Pacificare of Nevada, Inc. v. Rogers

• Citation: 127 Nev. Adv. Op. 71,266 P.3d 596
• Decision Date: 27 October 2011
• Docket Number: No. 55713.,55713.
• Parties: PACIFICARE OF NEVADA, INC.; Pacificare Life And Health Insurance Company; Pacificare Life Assurance Company; and United Healthcare Insurance Company, Appellants, v. Dorothy ROGERS, Respondent.
• Court: Supreme Court of Nevada

127 Nev. Adv. Op. 71
266 P.3d 596

PACIFICARE OF NEVADA, INC.; Pacificare Life And Health Insurance Company; Pacificare Life Assurance Company; and United Healthcare Insurance Company, Appellants,
v.
Dorothy ROGERS, Respondent.

No. 55713.

Supreme Court of Nevada.

Oct. 27, 2011.

[266 P.3d 597]

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, AZ, for Appellants.

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

Before the Court En Banc.OPINION By the Court, PARRAGUIRRE, J.:

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 a 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 Nevada's

[266 P.3d 598]

unconscionability doctrine is preempted to the extent that it would regulate federally approved Medicare plans. We therefore reverse the district court's order denying Pacificare's motion to compel arbitration.

FACTS AND PROCEDURAL HISTORY

From 2007 to 2008, respondent Dorothy Rogers received Medicare benefits through appellant Pacificare's federally approved Medicare Advantage Plan, Secure Horizons.¹ Rogers and Pacificare 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, Rogers tested positive for hepatitis C.

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 appropriate quality assurance program. In response, Pacificare moved to dismiss her claims and to compel arbitration based on a provision in the parties' 2007 contract. Rogers opposed the motions, arguing that the 2008 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.

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, e.g., 42 U.S.C. § 1395w–26(b)(1). CMS renews its contracts with MA organizations on an annual basis. See 42 C.F.R. § 422.505(c).

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.F.R. § 422.62. As part of the annual reselection process, the MA organization providing benefits must present its enrollees with a document referred to as an Evidence of Coverage,

[266 P.3d 599]

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, as well as the accuracy of the descriptions and information provided.² 42 C.F.R. §§ 422.2262(a), 422.2264(a).

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.

Rogers' dispute is 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...