Wills v. Foster ( 2008 )

Docket No. 104538.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
SHEILA M. WILLS, Appellant, v. INMAN E. FOSTER, JR.,
Appellee.
Opinion filed June 19, 2008.
CHIEF JUSTICE THOMAS delivered the judgment of the court,
with opinion.
Justices Freeman, Fitzgerald, Kilbride, Garman, Karmeier, and
Burke concurred in the judgment and opinion.
OPINION
In this personal injury case, the jury’s damages award included the
full amount of plaintiff’s billed medical expenses. At issue is whether
the trial court erred in reducing the jury’s award of medical expenses
to the amount actually paid by Medicaid and Medicare in full
settlement of the bills. In addressing this issue, we will answer
questions about the operation of the collateral source rule that were
not resolved in Arthur v. Catour, 216 Ill. 2d 72 (2005).
BACKGROUND
Plaintiff, Sheila M. Wills, filed a second amended complaint
against defendant, Inman E. Foster, Jr., seeking to recover for injuries
she sustained in an automobile accident. Plaintiff’s medical bills
arising out of the accident totaled $80,163.47. However, the amount
actually paid by Medicaid and Medicare on plaintiff’s behalf, in full
settlement of the bills, was $19,005.50. Defendant moved in limine
to limit plaintiff to introducing into evidence only the paid amounts
of the bills. Plaintiff moved in limine to prevent defendant from
introducing any evidence, or making any argument, that plaintiff’s
bills had been paid by Medicaid and/or Medicare. The trial court
granted plaintiff’s motion and denied defendant’s motion. Defendant
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 filed
a posttrial 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 expenses 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 this court’s decision in
Arthur v. Catour, 216 Ill. 2d 72 (2005). In Arthur, this court held that
the 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
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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, this 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.
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 torfeastors fully responsible for a plaintiff’s
medical expenses only in situations in which the plaintiff can afford
private insurance. Justice Cook believed that this 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). We allowed plaintiff’s petition for leave to appeal. 210
Ill. 2d R. 315(a).
Shortly after we allowed leave to appeal, the Appellate Court,
Third District, filed an opinion rejecting the Fourth District’s analysis
in this case. 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 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 posttrial 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.
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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.1 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 applies 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 in this case and stated that it believed that
this court would soon provide further guidance on the issue. Nickon,
376 Ill. App. 3d at 1101 n.1.
ANALYSIS
1. Standard of Review
The issues in this case involve how the collateral source rule
applies in cases in which the plaintiff’s medical bills are paid by
Medicaid and/or Medicare at a discounted rate. The facts are
undisputed, and the parties ask us to determine the correctness of the
trial court’s application of the law to the undisputed facts.
Accordingly, our review proceeds de novo. Arthur, 116 Ill. 2d at 78.
2. The Collateral Source Rule
“ ‘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.’ ” Arthur, 216 Ill. 2d at 78, quoting Wilson, 131 Ill. 2d
1
The Third District oversimplified this court’s holding in Arthur as
“simply give the jury the initial bill and move on with the evidence.”
Nickon, 376 Ill. App. 3d at 1100. Arthur actually held that, if the full
amount of the bill has not been paid, the plaintiff must make a prima facie
case that the billed amount was reasonable before the bill may be admitted
into evidence. Arthur, 216 Ill. 2d at 82.
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at 320. As set forth in section 920A(2) of the Restatement (Second)
of Torts (Restatement (Second) of Torts §920A(2), at 513 (1979)),
the rule provides that, “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 rule has been described as an
“established exception to the general rule that damages in negligence
actions must be compensatory.” 25 C.J.S. Damages §172 (2002).
Although the rule appears to allow a double recovery, the appellate
court correctly noted that, typically, the collateral source will have a
lien or subrogation right that prevents such a double recovery. 372 Ill.
App. 3d at 673.
In Illinois, this court has held that the 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. For instance, the rule prevents defendants from
introducing any evidence that all or part of a plaintiff’s losses have
been covered by insurance. Arthur, 216 Ill. 2d at 79-80. 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).
Comment d to section 920A of the Restatement notes that the rule is
of common law origin and may be altered by statute. Restatement
(Second) of Torts §920A, Comment d, at 515 (1979). The legislature
has modified the collateral source rule in sections 2–1205 and
2–1205.1 of the Code of Civil Procedure (735 ILCS 5/2–1205,
2–1205.1 (West 2006)), but those sections are not at issue in this
case.
A. Peterson
In Peterson, this court placed limits on the operation of the
collateral source rule. The plaintiff in that case sought to recover the
reasonable value of free medical services provided to his son by
Shriners’ Hospital for Crippled Children. This court held that he
could not do so, explaining that “the policy behind the collateral-
source rule simply is not applicable if the plaintiff has incurred no
expense, obligation, or liability in obtaining the services for which he
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seeks compensation.” Peterson, 76 Ill. 2d at 362. This court noted
that one of the policy justifications often cited for the collateral
source rule is that the tortfeasor should not benefit from expenditures
made by the injured party in procuring insurance (Peterson, 76 Ill. 2d
at 362-63, quoting 22 Am. Jur. 2d Damages §210, at 293-94 (1965)),
and that this policy would not apply to the person who receives
gratuitous medical benefits:
“In a situation in which the injured party incurs no expense,
obligation, or liability, we see no justification for applying the
rule. We refuse to join those courts which, without
consideration of the facts of each case, blindly adhere to ‘the
collateral source rule, permitting the plaintiff to exceed
compensatory limits in the interest of insuring an impact upon
the defendant.’ (Note, Unreason in the Law of Damages: The
Collateral Source Rule, 77 Harv. L. Rev. 741, 742 (1964)
(hereafter Unreason).) The purpose of compensatory tort
damages is to compensate (Restatement (Second) of Torts
sec. 903, comment a (1979)); it is not the purpose of such
damages to punish defendants or bestow a windfall upon
plaintiffs. The view that a windfall, if any is to be enjoyed,
should go to the plaintiff (Grayson v. Williams (10th Cir.
1958), 256 F.2d 61, 65) borders too closely on approval of
unwarranted punitive damages, and it is a view not espoused
by our cases.” Peterson, 76 Ill. 2d at 363.
This holding placed Illinois in the minority of courts on this issue.
See Arthur, 216 Ill. 2d at 92 (McMorrow, C.J., dissenting) (listing
several authorities noting that Illinois is one of only a few
jurisdictions to omit gratuities from the collateral source rule).2
2
For an example of a court applying the majority rule, see Degen v.
Bayman, 90 S.D. 400, 241 N.W.2d 703 (1976). In that case, the plaintiff
recovered $13,490 in medical expenses that were provided to his son free
of charge by Shriners’ Hospital for Crippled Children. The defendant
argued that the trial court erred in allowing the plaintiff to recover for
medical services that were provided free of charge. The South Dakota
Supreme Court disagreed, and held that the plaintiff is allowed to recover
for the reasonable value of medical services caused by the injury and that
the plaintiff is not limited to recovering expenditures actually made or
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Moreover, this holding was contrary to section 920A of the
Restatement. Comment c to section 920A lists the types of benefits
that are not subtracted from a plaintiff’s recovery under the collateral
source rule. Specifically, comment c(3) provides as follows:
“Gratuities. This applies to cash gratuities and to the
rendering of services. Thus the fact that the doctor did not
charge for his services or the plaintiff was treated in a
veterans hospital does not prevent his recovery for the
reasonable value of the services.” Restatement (Second) of
Torts §920A, Comment c(3), at 515 (1979).
B. Arthur
Twenty-six years after Peterson, this court revisited the collateral
source rule in Arthur. As set forth above, this court held in Arthur
that the plaintiff was entitled to submit the full amount of her charged
medical bills to the jury and was not limited to presenting the reduced
rate actually paid by her private insurer. Arthur arose on a certified
question and involved only the evidentiary aspect of the collateral
source rule. This court’s discussion of the collateral source rule
differed from that set forth in Peterson. In Peterson, this court did not
mention section 920A of the Restatement, instead focusing on section
903. Moreover, Peterson explicitly rejected the rationale often cited
in support of the collateral source rule that any windfall should be
enjoyed by the plaintiff rather than by the defendant. Arthur, by
contrast, did not mention section 903 of the Restatement and instead
quoted approvingly from section 920A, comment b:
“The collateral source rule protects collateral payments
made to or benefits conferred on the plaintiff by denying the
defendant any corresponding offset or credit. Such collateral
benefits do not reduce the defendant’s tort liability, even
though they reduce the plaintiff’s loss.
obligations incurred. The court further explained that the tortfeasor is not
allowed to benefit because the injured party was able to secure gratuitous
medical services from a third party. Degen, 90 S.D. at 410-11, 241 N.W.2d
at 708-09.
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‘They do not have the effect of reducing the recovery
against the defendant. The injured party’s net loss may
have been reduced correspondingly, and to the extent that
the defendant is required to pay the total amount there
may be a double compensation for a part of the plaintiff’s
injury. But 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).
Accord Muranyi v. Turn Verein Frisch-Auf, 308 Ill. App. 3d
213, 215 (1999); 2 D. Dobbs, Remedies §8.6(3), at 493 (2d
ed. 1993). The rule operates to prevent the jury from learning
anything about collateral income.” Arthur, 216 Ill. 2d at 78-
79.
Thus, not only did Arthur rely on section 920A, it endorsed the view
rejected by Peterson that a benefit intended for the plaintiff should
not become a windfall for the defendant.
Arthur further explained that the plaintiff was entitled to recover
the reasonable value of her medical expenses, and that the collateral
source rule prohibited the defense from introducing any evidence that
the plaintiff’s loss had been covered in part by insurance. Arthur, 216
Ill. 2d at 80-81. Nor could the defense limit the plaintiff’s ability to
introduce evidence of the reasonable cost of health care necessitated
by the defendant’s conduct. Moreover, Arthur determined that the
plaintiff became liable for the bills at the time that she received the
medical services, not when a bill was issued to her insurance
company. Arthur, 216 Ill. 2d at 80-81.
Finally, Arthur noted the rule that, for a medical bill to be
admissible into evidence, it must be established that the charges were
reasonable. In Illinois, a paid bill constitutes prima facie evidence of
reasonableness. In a case in which the plaintiff seeks to admit a bill
that has not been paid in whole or in part, he or she must establish
reasonableness by other means–such as by introducing the testimony
of someone having knowledge of the services rendered and the
reasonable and customary charge for such services. Thus, this court
concluded that the plaintiff in Arthur was entitled to submit the
amounts initially billed, but could not establish a prima facie case of
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reasonableness based on the bills alone because the entire billed
amount had not been paid. Arthur, 216 Ill. 2d at 81-83.
3. Did Peterson Survive Arthur?
This court has been criticized both internally (see Arthur, 216 Ill.
2d at 84-100 (McMorrow, C.J., dissenting)) and externally (see, e.g.,
R. Hernquist, Note, Arthur v. Catour: An Examination of the
Collateral Source Rule in Illinois, 38 Loy. U. Chi. L.J. 169, 208-09
(2006)) for failing to reconcile the Arthur opinion with Peterson. The
trial court in Arthur based its decision on Peterson, but this court did
not discuss Peterson when it reversed the trial court. In her dissent,
Chief Justice McMorrow criticized the majority for discussing the
collateral source rule in general terms, instead of acknowledging the
limited form of the collateral source rule adopted in Peterson. Arthur,
216 Ill. 2d at 91-92 (McMorrow, C.J., dissenting). To determine the
status of Peterson in light of Arthur, we consider the three approaches
courts have taken in determining whether, pursuant to the collateral
source rule, a plaintiff was entitled to recover his or her full billed
medical expenses when the bill was later settled by a third party for
a lesser amount. In Bozeman v. State, 879 So. 2d 692, 701 (La. 2004),
the Supreme Court of Louisiana identified these three approaches as:
(1) actual amount paid; (2) benefit of the bargain; and (3) reasonable
value.
A. Actual Amount Paid
Examples of cases following the actual-amount-paid approach are
Dyet v. McKinley, 139 Idaho 526, 81 P.3d 1236 (2003), and Terrell
v. Nanda, 759 So. 2d 1026 (La. App. 2000). Courts in these cases
held that the plaintiff was limited to recovering the amount actually
paid in full settlement of the bill and could not recover the amount
written off. These courts focused on the objective of compensatory
damages as making an injured party whole. According to these courts,
the written-off amounts are not damages incurred by the plaintiff. For
instance, the court in Terrell explained that “a plaintiff may not
recover as damages that portion of medical expenses ‘contractually
adjusted’ or ‘written-off’ by a healthcare provider pursuant to the
requirements of the Medicaid program. Such expenses are not
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damages incurred by the injured plaintiff and are not subject to
recovery by application of the ‘collateral source’ rule.” Terrell, 759
So. 2d at 1031.
This approach has been criticized for focusing its inquiry on the
nature of the write-offs vis-a-vis the tort victim rather than vis-a-vis
the tortfeasor. See Bozeman, 879 So. 2d at 703. Bozeman reasoned
that the “argument that there is no underlying obligation for plaintiff
to pay the amount of the write-offs and, therefore, the plaintiff should
not be allowed to benefit from a non-existent debt, falls because the
effect of this reasoning results in a diminution of the tortfeasor’s
liability vis-a-vis an insured victim when compared with the same
tortfeasor’s liability vis-a-vis an uninsured victim.” Bozeman, 879 So.
2d at 703; see also Acuar v. Letourneau, 260 Va. 180, 192, 531
S.E.2d 316, 322 (2000) (explaining that the “focal point of the
collateral source rule is not whether an injured party has ‘incurred’
certain medical expenses. Rather, it is whether a tort victim has
received benefits from a collateral source that cannot be used to
reduce the amount of damages owed by a tortfeasor”).
B. Benefit of the Bargain
The second approach courts take is the benefit-of-the-bargain
approach. 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. They employ reasoning
such as the following:
“[W]e conclude that Acuar cannot deduct from that full
compensation any part of the benefits Letourneau received
from his contractual arrangement with his health insurance
carrier, whether those benefits took the form of medical
expense payments or amounts written off because of
agreements between his health insurance carrier and his health
care providers. Those amounts written off are as much of a
benefit for which Letourneau paid consideration as are the
actual cash payments made by his health insurance carrier to
the health care providers. The portions of medical expenses
that health care providers write off constitute ‘compensation
or indemnity received by a tort victim from a source collateral
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to the tortfeasor ... .’ ” Acuar, 260 Va. at 192, 531 S.E.2d at
322-23, quoting Schickling v. Aspinall, 235 Va. 472, 474, 369
S.E.2d 172, 174 (1988).
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. See, e.g., Bozeman,
879 So. 2d at 703-05; Rose v. Via Christi Health System, Inc., 276
Kan. 539, 546, 78 P.3d 798, 803 (2003).
This benefit-of-the-bargain approach has been criticized for
discriminating amongst classes of plaintiffs. See G. Zorogastua,
Comment, Improperly Divorced From Its Roots: The Rationales of
the Collateral Source Rule and Their Implications for Medicare and
Medicaid Write-Offs, 55 U. Kan. L. Rev. 463, 491-93 (2007) (arguing
that the benefit-of-the-bargain approach irrationally discriminates
among classes of plaintiffs and guarantees that the poor and disabled
will recover less in economic damages than those with Medicare or
private insurance); see also Cates v. Wilson, 321 N.C. 1, 6, 361
S.E.2d 734, 737-38 (1987) (“Medicaid is a form of insurance paid for
by taxes collected from society in general. ‘The Medicaid program is
social legislation; it is the equivalent of health insurance for the
needy; and, just as any other insurance form, it is an acceptable
collateral source’ ”), quoting Bennett v. Haley, 132 Ga. App. 512,
524, 208 S.E.2d 302, 311 (1974).
Another obvious criticism of this approach is that, like the actual-
amount-paid approach, it undermines the collateral source rule by
using the plaintiff’s relationship with a third party to measure the
tortfeasor’s liability. For instance, Bozeman declined to follow the
actual-amount-paid approach because it improperly placed the focus
on the write-offs vis-a-vis the tort victim rather than vis-a-vis the
tortfeasor. But then Bozeman did the very same thing by adopting a
benefit-of-the-bargain approach that measured the amount of the
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tortfeasor’s liability by considering whether the tort victim was
insured by private insurance and Medicare on the one hand or
Medicaid on the other. See Bozeman, 879 So. 2d at 703-05.
C. Reasonable Value
Most courts follow the reasonable-value approach. Courts
applying this approach hold that the plaintiff is entitled 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. A minority of courts employing this approach
hold that the reasonable value of medical services is the actual
amount paid. See, e.g., Cooperative Leasing, Inc. v. Johnson, 872 So.
2d 956, 958-60 (Fla. App. 2004); Moorhead v. Crozer Chester
Medical Center, 564 Pa. 156, 161-65, 765 A.2d 786, 789-91 (2001);
Hanif v. Housing Authority, 200 Cal. App. 3d 635, 639-43, 246 Cal.
Rptr. 192, 194-96 (1988). Courts in these cases held that the plaintiffs
were limited to recovering the amounts actually paid in full settlement
of the bills and could not recover the amounts written off. These
courts focus on the objective of compensatory damages as making an
injured party whole. In denying the plaintiff the right to recover the
amount written off, Johnson relied heavily on this court’s decision in
Peterson. Johnson noted that Peterson held that an individual could
not recover for “ ‘the value of services that he has obtained without
expense, obligation, or liability.’ ” Johnson, 872 So. 2d at 958,
quoting Peterson, 76 Ill. 2d at 362. Johnson determined that a
Peterson approach would not allow recovery of write-offs because it
stood for the proposition that the reasonable value of medical services
is limited to the amount accepted as payment in full for medical
services. Johnson, 872 So. 2d at 958. Another hallmark of decisions
employing the minority view is that, rather than rely on section 920A
of the Restatement and the comments thereto, they focus on section
911, comment h, which states as follows:
“When the plaintiff seeks to recover for expenditures
made or liability incurred to third persons for services
rendered, normally the amount recovered is the reasonable
value of the services rather than the amount paid or charged.
If, however, the injured person paid less than the exchange
rate, he can recover no more than the amount paid, except
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when the low rate was intended as a gift to him.” Restatement
(Second) of Torts §911, Comment h, at 476-77 (1979).
See Johnson, 872 So. 2d at 958; Moorhead, 564 Pa. at 162-63, 765
A.2d at 789; Hanif, 200 Cal. App. 3d at 643, 246 Cal. Rptr. at 196-97.
These cases have been criticized for relying on section 911,
comment h, of the Restatement. In Bynum v. Magno, 106 Haw. 81,
101 P.3d 1149 (2004), the Supreme Court of Hawaii explained that
the term “value” as used in section 911 of the Restatement means
“the exchange value” and that,
“ ‘the exchange value of property or services is the amount of
money for which the subject matter could be exchanged or
procured if there is a market continually resorted [to] by
traders, or if no market exists, the amount that could be
obtained in the usual course of finding a purchaser or hirer of
similar property or services.’ ” Bynum, 106 Haw. at 91, 101
P.3d at 1159, quoting Restatement (Second) of Torts §911(2),
at 472 (1979).
Bynum then explained that comment h to section 911,
“only pertains to the ‘value of services rendered’ in the
context of ascertaining the ‘measure of recovery of a person
who sues for the value of his services tortiously obtained’ or
when a plaintiff ‘seeks to recover for expenditures made or
liability incurred to third persons for services rendered.’ This
definition of ‘value of services rendered’ is inapplicable, for
the present case does not involve a provider who is suing for
the value of the medical services provided or who seeks to
recover expenditures incurred to third persons.” (Emphases in
original.) Bynum, 106 Haw. at 91, 101 P.3d at 1159, quoting
Restatement (Second) of Torts §911(2), Comment h, at 476
(1979).
See also Moorhead, 564 Pa. at 172, 765 A.2d at 795 (Nigro, J.,
dissenting) (arguing that section 911, comment h, was not applicable).
Moreover, critics of the minority approach have also pointed out
that section 924 of the Restatement covers “Harm to the Person” and
provides that an injured person is entitled to recover “reasonable
medical and other expenses.” Restatement (Second) of Torts §924(c),
at 523 (1979). Comment f to section 924 cites section 920A and
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explains that “[t]he value of medical services made necessary by the
tort can ordinarily be recovered although they have created no
liability or expense to the injured person, as when a physician donates
his services.” Restatement (Second) of Torts §924, Comment f, at 527
(1979). Critics have thus questioned how courts can rely on section
911, comment h, when section 924, comment f, is directly applicable.
See Bynum, 106 Haw. at 91-92, 101 P.3d at 1159-60; Moorhead, 564
Pa. at 172, 765 A.2d at 795 (Nigro, J., dissenting).
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. See, e.g., McMullin v.
United States, 515 F. Supp. 2d 904 (E.D. Ark. 2007) (applying
Arkansas law); Pipkins v. TA Operating Corp., 466 F. Supp. 2d 1255
(D.N.M. 2006) (applying New Mexico law); Papke v. Harbert, 738
N.W.2d 510 (S.D. 2007); Robinson v. Bates, 112 Ohio St. 3d 17,
2006–Ohio–6362; Baptist Healthcare Systems, Inc. v. Miller, 177
S.W.3d 676 (Ky. 2005); Bynum, 106 Haw. 81, 101 P.3d 1149;
Haselden v. Davis, 353 S.C. 481, 579 S.E.2d 293 (2003); Brandon
HMA, Inc. v. Bradshaw, 809 So. 2d 611 (Miss. 2001); Koffman v.
Leichtfuss, 246 Wis. 2d 31, 630 N.W.2d 201 (2001); Olariu v.
Marrero, 248 Ga. App. 824, 549 S.E.2d 121 (2001); Texarkana
Memorial Hospital, Inc. v. Murdock, 903 S.W.2d 868 (Tex. App.
1995); rev’d on other grounds, 946 S.W.2d 836 (Tex. 1997); Brown
v. Van Noy, 879 S.W.2d 667 (Mo. App. 1994). This view is in line
with sections 924 and 920A of the Restatement, and courts often rely
on these sections. As explained above, section 924 allows an injured
plaintiff to recover reasonable medical expenses (Restatement
(Second) of Torts §924, at 523 (1979)), and comment f explains that
this is a recovery for value even if there is no liability or expense to
the injured person (Restatement (Second) of Torts §924, Comment f,
at 527 (1979)). Section 920A(2) provides that benefits conferred on
the injured party from other sources are not credited against the
tortfeasor’s liability. Restatement (Second) of Torts §920A(2), at 513
(1979). Comment b explains that,
“[t]he law does not differentiate between the nature of the
benefits, so long as they did not come from the defendant or
a person acting for him. One way of stating this conclusion is
to say that it is the tortfeasor’s responsibility to compensate
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for all harm that he causes, not confined to the net loss that
the injured party receives.” (Emphasis added.) Restatement
(Second) of Torts §920A(2), Comment b, at 514 (1979).
Comment c lists various types of collateral benefits that are covered
by the rule: insurance policies, employment benefits, gratuities, and
social legislation benefits. Restatement (Second) of Torts §920A(2),
Comment c, at 514-15 (1979).
A common criticism of this approach is that it can lead to a
windfall for the plaintiff. In Hanif, the court argued that the primary
purpose of awarding damages is to compensate the plaintiff. In other
words, 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. Hanif, 200 Cal. App. 3d at 640-41, 246 Cal. Rptr.
at 195. The Hanif court argued that reasonable value is “a term of
limitation, not of aggrandizement” and that “when the evidence
shows a sum certain to have been paid or incurred for past medical
care and services, whether by the plaintiff or by an independent
source, that sum certain is the most the plaintiff may recover for that
care despite the fact it may have been less than the prevailing market
rate.” Hanif, 200 Cal. App. 3d at 641, 246 Cal. Rptr. at 195.
D. The Rule in Illinois: Benefit of the Bargain or Reasonable
Value?
Arthur contains language that could be used to suggest that this
court has adopted either a reasonable-value approach or a benefit-of-
the-bargain approach. Defendant argues that Arthur followed a
benefit-of-the-bargain theory and that the rule allowing privately
insured plaintiffs to seek recovery of write-offs would not apply to a
plaintiff covered by Medicaid or Medicare.3 Arthur stated at one point
that the justification for the collateral-source rule is that “ ‘the
wrongdoer should not benefit from the expenditures made by the
3
Defendant contends that neither a plaintiff covered by Medicare nor
one covered by Medicaid should be allowed to seek recovery of write-offs.
As we noted above, however, courts adopting the benefit-of-the-bargain
approach typically distinguish between the two programs and treat
Medicare the same as private insurance.
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injured party or take advantage of contracts or other relations that
may exist between the injured party and third persons.’ ” Arthur, 216
Ill. 2d at 79, quoting Wilson, 131 Ill. 2d at 320. We also noted that
“plaintiff received the benefit of her bargain with her insurance
company–full coverage for incurred medical expenses.” Arthur, 216
Ill. 2d at 81. Plaintiff denies that Arthur endorsed a benefit-of-the-
bargain approach and argues that the benefit-of-the-bargain language
was merely one of several policy justifications this court gave in
support of the collateral source rule. According to plaintiff, the point
of Arthur is that a plaintiff is entitled to recover the reasonable value
of medical expenses. Support can be found for plaintiff’s position in
Arthur. This court looked to liability not at the time the bills were
issued, but at the time the services were rendered. Arthur, 216 Ill. 2d
at 80. This court also said that plaintiff was entitled to recover the
reasonable expense of necessary medical care resulting from
defendant’s negligence, and that “[t]he only relevant question in the
litigation between plaintiff and defendants is the reasonable value of
the services rendered.” Arthur, 216 Ill. 2d at 81. Moreover, Arthur
relied on comment b to section 920A(2) of the Restatement (Arthur,
216 Ill. 2d at 78-79), and that comment supports a reasonable value
approach.
To the extent that Arthur suggested both approaches, we make
clear today that we follow the reasonable-value approach, not the
benefit-of-the-bargain approach. We do so for several reasons. First,
we note that, when discussing the policy justifications for the
collateral source rule, this court has stated 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.’ ” (Emphasis added.) Arthur, 216
Ill. 2d at 79, quoting Wilson, 131 Ill. 2d at 320. Clearly, another
relationship between an injured plaintiff and a third party could be a
relationship with the government that allows the plaintiff’s medical
expenses to be paid because of factors such as her age or income
level. Similarly, an arrangement between the plaintiff and a physician
who agrees to perform free medical services is a relationship with a
third party who is collateral to the tortfeasor. In either case, the
benefit is intended to be for the plaintiff, not for the tortfeasor. A
“ ‘benefit that is directed to the injured party should not be shifted so
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as to become a windfall for the tortfeasor.’ ” Arthur, 216 Ill. 2d at 79,
quoting Restatement (Second) of Torts §920A, Comment b, at 514
(1979).
Second, Arthur relied on section 920A of the Restatement, and
that section supports a reasonable-value approach. As set forth above,
the Restatement allows all injured plaintiffs to recover the reasonable
value of medical expenses and does not distinguish between those
who have private insurance, those whose expenses are paid by the
government, or those who receive their treatment on a gratuitous
basis. See Restatement (Second) of Torts §920A, Comments b, c, at
514-15 (1979).
Third, as discussed more fully above, the deficiencies of the
benefit-of-the-bargain approach are obvious. Courts employing this
approach discriminate amongst plaintiffs, holding that only the sick
or disabled plaintiff whose expenses are covered by Medicaid may
not seek to recover the full billed amount of medical expenses.
Moreover, courts reach this outcome by employing an analysis that
undermines the spirit of the collateral source rule: the measure of the
defendant’s liability is determined by the nature of the injured party’s
relationship with a source collateral to the tortfeasor. As noted by the
Supreme Court of Wisconsin, “[t]he collateral source rule ensures
that the liability of similarly situated defendants is not dependent on
the relative fortuity of the manner in which each plaintiff’s medical
expenses are financed.” Leitinger v. DBart, Inc., 2007 WI 84, ¶32,
302 Wis. 2d 110, ¶32, 736 N.W.2d 1, ¶32; see also Brandon HMA,
809 So. 2d at 619 (explaining that the defendant “does not get a break
on damages just because it caused permanent injuries to a poor
person”); Ellsworth v. Schelbrock, 2000 WI 63, ¶17, 235 Wis. 2d
678, ¶17, 611 N.W.2d 764, ¶17 (explaining that the defendant “is not
entitled to reap the benefit of [the plaintiff’s] eligibility for public
assistance or from the government’s clout in the health care market
place”).
Fourth, the vast majority of courts to consider the issue employ
some sort of reasonable-value approach. As we explained above, a
minority of the “reasonable value” courts hold that the reasonable
value is equivalent to the amount actually paid, while a majority of
courts allow the plaintiff to seek to recover the full billed amount. In
Illinois, this question was settled by Arthur. Arthur stands for the
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proposition that the plaintiff may place the entire billed amount into
evidence, provided that the plaintiff establishes the proper
foundational requirements to show the bill’s reasonableness. Arthur,
216 Ill. 2d at 81-83.
E. Peterson is Overruled
Peterson is incompatible with the reasonable-value approach
adopted by this court. Peterson focused solely on the compensatory
nature of tort damages, relied on section 903 of the Restatement, and
explicitly rejected the reasoning that any windfall should be awarded
to the plaintiff rather than defendant. Arthur focused on section 920A
of the Restatement, specifically cited 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)),
did not discuss the compensatory nature of tort damages, and stated
that the relevant question is the “reasonable value of the services
rendered.” Arthur, 216 Ill. 2d at 81. Had this court followed a strict
Peterson approach in Arthur, it is likely that this court would have
concluded, as did the Florida appellate court in Johnson (applying
Peterson) that the written-off amount could not be recovered. See
Johnson, 872 So. 2d at 958; see also Baptist, 177 S.W.2d at 689
(Cooper, J., dissenting) (citing Peterson in support of argument that
the majority erred in adopting a reasonable-value approach). By
contrast, Arthur held that the plaintiff was entitled to introduce
evidence of the full billed amount, provided that the plaintiff could
establish that this amount represented the reasonable value of the
services rendered. See Arthur, 216 Ill. 2d at 80-83. Arthur represented
a move toward adopting a reasonable-value approach based on
section 920A of the Restatement, and this approach is incompatible
with Peterson. Accordingly, Peterson is overruled.
4. Are the Paid Bills Admissible by the Defense?
A further disagreement exists in the courts over whether the
defense may introduce evidence of the paid amount to assist the jury
in determining reasonable value. In Arthur, this court held that
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defendants are free to challenge a plaintiff’s proof of reasonableness
on cross-examination and to introduce their own evidence of
reasonableness. In her dissent, Chief Justice McMorrow criticized the
court for failing to explain what type of evidence defendants could
introduce and whether it included the amount paid by a third party.
Arthur, 216 Ill. 2d at 97-98 (McMorrow, C.J., dissenting); see also 38
Loy. U. Chi. L.J. at 210 (“[b]ecause the majority did not specifically
address how a defendant may properly contest the reasonableness,
this may be an area ripe for abuse and conflicting opinions”).
Some courts have held that both the amount originally billed and
the amount actually paid may be considered by the jury. For instance,
in Robinson, the Supreme Court of Ohio held that plaintiffs may
recover the reasonable value of services and,
“the reasonable value of medical services is a matter for the
jury to determine from all relevant evidence. Both the original
medical bill rendered and the amount accepted as full
payment are admissible to prove the reasonableness and
necessity of charges rendered for medical and hospital care.”
Robinson, 2006–Ohio–6362, at ¶17.
Other courts have held that defendants may not introduce the
amount paid by a third party to assist the jury in determining
reasonable value. For instance, in Leitinger, the Supreme Court of
Wisconsin found that allowing defendants to introduce this evidence
would undermine the collateral source rule: “If evidence of the
collateral source payments were admissible, even for consideration of
the reasonable value of the medical treatment rendered, a plaintiff’s
recovery of medical expenses would be affected by the amount
actually paid by a collateral source for medical services.” Leitinger,
2007 WI 84, ¶48. The court further considered the defendant’s
argument that it should be allowed to introduce the amount of the
paid bill if it did not divulge the source of the payments. The court
disagreed:
“Although claiming that the evidence assists the fact-
finder in determining the reasonable value of the medical
treatment and does not limit or reduce the damages, [the
defendant], in essence, is seeking to do indirectly what it
cannot do directly, that is, it is seeking to limit [the plaintiff’s]
award for expenses for medical treatment by introducing
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evidence that payment was made by a collateral source.”
Leitinger, 2007 WI 84, ¶53.
Moreover, the court shared the concern expressed by the South
Carolina Supreme Court in Covington v. George, 359 S.C. 100, 104,
597 S.E.2d 142, 144 (2004), that this unexplained evidence would
confuse the jury, and any attempt by plaintiff to explain the
compromised payment would lead to the existence of a collateral
source. Leitinger, 2007 WI 84, ¶52. See also Papke, 738 N.W.2d at
536 (“when establishing the reasonable value of medical services,
defendants in South Dakota are currently prohibited from introducing
evidence that a plaintiff’s award should be reduced because of a
benefit received wholly independent of the defendants”); Radvany v.
Davis, 262 Va. 308, 310, 551 S.E.2d 347, 348 (2001) (amounts paid
by insurance carrier not admissible on question of reasonable value
of medical services); Bynum, 106 Haw. at 94, 101 P.3d at 1162;
Goble v. Frohman, 848 So. 2d 406, 410 (Fla. App. 2003) (“To
challenge the reasonableness or necessity of the medical bills, [the
defendant] could have introduced evidence on the value of or need for
the medical treatment. As stated in Gormley [v. GTE Products Corp.,
587 So. 2d 455, 457 (Fla. 1991)] ‘there generally will be other
evidence having more probative value and involving less likelihood
of prejudice than the victim’s receipt of insurance-type benefits’ ”).
Chief Justice McMorrow expressed a similar concern in her dissent
in Arthur, arguing that allowing the defense to bring out that the full
billed amount had not been paid would compromise the protections
of the collateral source rule and that “[a]llowing evidence of both the
billed and discounted amounts compromises the collateral source
rule, confuses the jury, and potentially prejudices both parties in the
case.” Arthur, 216 Ill. 2d at 98 (McMorrow, C.J., dissenting).
We agree with the latter cases. 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 cross-examine 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,
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introduce evidence that the plaintiff’s bills were settled for a lesser
amount because to do so would undermine the collateral source rule.
5. Did the Trial Court Err in Reducing Plaintiff’s Award to the
Amount Paid by Medicaid and Medicare?
Having hopefully answered any outstanding questions on the
operation of the collateral source rule in cases in which a plaintiff’s
medical bills were settled for less than the billed amount, we now
consider the application of the law to this case. As we noted above,
the trial court denied defendant’s motion in limine, which sought to
limit plaintiff’s evidence of medical expenses to the amount paid by
Medicaid and Medicare at a reduced rate. This was correct under the
law set forth above and in Arthur. The difference between this case
and Arthur, however, is that this case involved a recipient of
Medicaid and Medicare, and the amount of plaintiff’s award was
reduced after a trial. Under the reasonable-value approach that we
have adopted, the fact that the collateral source was the government
instead of a private insurance company is a distinction without a
difference. All plaintiffs are entitled to seek to recover the full
reasonable value of their medical expenses.
Although Arthur involved only the evidentiary component of the
collateral source rule, the language that the court used in that case was
broad enough to encompass the damages component. For instance,
this court stated that the collateral source rule “protects collateral
payments made to or benefits conferred on the plaintiff by denying
the defendant any corresponding offset or credit. Such collateral
benefits do not reduce the defendant’s tort liability, even though they
reduce the plaintiff’s loss.” (Emphasis added.) Arthur, 216 Ill. 2d at
78. Moreover, this court stated that “[p]laintiff, of course, is entitled
to recover as compensatory damages the reasonable expense of
necessary medical care” and that the only relevant question was the
reasonable value of those services. (Emphasis added.) Arthur, 216 Ill.
2d at 81. This court further explained that, because the full amount of
the bills had not been paid, the plaintiff would have to satisfy the
requirements for admission of the bills into evidence through witness
testimony. Arthur, 216 Ill. 2d at 82. Once the bills were admitted into
evidence, it was up to the jury to consider whether to award “ ‘none,
part, or all of the bill as damages.’ ” Arthur, 216 Ill. 2d at 83, quoting
Baker v. Hutson, 333 Ill. App. 3d 486, 494 (2002).
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Here, we find that the trial court erred in reducing plaintiff’s
award of medical expenses to the amount paid by Medicaid and
Medicare. Plaintiff did not produce a witness to testify that the billed
amount was reasonable. However, that was not necessary here
because defendant stipulated to the admission of the billed amounts
and neither objected to nor offered any evidence on the question of
their reasonableness. The position defendant took in this case was not
that the amounts billed were not reasonable, but that the written-off
amount was not recoverable as damages as a matter of law. The
reasonableness requirement discussed in Arthur is part of the
foundational requirement that a plaintiff must satisfy for admission
of an unpaid bill into evidence. Arthur, 216 Ill. 2d at 82; see also
Arthur, 216 Ill. 2d at 96 (McMorrow, C.J., dissenting), quoting 11 Ill.
Jur. Personal Injury & Torts §5:26, at 315 (2002) (“[i]f no evidence
as to a bill’s reasonableness is introduced, the bill is not admissible
into evidence”). Defense counsel explained at oral argument that the
issue was set up in pretrial motions, and once the court had ruled, the
defense elected not to take up the jury’s time with a foundation
objection. By stipulating to the admission of the billed amounts into
evidence and failing to offer any objection, defendant relieved
plaintiff of the burden of establishing reasonableness. Further, as
Arthur clearly states, once the bill has been admitted it is for the jury
to decide whether to award all, part, or none of the bill. See Arthur,
216 Ill. 2d at 83. Here, the jury awarded the entire amount. There was
no basis for the trial court to reduce plaintiff’s award.
CONCLUSION
Plaintiff was entitled to seek to recover the reasonable value of
her medical expenses and her recovery was not limited to the amount
actually paid by Medicare and Medicaid. We thus reverse the
appellate court’s judgment upholding the trial court’s reduction of
plaintiff’s medical expenses award to the amount paid by Medicare
and Medicaid, as well as that portion of the circuit court’s judgment.
We remand the cause to the circuit court for further proceedings.
Appellate court judgment reversed;
circuit court judgment reversed in part;
cause remanded.
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