Cleaning up lingering uncertainty about the application of the collateral source rule, the Illinois Supreme Count held that a prevailing personal injury plaintiff's recovery of the reasonable value of her medical expenses is not limited to the amount actually paid, whether by Medicare, Medicaid,

Arthur v Catour leaves unanswered questions

Medical providers frequently enter into contractual arrangements with insurance providers to accept what the providers determine as reasonable payment in full satisfaction of their bills. Indeed, the federal government requires providers who accept Medicare and Medicaid payments to agree to do so, and not to bill the recipients for the excess. In some cases, providers may opt not to change recipients at all for their services.

What, then, should the measure of damages for prevailing plaintiffs be when their medical expenses are partially on wholly covered by a collateral source? Should they be entitled to recover only the discounted amount accepted by the provider, in which case the tortfeasors benefit from the arrangements the plaintiffs have made with the third panty? On should they be able to recover the full billed amount, in which case, from the defendants' point of view, the plaintiffs receive a windfall in the form of funds that they will not then be required to turn over in payment of the providers' bills?

The supreme count addressed but did not fully resolve this issue in Arthur v Catour, 216 Ill 2d 72, 833 NE2d 847 (2005). There, the count held that a prevailing personal injury plaintiff's damages will not be limited by the amount actually paid by the plaintiff's insurance company and accepted as full payment by the medical providers. Rather, assuming that those providers' bills are proven reasonable, the plaintiff's recovery may include the entire amount of the undiscounted bills.

The count did not, however, resolve at that time whether this principle would apply to medical bills discounted as the result of plaintiffs' eligibility for Medicaid, a welfare program, on medical cane for which the plaintiffs were not billed at all. Because the count had held in an earlier opinion, Peterson v Lou Bachrodt Chevrolet Co, 76 Ill 2d 353, 392 NE2d 1 (1979), that a plaintiff could not recover the value of free medical services provided by Shriners' Hospital for Crippled Children, defendants maintained that Arthur was limited to cases in which plaintiffs' medical bills were discounted as the result of their privately purchased medical insurance.

In Wills, the appellate count accepted one such argument. The count held that where the prevailing plaintiff's medical bills were discounted as the result of government payments from either Medicare on Medicaid, she was limited to recovering only those amounts paid by the government.

In reaching its holding, the appellate count found it significant that in Arthur, the supreme count had not disavowed on reassessed its holding in Peterson. (The appellate count failed to distinguish Medicare, a government insurance program requiring premium payments for eligibility, from Medicaid, a welfare program for which eligibility is dependent on need.) The supreme count granted the plaintiff's petition for leave to appeal.

The reasonable-value approach

The supreme count reversed the appellate count's judgment and remanded the case for a redetermination of damages.

On review, the supreme count noted preliminarily that its holding in Peterson was contrary to the positions adopted by most states as well as section 920A of the Restatement (Second) of Torts, and also commented that it had sustained criticism both internally and externally for its failure to discuss Peterson in its opinion in Arthur. It proceeded to conduct a thorough assessment of case law across the country on the collateral source rule.

Counts have adopted one of three approaches to determining whether prevailing plaintiffs are entitled to recover the full amount of their billed medical expenses when the bills are later settled by a third panty for a smaller amount, observed the count, citing a Louisiana Supreme Count case. The counts employing the first approach, the "actual amount paid," method, hold that prevailing plaintiffs are limited to recovering the amounts actually paid in full settlement of their bills and may not recover any amounts compromised.

The second approach, continued the court, is the "benefit-of-the-bargain" approach. Courts using this method permit prevailing plaintiffs to recover the full value of their medical expenses where the plaintiffs have paid some consideration for the benefit of the writeoffs. Thus, plaintiffs who have purchased insurance policies, on who are eligible for Medicare, may recover the full amount of the billed expenses. Plaintiffs who are Medicaid recipients, on the other hand, are limited to the amounts paid by Medicaid.

The third and most popular approach, the count observed, is the "reasonable-value" approach. Counts following this method permit prevailing plaintiffs to recover the reasonable value of their medical services, regardless of whether they have private insurance on are covered by government programs. And of these counts, noted the supreme count, the vast majority hold that prevailing plaintiffs may seek to recover the amounts originally billed by the medical providers.

Noting that its language in Arthur had not made clean whether the count had adopted a reasonable-value approach on the benefit-of-the-bargain approach, the count unambiguously stated that it now adopted the former approach and overruled Peterson. Among other reasons for its position, the count noted that the benefit-of-the-bargain approach discriminates among plaintiffs, providing a lessen recovery to a prevailing plaintiff whose expenses are covered by Medicaid than for one injured to the same extent who happens to have insurance (or who, though uninsured, can afford to pay the entire billed amount). Additionally, said the court, the benefit of a reduced bill, or of free medical services, should be for the injured plaintiff, not for the tortfeasor.

"[C]onsistency and fairness"

The court discussed the evidence necessary to establish the reasonable value of medical services to injured plaintiffs. Again reviewing the different attitudes of courts in other states who have adopted the reasonable-value approach, the supreme court held that the factfinder may consider the amount billed, together with defense testimony that the billed amounts do not reflect the reasonable value of the services rendered, but that defendants may not present evidence that the bills were compromised for lesser amounts. To do so, said the court, would be likely to confuse the jury and would undermine the collateral source rule.

Springfield lawyer Alexandra de Saint Phalle, who argued the case before the high court for Sheila Wills, was impressed by the court's thorough survey of the law throughout the country. "The court's decision restores consistency and fairness to the law. Now, all prevailing plaintiffs, regardless of their age, their wealth, or their insurance status, will be able to recover the full reasonable value of their medical bills."