Nevada Supreme Court Rules Common Law Doctrine of Unconscionability Preempted By Medicare Advantage Law

On October 27, 2011, the Nevada Supreme Court issued a ruling enforcing an arbitration provision in a Medicare Advantage plan's contract with a beneficiary, finding that the provision survived termination of the contract and determining that the state common law doctrine of unconscionability was preempted by the Medicare Act.  PacifiCare of Nevada, Inc. v. Rogers, No. 55713 (en banc).

The case involved various tort claims brought against a Medicare Advantage ("MA") plan in Nevada state court by a beneficiary who had entered into separate contracts with the plan in 2007 and 2008.  The 2007 contract contained an arbitration provision, but the 2008 contract did not.  In early 2007, the beneficiary received treatment from an endoscopy center approved by the plan.  The following year, the beneficiary tested positive for hepatitis C, allegedly as a result of the endoscopy center's unsafe medical practices.  The beneficiary sued the MA plan, alleging it should be held responsible for her injuries because it failed to adopt and implement an appropriate quality assurance program.  The plan moved to dismiss the plaintiff's claims and compel arbitration, which the plaintiff opposed by arguing that the 2008 contract governed and that the 2007 arbitration provision was unconscionable.  Although the Nevada district court determined that the 2007 contract governed the dispute, it held that the arbitration provision was unconscionable and therefore unenforceable.  On appeal, the Nevada Supreme Court reversed this decision.

The Court first ruled that the dispute was governed by the 2007 contract, which contained the arbitration provision.  It based this decision on the language in the contract, which provided for arbitration of "any and all disputes" over "any medical services rendered under [the] contract," such as the services provided by the endoscopy center in 2007.  See Opinion, at pp. 6-7.  In addition, the Court noted that the parties never expressly rescinded the arbitration provision, even though the 2007 contract had been replaced by the 2008 contract.   See id. (citing case law holding that expiration of a contract does not terminate arbitration provisions included therein).

The Court then addressed whether the arbitration provision was enforceable or whether the state common law doctrine of unconscionability was preempted by the Medicare Act.  The express Medicare preemption statute provides that federal "standards" established under the Medicare Act supersede "any State law or regulation" with respect to MA plans.  42 U.S.C. §  1395w-26(b)(3).  Citing Uhm v. Humana, Inc., 630 F.3d 1134 (9th Cir. 2010), the Court determined that the arbitration provision was encompassed by the preemption statute because it constituted marketing materials due to its placement in the Evidence of Coverage and because CMS' regulations governing marketing materials can be considered "standards" for purposes of the preemption statute.  See Opinion, at pp. 9-10.  The Court further ruled that Medicare preemption of "any State law or regulation" extends to generally applicable common law, in light of the preemption statute's legislative history and the Uhm decision.  See Opinion, at p. 10.  Thus, because the common law doctrine of unconscionability would specifically regulate the MA plan in this case, the Court determined that it was encompassed by the preemption statute.  In reaching this decision, the Court noted that allowing a state court to review a Medicare contract and possibly find it unconscionable, despite the fact that CMS approved the same contract as part of its review of a plan’s marketing materials, is an unacceptable result under the Uhm decision.  See Opinion, at p. 11.