wife from Grand Forks to the Mayo Clinic in Rochester, Minn.

The air ambulance service, Valley Med Flight, billed $67,325 for the flight. But because Valley Med Flight wasn't in the provider network for Blue Cross Blue Shield of North Dakota, the Mitchells were stuck with the balance after the insurer paid about $9,000.

It turns out the Mitchells weren't alone in receiving a whopping air ambulance bill because the carrier refused to join the Blue Cross Blue Shield network--a cluster of costly cases sparked a new law that now is the subject of a legal challenge.

Information compiled by the North Dakota Department of Insurance shows 20 air ambulance bills from last year or early this year that averaged $40,874 and left patients with an average out-of-pocket expense of $24,514.

The average paid by insurance: $14,925, or an average of 36.5 percent of the total bill. By comparison, Medicare's base air ambulance payments for rural calls are $4,511 for fixed-wing and $5,245 for rotor-wing aircraft, augmented by mileage allowances.

In response to those cases, the North Dakota Legislature passed a law aimed at forcing air ambulance services to become "participating providers" by joining major insurance company networks.

Sen. Judy Lee, R-West Fargo, led the effort to impose protocols for dispatching air ambulances to try to prevent patients from getting hit with exorbitant bills from out-of-network ambulance services.

"We're kind of plowing new ground here," she said, adding that North Dakota is experimenting with a new regulatory approach. "We think we did what was necessary."

Participating providers agree not to charge more than allowed under their insurance contract, leaving the patient to pay only the copayments and deductibles, subject to caps, owed according to their policies.

When summoning an air ambulance for a medical emergency, people can't be expected to know or determine whether the responding ambulance is in their insurance network, Lee said.

To get around that problem, the new law requires the creation of a primary call list that includes only operators that qualify as participating providers with major insurance carriers. The list would serve as a guide for public safety officers and dispatchers as well as emergency medical technicians who summon most air ambulances.

The law also establishes air ambulance service zones for helicopter ambulances, and requires hospital staff or emergency medical providers to make a reasonable effort to inform the requesting party of the estimated response time for air transport compared to ground ambulance transport.

A lawsuit filed by Valley Air Med in U.S. District Court in Bismarck contends that North Dakota is trying to illegally usurp federal regulation with the new air ambulance dispatch law.

The Federal Aviation Administration preempts state regulation, and the Airline Deregulation Act clearly specifies that states cannot interfere in regulating air ambulance flights, the Valley Air Med lawsuit contends.

To bolster their argument, Valley Med Flight lawyers point to letters lawyers for the U.S. Department of Transportation have written to officials informing them that the federal law preempts certain state and local regulations affecting air carriers.

The law holds that states are barred from enacting laws or regulations "having the force and effect of law related to a price, route, or service of an air carrier."

In crafting North Dakota's air ambulance dispatching law, officials were aware that regulation of air carriers is primarily a federal role, Lee said. The Senate Human Service Committee, which crafted the measure, worked closely with state health and insurance officials, she said.

"The committee put a lot of time into this," she said. "We thoroughly vetted this."

She added: "Other states are looking to see how it works because they have the same issue. We just can't have this gouging."

"We recognize we can't price-fix," she said. "We recognize we can't interfere with the FAA on air flights," but found another mechanism to address the problem.

After the law passed, Valley Med Flight grudgingly became a participating provider to maintain its business operations, but continues to argue that Blue Cross Blue Shield's payments are inadequate.

As a result, all four of the current air ambulance operators in North Dakota belong to provider networks, said Chelsey Matter, the North Dakota Blues' director of provider partnerships.

"We feel that the fee schedule, which we do update on an annual basis, is fair," she said. Payments reflect "industry standards" and seek to maintain "broad access and a good range of services," she said.

State health and insurance officials have declined to comment about the controversy, citing the pending lawsuit. The state has not yet filed an answer to the lawsuit.

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