Not everyone sees eye to eye on federal preemption, including judges. Take for example the conflicting opinions from the California Court of Appeal applying the express preemption provision of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("2003 Medicare Act"). The statute governs Medicare benefits—a topic not usually within our bailiwick. But we know and appreciate preemption, and we can see pretty clearly in these cases where two Appellate Districts got it wrong and a third got it right.
First the one that got it right. In Roberts v. United Healthcare Services, Inc., No. B266393, 2016 WL 4150703 (Cal. Ct. App. Aug. 4, 2016), the plaintiff enrolled in a private health plan offering benefits under the federally funded Medicare Advantage program. The long and the short of it was that the plan advertised that it was "made up of local doctors," but when the plaintiff needed urgent care, it turned out there was no urgent care center anywhere in California. Id. That resulted in an out-of-network co-pay ($20 more than the in-network co-pay) and a class action lawsuit asserting that the plan engaged in misleading conduct and unfair competition, among other state-law claims. Id.
The main issue was preemption, specifically express preemption because of the Act's express preemption provision:
The standards established [by regulation] shall supersede any State law or regulation (other than State licensing laws or State law relating to plan solvency) with respect to [Medicare Advantage] plans which are offered by [Medicare Advantage] organizations under [Part C].
Id. (citing 42 U.S.C. § 1395w-26(b)(3). This is not exactly the same as the "different from or in addition to" language we see in the Medical Device Amendments' express preemption provision, but it is close, and the idea is the same. State requirements give way to federal requirements established under the authority of the Act.
From this point, the application of express preemption to the facts of the case was straightforward. Because the federal government had promulgated regulations governing both the content of Medicare Advantage advertising and the adequacy of its networks, a state-law lawsuit touching those areas was clearly preempted. Id. For good measure, the court further held that federal law impliedly preempted the state-law lawsuit as "an obstacle to the full accomplishment and execution of congressional objectives." Id. The Act requires the federal government to evaluate marketing materials and the adequacy of the Medical Advantage health plans, so if a state court were allowed to determine that approved marketing materials were misleading, "it would directly undermine [the federal government's] prior determination that those materials were not misleading and in turn undermine [the federal government's] ability to create its own standards." Id.
It is difficult to disagree with that, since the main point of express preemption is to maintain the consistency of regulation. And by the way, those regulations erect a four-tier administrative review systems through which a plan participate can challenge the "entitle[ment] to receive a health service" or "the amount (if any) [he] is required to pay with respect to such service." Id. Because the plaintiff bypassed that review process, the court held that he had not exhausted his administrative remedies either. It seems like a fairly straight path to affirming a dismissal with prejudice, and it follows the path set by a Ninth Circuit case deciding similar issues, Do Sung Uhm v. Humana, Inc., 620 F.3d 1134 (9th Cir. 2010).
So how did two other California courts go in a different direction? We agree with the court in Roberts that those two opinions were wrongly decided. The cases are Yarick v. PacifiCare of California, 179 Cal. App. 4th 1158 (2009), and Cotton v. StarCare Medical Group, Inc., 183 Cal. App. 4th 437 (2010). In Yarrick, the California Court of Appeal held that the express preemption of "any State law or regulation" means that federal law preempts only "positive state enactments" such as statutes and regulations, but not the common law. Id.
We have been down this road before, specifically in the landmark Riegel v. Medtronic case. In Riegel, the U.S. Supreme Court held that the Medical Device Amendments' express preemption provision reached common-law duties, and not only legislative or administrative enactments. The Supreme Court's holding and rationale apply with equal force to the 2003 Medicare Act. Whether enacted by statute or imposed by the common law, the result of allowing enforcement of state-law duties is the same: Absent preemption, the regulated entity has to comply with state law or else be subject to penalty, whether by way of fines, civil damages, or otherwise. As the Supreme Court held in Riegel, "'[E]xcluding common-law duties from the scope of pre-emption would make little sense' because common-law duties prescribing different standards than those imposed by federal law 'disrupt[ ] the federal scheme no less than state regulatory law to the same effect.'" Id. (quoting Riegel v. Medtronic, Inc., 552 U.S. 312, 324-25 (2008)).
The Cotton opinion is similarly based on shaky reasoning. In Cotton, the California Court of Appeal echoed the Yarick opinion. But it also separately held that the 2003 Medicare Act's provision preempting "any State law of regulation . . . with respect to [Medicare Advantage] plans" meant that the statute preempted only those state laws targeted at such plans. Id. Generally applicable statutes and regulations were not preempted. Id. Only Medicare-specific laws would give way to federal regulation.
We have been down this road before, too. In Stengel v. Medtronic, 704 F.3d 1224 (9th Cir 2013), the Ninth Circuit rejected express preemption of state-law tort claims under the Medical Device Amendments in an opinion that we ranked the worst of that year. In opposing the manufacturer's petition for certiorari in the U.S. Supreme Court, the FDA (in one of its anti-preemption moments) argued that the federal requirements at issue were not "device-specific" and therefore could not have preemptive effect. Like Cotton, the FDA was wrong to interpret express preemption in such a "specific" way. The Medical Device Amendments do not limit preemption to "device specific" federal requirements; and the 2003 Medicare Act does not limit express preemption to laws relating specifically to Medicare Advantage Plans.
As the Roberts court correctly explained (relying again on Riegel), "[T]he phrase 'with respect to' does not refer to the specificity or breadth of the 'State law or regulation' to be preempted; instead, it refers to the extent of preemption—those laws of regulations are superseded to the extent of Part C's standards supersede them but no further." Id. This is about as good a gloss on this particular point as we can think of.
Perhaps the most significant part of Roberts is a product of California's unique stare decisis rules, under which lower courts must follow the opinions of the appellate courts. If, however, different appellate districts have issued conflicting opinions, trial courts throughout the state can decide which precedent to follow. See Auto Equity Sales, Inc. v. Superior Court, 57 Cal. 2d 450 (1962). With the filing of the Roberts opinion, California's trial courts statewide can choose to follow it, and ignore the conflicting Yarick and Cotton opinions. Given the strength of the Court of Appeal's reasoning in Roberts, we think the choice is easy.
This article is presented for informational purposes only and is not intended to constitute legal advice.
