Liability Update: Illinois Supreme Court Holds Plaintiffs May Recover Medical Bills Subject to Medicare and Medicaid Set-Offs

Attorneys: Guolee, Terrence F.

In our July 2007 newsletter we wrote on the decision of the Illinois Fourth District Appellate Court in Wills v. Foster, 372 Ill. App. 3d 670 (4th Dist. 2007), which held that a plaintiff that receives benefits from Medicare or Medicaid cannot claim the full amount of services billed as part of their damages, rather they are limited to the amount Medicare/Medicaid actually paid. Unfortunately, for defense and insurance interests, the Illinois Supreme Court overruled the Fourth District on June 19, 2008. Wills v. Foster, ___ Ill. 2d ___, (Docket No. 104538, decided June 19, 2008).
In Wills, plaintiff, Sheila M. Wills, sued seeking to recover for injuries she sustained in an automobile accident. Plaintiff's medical bills from the accident totaled $80,163.47. However, the amount actually paid by Medicaid and Medicare was only $19,005.50. Defendant moved to limit plaintiff to introducing into evidence only the paid amounts of the bills. Plaintiff, conversely, moved to prevent defendant from introducing any evidence, or making any argument, that plaintiffs bills had been paid by Medicaid and/or Medicare. The trial court granted plaintiff's motion and denied defendant's motion. Defendant then stipulated to the amount of plaintiff's medical bills, and they were entered into evidence. The jury awarded plaintiff the full amount of her medical bills, plus $7,500 for pain and suffering.
Defendant then filed a post-trial motion, asking the trial court to reduce the amount of the jury's award for medical expenses from $80,163.77 to $19,005.50. The trial court granted defendant's motion and reduced plaintiff's medical expense award to the amount paid by Medicare and Medicaid. The court stated in its order that, "In the event plaintiff's medical providers seek to recover from plaintiff the difference between the amount paid by the Illinois Department of Public Aid or Medicare, plaintiff may within one year from the date of this order petition the court for a revision of this order." Plaintiff appealed, and the Appellate Court, Fourth District, affirmed. 372 Ill. App. 3d 670.
Plaintiff argued on appeal that the trial court's order violated the collateral source rule and was contrary to Arthur v. Catour, 216 Ill. 2d 72 (2005). In Arthur, the Illinois Supreme Court held that a plaintiff could submit the entire amount of her billed medical expenses to the jury and was not limited to presenting the amount that her private insurance company actually paid to her health-care providers. The Fourth District distinguished Arthur because that case involved a private insurance company, rather than Medicaid and Medicare. 372 Ill. App. 3d at 674-75.
Focusing on Arthur's explanation that the justification for the collateral source rule is that "the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons" (see Arthur, 216 Ill. 2d at 79, quoting Wilson v. The Hoffman Group, Inc., 131 Ill. 2d 308, 320 (1989)), the Fourth District concluded that this reasoning would not apply to a plaintiff who was not required to bargain for her benefits but received them free of charge because of her status. 372 Ill. App. 3d at 672-73.
The court found that the more directly applicable case was Peterson v. Lou Bachrodt Chevrolet Co., 76 Ill. 2d 353 (1979), which, the Fourth District noted, had not been explicitly overruled in Arthur. In Peterson, the Illinois Supreme Court held that the plaintiff could not recover the value of free medical services provided by Shriners' Hospital for Crippled Children because the policies underlying the collateral source rule did not apply when the plaintiff incurred no expense, obligation, or liability in receiving the services for which compensation is later sought. The Fourth District held that this reasoning would apply equally to a plaintiff whose bills were satisfied by Medicare and Medicaid. 372 Ill. App. 3d at 674-75.
The Fourth District viewed the ruling in Arthur as creating a windfall for plaintiffs, finding that the primary reason for the ruling in Arthur was the existence of an insurance contract, which was not present in the Wills case. Since providers accept payment from Medicare/Medicaid as full payment for their services, there is no further liability for the plaintiff. To allow plaintiffs to claim amounts they are not liable for would be prejudicial to defendants and create a windfall for the plaintiff.
Justice Cook dissented, arguing that Peterson was limited to situations in which a person receives gratuitous medical services. According to Justice Cook, the majority decision conferred a benefit on tortfeasors who injure a poor or elderly person and questioned an outcome that would hold tortfeasors fully responsible for a plaintiff's medical expenses only in situations in which the plaintiff can afford private insurance. Justice Cook believed that the court in Arthur was moving away from any further limits on the collateral source rule, and that the majority had improperly extended Peterson's rationale to Medicare and Medicaid recipients. 372 Ill. App. 3d at 676-77 (Cook, J., dissenting).
Following the Fourth District's decision, the Illinois Third District Appellate Court filed an opinion rejecting the Fourth District's analysis. See, Nickon v. City of Princeton, 376 Ill. App. 3d 1095 (2007). In Nickon, the plaintiff introduced into evidence medical bills totaling $119,723.11, and the trial court prohibited the defendant from producing evidence that Medicare paid only a reduced amount of $34,888.61 as payment in full for the bills. The jury returned a verdict for the plaintiff, and its award included $119,000 in medical expenses. The trial court denied the defendant's post-trial request for a set-off or a reduction of the award to the amount paid by Medicare. On appeal, the defendant argued both that the jury should have been allowed to consider that the health-care provider accepted $34,888.61 from Medicare as payment in full for the bill and that the trial court should have reduced the jury's award to the amount paid by Medicare. The Third District rejected both arguments.
On the evidentiary question, the Third District held that allowing the plaintiff to submit the amount initially billed by her providers was consistent with Arthur. Nickon, 376 Ill. App. 3d at 1098-1100. On the damages question, the Third District held that the defendant was not entitled to a set-off or a reduction of the award to the amount paid by Medicare. The court distinguished Peterson on the basis that no bill was generated in that case. According to the Third District, Peterson applied only to services given free of charge. The Third District did not believe that the collateral source rule should be affected by the relationship between the injured party and the agency paying the medical bills. Nickon, 376 Ill. App. 3d at 1101-02. The Third District acknowledged that its holding conflicted with the Fourth District's analysis and stated that it believed that the Illinois Supreme Court would soon provide further guidance on the issue. Nickon, 376 Ill. App. 3d at 1101.
On review, the Illinois Supreme Court defined the issue in the case to be how the collateral source rule applies in cases where the plaintiff's medical bills are paid by Medicaid and/or Medicare at a discounted rate, and defined the collateral source rule, as follows:
Under the collateral source rule, benefits received by the injured party from a source wholly independent of, and collateral to, the tortfeasor will not diminish damages otherwise recoverable from the tortfeasor.
The court then noted section 920A(2) of the RESTATEMENT (SECOND) OF TORTS discussion of the rule:
Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable.
The court then noted that the rule has been described as an "established exception to the general rule that damages in negligence actions must be compensatory," and that, while the rule appears to allow a double recovery, the collateral source will generally have a lien or subrogation right that prevents such a double recovery. Citing, 25 C.J.S. Damages § 172 (2002); Wills, 372 Ill. App. 3d at 673.
The court then noted that the collateral source rule has both evidentiary and substantive components. As a rule of evidence, the rule prevents the jury from learning anything about collateral income. Arthur, 216 Ill. 2d at 79. As a substantive rule of damages, the rule "bars a defendant from reducing the plaintiff's compensatory award by the amount the plaintiff received from the collateral source." Arthur, 216 Ill. 2d at 80, quoting J. Fischer, Understanding Remedies § 12(a), at 77 (1999). Following further discussion, the court noted that other states have used three approaches to this issue: (1) actual amount paid; (2) benefit of the bargain; and (3) reasonable value.
Under the first approach, "actual amount paid," the court noted other states' decisions finding that the proper result was that the plaintiff should be limited to recovering the amount actually paid in full settlement of the medical bills and could not recover the amount written-off. These decisions, per the court, focused on the objective of compensatory damages as making an injured party whole and the belief that the written-off amounts are not damages incurred by the plaintiff. However, the court noted that this approach has been criticized as improperly focusing on the nature of the write-off, such that the potential tortfeasor's liability is lessened for an uninsured plaintiff, versus an insured plaintiff.
Reviewing the second approach, "benefit of the bargain," the court noted that courts taking this approach allow plaintiffs to recover the full value of their medical expenses where the plaintiff has paid some consideration for the benefit of the write-off. Under this approach, courts allow plaintiffs who have private insurance to recover the full amount of their medical expenses because they have bargained for the benefits they received.
These courts also hold that plaintiffs whose bills are paid by Medicaid may not recover the reasonable value of their medical expenses and are limited to the amount paid by Medicaid. The courts distinguish between Medicare and Medicaid recipients holding that, unlike Medicaid recipients, Medicare recipients should be treated the same as those with private insurance because Medicare recipients pay for their coverage through compulsory payroll taxes.
Again, the court noted that this approach has been criticized for discriminating against classes of plaintiffs, in guaranteeing that poor and disabled plaintiffs will recover less in economic damages than those with Medicare or private insurance. Likewise, the court noted another "obvious" criticism of this approach to be that, like the "actual amount paid" approach, the "benefit of the bargain" approach undermines the collateral source rule by using the plaintiff's relationship with a third-party to measure the tortfeasor's liability.
The court then noted that "[m]ost courts follow the reasonable-value approach," allowing plaintiffs to recover the reasonable value of medical services and do not distinguish between whether a plaintiff has private insurance or is covered by a government program. The court did note, however, that a minority of courts employing this approach hold that the reasonable value of medical services is the actual amount paid, focusing on the objective of compensatory damages to be to "make the injured party whole."
However, the court then analyzed the basis for the minority view under the third approach and found that the vast majority of courts to employ a reasonable-value approach hold that the plaintiff may seek to recover the amount originally billed by the medical provider, and that this approach properly allows an injured party to recover the reasonable value of the medical services, even where there is no liability or expense to the injured person, as it avoids crediting the tortfeasor for benefits conferred on the injured party from other sources.
The court then noted the common criticism of this approach to be that it can lead to a windfall for the plaintiff. In other words, critics of this approach would assert that the plaintiff should be made whole, but he or she should not be placed in a better position than he would have been in if the wrong had not been done.
Reviewing these approaches and confusion in past cases about the approach applied in Illinois, the court then stated:
... we make clear today that we follow the reasonable-value approach, not the benefit-of-the-bargain approach.
The court then stated it was doing so for several reasons: First, pursuant to the policy justifications for the collateral source rule, the court stated the policy in Illinois is that "the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.", citing, Arthur, 216 Ill. 2d at 79, quoting Wilson, 131 Ill. 2d at 320.
The court then noted that a majority of the courts in the nation employ some sort of reasonable-value approach, with a minority of this subset treating the amount actually paid as the "reasonable value." However, on this, the court noted that in Illinois the plaintiff may place the entire billed amount into evidence, provided that a proper foundation is set. Citing, Arthur, 216 Ill. 2d at 81-83.
Based on this adoption of the reasonable-value approach, the court then went on to specifically overrule its own Peterson decision, stating that the decision is "incompatible with the reasonable-value approach adopted by this court" and overly focused on the reasoning that any windfall should be awarded to the plaintiff rather than defendant. The court preferred the Arthur decision's focus on section 920A of the Restatement, specifically its citation to the language from comment b that, even if the plaintiff receives double compensation, "it is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor" (RESTATEMENT (SECOND) OF TORTS §920A, Comment b, at 514 (1979)); Arthur, 216 Ill. 2d at 81.
The court next addressed the question of whether the paid bills are admissible by the defense. On this, the court first noted that some courts have held that both the amount originally billed and the amount actually paid may be considered by the jury, but other courts have held that defendants may not introduce the amount paid by a third party to assist the jury in determining reasonable value - as this would tend to "undermine the collateral source rule." Moreover, if the source of this amount paid was not addressed, in order to avoid injecting the issue of insurance into the case, this could potentially lead to juror confusion.
Reviewing this issue, the court held that there should be no evidence allowed by defendants of the amount actually paid, but that evidence could be put forward that the amount claimed itself is unreasonable, stating:
... In Arthur, this court made clear that the collateral source rule "operates to prevent the jury from learning anything about collateral income" (emphasis added) and that the evidentiary component prevents "defendants from introducing evidence that a plaintiff's losses have been compensated for, even in part, by insurance." Arthur, 216 Ill. 2d at 79, 80. Thus, defendants are free to crossexamine any witnesses that a plaintiff might call to establish reasonableness, and the defense is also free to call its own witnesses to testify that the billed amounts do not reflect the reasonable value of the services. Defendants may not, however, introduce evidence that the plaintiff's bills were settled for a lesser amount because to do so would undermine the collateral source rule.
Based on this, the court held that it was error for the trial court to reduce plaintiff's damage award to the amount paid by Medicaid and Medicare. However, noting that the parties had stipulated to the reasonableness of the bills and had only contested whether the discounted portion of the bills was "legally recoverable," the court found that the plaintiff had been relieved of the burden of establishing reasonableness. However, the court did note that the reasonableness of the bills is part of the foundation requirement that a plaintiff must satisfy for admission of an unpaid bill into evidence, such that in future cases one would expect more fights over the admission of unpaid medical bills.
Obviously, this case is extremely important in that it documents that plaintiffs may seek recovery for medical bills that, due to discounting that is common in the Medicare or Medicaid area, they will never be required to pay. The court has elected, in effect, to place the burden on the defendants and allow plaintiffs to obtain a windfall.
The court's ruling in Wills prevents juries from obtaining an accurate picture of the actual damages in a personal injury case. Indeed, in the vast majority of cases, the requirements on the defense to contest plaintiff's medical damages claim will be prohibitive. Where the plaintiff can establish a prima facie case of reasonableness based on the medical treaters' testimony or statement that their total billed amount is what they normally and reasonably charge for their services, defendants will generally need to retain medical experts to attempt to rebut this evidence - which often will cost too much given the amounts in controversy.
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Terrence Guolee is a shareholder in Querrey & Harrow's Commercial Litigation Practice Group. His practice includes defense of catastrophic injury claims, insurance coverage claims, attorney billing disputes, defense of municipal entities and employees, defense of class action claims and claims involving insurance claims handling processes. If you have any questions regarding this article, please contact Terry via 312-540-7544 or This email address is being protected from spambots. You need JavaScript enabled to view it.