Title: Pacificare of Nevada v. Rogers

State: nevada

Issuer: Nevada Supreme Court

Document:

127 Nev., Advance Opinion 71
IN THE SUPREME COURT OF THE STATE OF NEVADA

PACIFICARE OF NEVADA, INC.; No. 55713
PACIFICARE LIFE AND HEALTH

INSURANCE COMPANY; PACIFICARE

LIFE ASSURANCE COMPANY; AND FILE D

UNITED HEALTHCARE INSURANCE

COMPANY, oct 27 2011
Appellants,
vs,
DOROTHY ROGERS,
Respondent. |
_ —

Appeal from a district court order denying a motion to compel
arbitration in a tort and contraet action. Eighth Judicial District Court,
Clark County; Timothy C. Williams, Judge.

‘Reversed and remanded.

Jones Vargas and Constance L. Akridge and Matthew T. Milone, Las
Vegas; Bryan Cave, LLP, and Lawrence G. Scarborough, Meridyth M.
Andresen, and J, Alex Grimsley, Phoenix, Arizona,

for Appellants,

Matthew L. Sharp, Ltd., and Matthew L. Sharp, Reno; Gillock, Markley &
Killebrew, PC, and Gerald I. Gillock and Nia C. Killebrew, Las Vegas;
Friedman Rubin and William S. Cummings, Anchorage, Alaska; Friedman
Rubin and Richard H. Friedman and Britt L. Tinglum, Bremerton,
Washington,

for Respondent.

 

anneal lasiiiL 2 Saale
BEFORE THE COURT EN BANC.

OPINION

By the Court, PARRAGUIRRE,

 

In this appeal, we address two issues regarding the
enforceability of an arbitration provision. To begin, we consider the
circumstances in which an arbitration provision contained in an expired
contract may be properly invoked. Next, we address whether « plaintiff
may rely on Nevada's unconscionability doctrine to invalidate an
arbitration provision contained in a contract governed by the federal
Medicare Act,

First, because the parties in this case did not expressly rescind
the arbitration provision at issue, the provision survived the contract's

expiration and it was properly invoked. Second, as the Medicare Act

 

expressly preempts any state laws or regulations with respect to the type
of Medicare plan at issue here, we conclude that Nevad:

preempted to the extent that it would

    

unconscionability doctrine

regulate federally approved Medicare plans. We therefore reverse the

 

district court's order denying Pacificare’s motion to compel arbitration,
EACTS AND PROCEDURAL HISTORY
From 2007 to 2008, respondent Dorothy Rogers received
Medicare benefits through appellant Pacificare’s federally approved
Medicare Advantage Plan, Secure Horizons.' Rogers and Pacificare

For the sake of clarity, we refer to appellants Pacificare of Nevada,
Inc; Pacificare Life and Health Insurance Company; Pacificare Life
continued on next page...

 

 
entered into separate contracts each year that provided the terms and
conditions of coverage. In early 2007, Rogers received treatment from the
Endoscopy Center of Southern Nevada, which is a facility approved by
Pacificare for use by its Secure Horizons plan members. In early 2008, the
Southern Nevada Health District discovered that the Endoscopy Center
had engaged in unsafe medical practices and notified Rogers that she was
at risk for several diseases as a result of her treatment. Shortly thereafter,

is C.

 

 

Rogers tested positive for hepat

Rogers then sued Pacificare in district court, asserting various

 

tort claims. Specifically, Rogers alleged that Pacificare should be held
responsible for her injuries because it failed to adopt and implement an
ificare moved to

 

appropriate quality assurance program. In response, Pa
dismiss her claims and to compel arbitration based on a provision in the
irguing that the 2008

 

parties’ 2007 contract. Rogers opposed the motions,
contract governed and that, in any event, the 2007 arbitration provision
was unconscionable. Although the district court determined that the 2007
contract governed, it nonetheless agreed with Rogers’ argument that the
arbitration provision was unconscionable, and thus unenforceable. In
doing so, the district court rejected Pacificare's argument that Nevada's
common law unconscionability doctrine is preempted by the federal
Medicare Act. This appeal followed.

continued

Assurance Company; and United Healthcare Insurance Company,
collectively, as “Pacificare.”

 
ome a

DISCUSSION

On appeal, Pacificare argues that the arbitration provision
included in the 2007 contract governs Rogers’ dispute, and that the district
court erred in concluding that the arbitration provision was unconscionable
under Nevada contract law because such law is preempted by the federal
Medicare Act. We agree on both counts, and therefore, we reverse the
district court's order denying Pacificare's motion to compel arbitration.
Before addressing these two issues, however, we provide an overview of the
federal Medicare Act, as is necessary for understanding the following
analyses.
Overview of the Medicare Act

The Medicare Act creates a federally subsidized nationwide

 

health insurance program for elderly and disabled individuals. The Act is
separated into four broad parts: Part A (hospital insurance), Part B
(medical insurance), Part C (Medical Advantage Plans), and Part D
(prescription drug coverage). Title VII of the Social Security Act, 42 U.S.C,
§§ 1395-1395hhh (2006), Pursuant to Part C, private entities may provide
the federal insurance benefits to enrollees under Parts A and B through
what are often referred to as “Part C Plans” or “Medicare Advantage [MA]
Plans.” Private companies that offer these plans are referred to as “MA
Organizations.” 42 C.F.R. § 422.2 (2010). MA Organizations and their
plans contract with, and are subject to extensive regulation by, the Centers
for Medicare and Medicaid Services (CMS). See, o.¢., 42 U.S.C. § 1395w-
26(b)(1). CMS renews its contracts with MA organizations on an annual
basis. See 42 CFR. § 422.5050).

 

 
Pursuant to federal law, Medicare enrollees may choose each
year to receive benefits from the government-run Medicare plan or from
one of the various MA plans offered by private MA organizations. See 42
C.BR. § 422.62. As part of the annual reselection process

 

organization providing benefits must present its enrollees with a document
referred to as an Evidence of Coverage, or “EOC,” which provides the terms
and conditions of the contract between the MA organization and the
enrollee for the given year-long coverage period, All EOCs must be
reviewed and approved by CMS prior to distribution. See 42 C.F.R. §§

422.2260, 422.2262. Among other things, CMS must review the adequacy

 

of formatting and font size,
information provided.* 42 C.F.R. §§ 422.2262(a), 422.2264(a).

 

well as the accuracy of the descriptions and

Broadly speaking, CMS's role is analogous to the inquiry
Nevada courts make when considering an unconscionability argument.
See D.R, Horton, Inc. v, Green, 120 Nev. 549, 554, 96 P.3d 1159, 1162
(2004) (“A clause is procedurally unconscionable when . ... its effects are
not readily ascertainable upon a review of the contract.”). With this

framework in mind, we proceed to address the issues on appeal.

*This also includes a review to ensure that there is an “[aldequate
written explanation of the grievance and appeals process,” and “that
materials are not materially inaccurate or misleading.” 42 C.FR. §
422.2264(a)(3), (d). CMS must disapprove (or later require the correction
of) such material if it is inaccurate or misleading. 42 U.S.C. § 1396w-
210H)(2)

 
nee

 

Rogers’ dispute ia governed by the 2007 EOC with Pacificare

Pacificare is one of approximately 30 private companies that
currently offer MA plans in Nevada, Rogers enrolled in Pacificare’s 2007
and 2008 plans and received an EOC for each year, While the 2007 EOC
contained an arbitration provision, the 2008 EOC did not,

‘The parties agree that Rogers underwent a medical procedure
that allegedly resulted in her hepatitis C infection in January 2007.
However, because Rogers did not discover her injury until 2008, the parties

disagree as to whether the 2007 or 2008 contract governs.

 

Specifically, Pacificare contends that the 2007 arbitration
agreement governs Rogers’ dispute because the alleged injuries resulted
from services rendered in 2007 and the contract governs “any and all
disputes” arising between January 1, 2007, and December 31, 2007.
Conversely, Rogers contends that the 2008 contract—which did not contain
an arbitration provision—explicitly replaced the expired 2007 agreement
and thus governs her claims.

This court reviews issues of contract interpretation de novo.
See Phillips v. Parker, 106 Nev. 415, 417, 794 P.2d 716, 718 (1990). We
have not considered whether an arbitration provision may survive the
expiration of the contract in which it is contained. However, it is generally
accepted that the expiration of a contract does not necessarily terminate
arbitration provisions included therein. See Nolde Bros.. Inc, v. Bakery
Workers, 430 U.S. 243, 252 (1977) (‘[T)he parties’ obligations under their
arbitration clause survived contract termination when the dispute was
over an obligation arguably created by the expired agreement.”).

After reviewing the relevant contractual documents, we
conclude that the parties’ 2007 arbitration agreement governs the dispute
at issue. The 2007 contract mandated arbitration for “any and all

 
disputes,” specifically including disputes over “ANY MEDICAL SERVICES
RENDERED UNDER THIS CONTRACT.” This language covers the
allegations asserted by Rogers here because they are based on medical
services rendered in January 2007. As such, the obligations involving
Rogers’ medical procedure were created by the terms of the expired
contract, including the arbitration clause.

“Absent the explicit intention to rescind an arbitration
clause, ... the clause will survive even where the prior agreement itself is
rescinded by the latter agreement.” Homestake Lead Co, of Mo, v. Doe
Run Resources, 282 F, Supp. 24 1131, 1142 (N.D, Cal. 2003). Therefore, in
order to effectively terminate an arbitration provision in an expired
contract, the parties must expressly rescind the arbitration provision
itself—not si

 

iply the contract in which the provision is contained. Id.

In this case, the 2008 contract contained generic language
purporting to “replace all prior” contracts. This language did not expressly
2007 arbitration agreement under which the

 

 

rescind the partie
obligations in this case were created. Because the 2007 arbitration
provision was not explicitly rescinded, the provision survived the
expiration of the 2007 contract and its replacement by the 2008 contract.
‘Therefore, unless the district court's unconscionability analysis is upheld,
Rogers’ claims are subject to mandatory arbitration under the 2007
contract.?

*Rogers contends that the arbitration provision should be invalidated
on the ground that it is ambiguous. We disagree. ‘To the extent that the
arbitration clause is ambiguous, “Nevada courts resolve all doubts
concerning the arbitrability of the subject matter of a dispute in favor of

continued on next page

 

 
 

‘The Medicare Act preempts inguiry into whether the arbitration provision
‘is-unconscionable

Pacificare argues that Nevada state law governing
enforceability of contracts is preempted by the Medicare Act, and that the
district court therefore erred in applying Nevada's unconscionability
doctrine to invalidate the parties’ 2007 arbitration agreement. We agree.

Preemption, which provides that federal law supersedes state
law, arises from the Supremacy Clause of the United States Constitution
and may be either express or implied. U.S. Const. art. VI, cl. 2. “Whether
state law is preempted by a federal statute or regulation is a question of
law, subject to our de novo review.” Nanopierve Tech. v. Depository Trust,
123 Nev. 362, 370, 168 P.3d 73, 79 (2007).

When a federal act contains an express preemption provision,
this court's primary task is to “identify the domain expressly pre-empted
by that language.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 484 (1996)
(quotation omitted). ‘That task must “in the first instance focus on the
plain wording of the clause, which necessarily contains the best evidence of
Congress’ pre-emptive intent.” CSX Transp., Inc. v. Easterwood, 507 U.S.
658, 664 (1993).

‘The preemption provision in the Medicare Act that is at issue
in this appeal provides:

The standards established under [Part C] shall
supersede any State law or regulation (other than

 

” Int'l Assoc, of Firefighters v, City of Las Vegas, 104 Nev. 615,
618, 764 P.2d 478, 480 (1988).

 
State licensing laws or State laws relating to plan
solvency) with respect to MA plans which are
offered by MA organizations under this part.

42. U.S.C. § 1895w-26(b)(3).

In identifying the domain that is expressly preempted by this
language, two terms warrant further consideration: “standards” and “any
State law or regulation.” I

 

 

Because these terms are competently
addressed in the recent Ninth Circuit decision Do Sung Uhm v, Humana,
Inc, 620 F.3d 1134 (9th Ci

into our

 

2010), we incorporate its analysi

 

 

 

‘Standards
Our first consideration is whether the term “standards” in the
preemption provision of the Medicare Act necessarily includes the
arbitration provision contained in the EOC. While the term “standard” is,
not defined in the Act, “a ‘standard’ within the meaning of the preemption
provision is a statutory provision or a regulation promulgated under the
Act and published in the Code of Federal Regulations.” Uhm, 620 F.3d at
1149 n.20. Applying this broad definition, we note, as did the Ninth
Cireuit in Uhm, that CMS has promulgated regulations governing
” Id, at 1152.
Notably, the term “marketing materials” includ

 

“marketing materi

, among other

 

things, an explanation of “how Medicare services are covered under an MA.

plan, including conditions that apply to such coverage.” 42 C.RR. §
422,2260(4). Accordingly, certain contractual documents, such as an EOC,
are considered marketing materials. See Uhm, 620 F.3d at 1151; Clay x.
Permanente Medical Group, Inc,, 540 F. Supp. 24 1101, 1109 (N.D. Cal.
2007) (By federal regulation, the EOC is considered ‘marketing material
and must be approved by the CMS.”).

 

 
‘Thus, the arbitration provision can be considered “marketing
material” by virtue of its placement within the EOC. Moreover, because
CMS has promulgated regulations governing these “marketing materials,”
the regulations themselves can be considered “standards” for purposes of
the Medicare preemption provision.
"Any State law or regulation’

Rogers contends that regardless of the term “standards,”
ty should not be

 

 

review of the arbitration provision for unconscionabil

  

preempted because the phrase

 

ny State law or regulation” does not
include the generally applicable common laws at issue here. As
summarized below, this argument is unpersuasive because legislative
history shows that the Act’s preemption provision has been specifically
amended to include generally applicable common law.

Prior to 2003, Congress recognized a presumption against
preemption unless a state law was in conflict with a Medicare requirement
or fell within one of four express categories of preempted standards. See
Balanced Budget Act of 1997, Pub. L. No. 105-83, § 1856(b)(8), 111 Stat.
251, 319; Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194, 4319
(Jan. 28, 2005). In 2003, Congress reversed this negative presumption and

  

provided that state laws are “presumed to be preempted unless they fall

 

‘Rogers also claims that because Nevada's unconscionability doctrine
is a law of general applicability, it should not be considered as a law “with
respect to MA plans.” 42 U.S.C. § 1395w-26(b)(3). However, the Uhm
court specifically rejected this line of reasoning, holding that “nothing in
the statutory text of the Act suggests that a state law or regulation must
apply only to [an MA plan] in order to constitute a law ‘with respect to” an
MA plan. Uhm, 620 F.3d 1160 n.25.

 

 
into two specified categories” which are inapplicable here.
Establishment of the Medicare Advantage Program, 69 Fed. Reg. 46866,
46904 (proposed Aug. 3, 2004).

Because the MA program is a federal program operated by
federal law, Congres

 

explained that “[s}tate laws, do not, and should not
apply, with the exception of state licensing laws or state laws related to
Uhm, 620 F.3d at
1149 (quoting H.R. Rep. No. 108-391, at 657 (2003). This language

plan solvency[,]” which are the two specified exception:

 

demonstrates a legislative intent to broaden the preemption provision
beyond those state laws that are simply inconsistent with enumerated
categories of standards, Id, at 1149-50. Accordingly, “all [s]tate
standards, including those established through case law, are preempted to
the extent they specifically would regulate MA plans.” Id, at 1156 (quoting
‘commentary on final rule, 70 Fed. Reg. 4588, 4665 (Jan. 28, 2005))..

In light of the legislative history of the Medicare Act and the
Ninth Circuit decision in Uhm, we conclude that Nevada's

unconscionability doctrine is preempted to the extent that it would

 

specifically regulate MA plans. Allowing state courts to review Medicare
contracts for unconscionability risks the same result that the Ninth Circuit
warned of in Uhm, namely, ‘that materials CMS has deemed not
misleading—and therefore allowed to be distributed—-will later be
determined ‘likely to mislead’ by a state court.” 620 F.3d at 1162.
Accordingly, we conclude that any inquiry into the arbitration provision’s

unconscionability is foreclosed by the express preemption provision in the
Medicare Act.

 

 
om

 

CONCLUSION

Because the arbitration provision was not expressly rescinded,
we conclude that it survived expiration of the 2007 contract and was
properly invoked. Moreover, because CMS's regulations governing the
approval of MA plans are standards that hold preemptive effect under the
Medicare Act, Nevada law governing contracts—specifically whether a
provision is unconscionable and thus unenforceable—falls into the category
of “any state law or regulation” that may be preempted. We therofore
reverse the district court’s order denying Pacificare’s motion to compel

arbitration and remand for furthey proceedings consistent with this

   

opinion.

‘We concur:

= Cd.
Saitta,

a J,
Chon 0 J.
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