Court Examines Collateral Source Rules on Medical Bills

While attending an auction on a farm, Joyce Arthur stepped into a hole and fractured her leg, requiring surgery.

She brought a lawsuit against the owners of the property, including as claimed damages the medical bills she incurred.

Arthur was insured by Blue Cross/Blue Shield through her husband’s employer. It was undisputed that she received $19,355.25 of services from various medical providers. But through contractual agreements that Blue Cross had with the plaintiff’s health-care providers, many of the services were discounted.

For example, Orthopedic Specialists provided $4,308.70 in heath care services, but Blue Cross actually paid them only $1,800.90 for a total actual payment of only $2,176, thereby satisfying the bill. All told, Blue Cross and the plaintiff actually paid only $13,577.97 of the nearly $20,000.00 billed.

The defendants in the lawsuit brought a motion for partial summary judgment seeking to limit the plaintiff’s claim for medical expenses to the amount paid, rather than the amount billed. The trial court granted the motion.

In reversing the trial court, the appellate court held that "plaintiff’s damages are not limited to the amount paid by her insurer, but may extend to the entire amount billed, provided those charges are reasonable expenses of necessary medical care." Arthur v. Catour, 345 Ill.App.3d 804, 808, 803 N.E.2d 647 (3d Dist.2004).

The Illinois Supreme Court agreed with the appellate court and remanded the matter to the trial court for further proceedings. It held that under the collateral source rule, a party should not have her damages diminished when receiving benefits from a wholly independent source and collateral to the tortfeasor. The rule also provides that it is improper to draw attention to the fact that a plaintiff has insurance, because a jury may conclude that the injured party sustained no damages. Therefore, the collateral source rule "operates to prevent the jury from learning anything about collateral income." Id.

This case represents an important pronouncement by the Illinois Supreme Court that embraces the collateral source rule.

Employers may provide medical coverage in lieu of a higher salary or other benefit. Why should defendants who have acted wrongfully benefit from the fact that an injured party had obtained and paid for insurance coverage?

In quoting the Restatement of Torts, the court found that "a benefit that is directed to the injured party should not be shifted so as to become a windfall fo the tortfeasor." Id., quoting, Restatement (Second) of Torts sect. 920A, Comment b, at 514 (1979).

The Supreme Court also reaffirmed the dual aspect of the collateral source rule: the substantive as well as the evidentiary component. In other words, to establish a prima facie case of the reasonableness of any medical bills, the plaintiff must demonstrate that she paid for the medical expenses or that she became liable to pay them; that she incurred the medical expenses because of injuries resulting from the defendant’s negligence; and that the charges were reasonable. Where the full amount of the bill was paid, the court held that the bill itself is prima facie reasonable.

Similarly, other states including Alaska, Florida, Kansas, Kentucky, Minnesota, Missouri, South Carolina, Virginia and Washington, have held that discrepancies in the medical bills totals should be determined by the amount billed, not the amount accepted by the physician.

Justice Mary Ann McMorrow dissented from the majority, concerned about the "tension between the concept compensatory damages and the collateral source rule," or the notion of compensating a plaintiff versus punishing a defendant or bestowing a "windfall upon plaintiffs." Id., at 32. McMorrow wanted to reconcile the previous ruling in Peterson v. Lou Banchrodt Chevrolet Co., 76 Ill.2d 353, 392 N.E.2d 1 (1979) where the court limited the operation of the collateral source rule involving the value of medical services of a charitable hospital. McMorrow’s thoughtful analysis led her to "express no opinion on the ultimate disposition of the issue presented in this appeal." Id., at 24.

The court’s majority, though, reiterated established precedent that explored how the collateral source rule works in Illinois. For a bill that has not been paid in full, the reasonableness of the bill can be established through the introduction of testimony of a person, such as the plaintiff’s doctor or an expert, who has knowledge of the services rendered and the usual charges for such services. Once the witness is shown to possess the requisite knowledge, the reasonableness requirement necessary for admission is satisfied if the witness testifies that the bills are fair and reasonable.

In Arthur, a doctor testified that the bill was reasonable, so the full amount was admissible.

Although cross-examination is allowed by the defendant on the issues of reasonableness or the necessity of the charges incurred as a result of the injuries caused by the defendant’s alleged negligence, Arthur, stands for the proposition that it is improper to cross-examine on the fact that the bill was discounted or on who paid the bill. This is irrelevant under the collateral source rule.

"The evidentiary component applies only to prevent defendants from introducing evidence that a plaintiff’s losses have been compensated for, even in part, by insurance." Id.

Arthur v. Catour clearly sets an equitable standard for the plaintiff to recover full and just damages, without allowing a negligent defendant to take advantage of the injured person.