Illinois Adheres to the ‘Reasonable Value’ Rule

How much is a broken leg worth?  Though the answer depends on several factors, certainly the total amount of the plaintiff’s medical expenses is a good place to start.  While on the surface it may seem easy enough to determine that amount – just add’em up – not all states agree on what the plaintiff may properly claim as her total “recoverable” medical expenses.

For example, say the plaintiff is injured in a car accident and the total of her bills (the amount charged by her doctors for treating her) was $80,000.  her insurance company paid $19,000 in full settlement of those bills.  What, if anything, can she seek to recover against the tortfeasor?

Some states only allow the plaintiff to claim the amount that was actually paid, either by the plaintiff herself or by a third party, in full satisfaction of the bills.  See e.g., Dyet v. McKinley, 139 Idaho 526 (2003).  States that follow this “actual amount paid” approach focus on the purpose of compensatory damages, i.e., “to make the plaintiff whole,” and believe that the difference between the actual bills and what was actually paid are not recoverable because they are not damages incurred by the plaintiff.

If the plaintiff’s insurance company paid less than what her physician charged for his services, she may only recover that lesser amount.  If she received those services for free, she can claim nothing.  So, in the example above, the plaintiff could only claim $19,000 as her total medical expenses.

Other states, adhering to the so-called “benefit of the bargain” approach, allow the plaintiff to claim the full amount charged by her physician even though her insurance company may have paid those bills for less than what the doctor charged and even though the insurance company expects the plaintiff to pay back only that lesser amount or some reduced portion thereof, see e.g., Acuar v. Letourneau, 260 Va. 180, 192 (2000); Rose v. Via Christi Health System, Inc., 276 Kan. 539, 546 (2003); Bozeman v. State, 879 So.2d 692, 701 (La. 2004).  Under this approach, courts allow plaintiffs who have private insurance or are covered by Medicare to recover the full amount of their medical expenses because they have bargained for the benefits they received through the payment of premiums, compulsory payroll taxes, etc.  Medicaid recipients, however, are limited to the amount actually paid by Medicaid.

Like those states that permit recovery for only the amount actually paid, these states do not permit plaintiffs who receive “free” medical treatment to claim the reasonable value of that treatment.  In our example, the plaintiff could claim the full $80,000 if those bills were paid by a private insurance company or Medicare, but if she obtained free medical treatment, she could not seek to recover any of those expenses.

Most courts follow the “reasonable value” approach.  Under this approach, a plaintiff may seek the reasonable value of medical services regardless of who pays for those services or what they paid.  Recently, the Illinois Supreme Court reaffirmed Illinois’ adherence to this approach.  See Wills v. Foster, 2008 WL 2446696 (June 18, 2008).

In Wills, the plaintiff’s medical expenses were more than $80,000.  Those expenses were paid by Medicare and Medicaid for about $19,000.  the defendant claimed that the plaintiff could only claim that latter amount as the total amount of her medical bills.  The trial court rejected that argument and permitted the plaintiff to enter the higher amount into evidence, which the jury awarded her.  After trial, however, the court reduced the award to the amount actually paid by Medicare and Medicaid.  Relying in part on the Illinois Supreme Court’s decision in Peterson v. Lou Bachrodt Chevrolet Co., 76 Ill.2d 353, 362-63 (1979) (holding that a plaintiff who received medical treatment free of charge could not claim the reasonable value of that treatment as part of his damages because he had “incurred no expense, obligation, or liability in obtaining the services for which he seeks compensation”), the split panel of the 4th District Appellate Court affirmed that reduction.

Justice Robert W. Cook dissented.  He said that by limiting the amount of recoverable medical expenses to the amount actually paid by Medicare and Medicaid, the majority was conferring a benefit upon the tortfeasor and discriminating against plaintiffs who cannot afford private health insurance.  Agreeing with Cook, the Supreme Court reversed the 4th District and, in doing so, overruled its prior decision in Peterson.

The issue before the Willis court was determining which of the above three approaches was most consistent with the collateral source rule, which states that benefits received by an injured party from a source independent of and collateral to the tortfeasor will not diminish the damages that are recoverable from the tortfeasor.  This rule has two components:  (1) as a rule of evidence, the rule prevents the jury from learning anything about the collateral income, i.e., a defendant may not tell the jury that part of the plaintiff’s losses were covered by insurance and (2) 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.  In determining which of the three approaches would further both of these aspects of the collateral source rule, the court cited several criticisms of all three approaches.

For instance, the court noted that the “actual amount paid” approach focuses on the nature of the discounted payments or “write offs vis-à-vis the tort victim rather than vis-à-vis the tortfeasor.”  In other words, this approach both ignores the fact that the victim has paid consideration to a third party to receive that benefit and diminishes the amount of damages owed by the tortfeasor solely because of the victim’s relationship with that third party, even though the collateral source rule prohibits a reduction of the plaintiff’s compensatory award based upon a payment from a collateral source.

Though it credits a plaintiff for having health insurance, the “benefit of the bargain” approach, like the “actual amount paid” approach, discriminates against classes of plaintiffs.  For instance, under this approach, if a plaintiff can afford private health insurance, the defendant is on the hook for the full amount.  If the defendant happens to hit a Medicaid recipient, he is only potentially liable for the amount actually paid by those programs.  But if the defendant is lucky enough to hit a plaintiff who has no insurance and/or received free medical treatment, the defendant is not responsible for any medical expenses.

The “reasonable value” approach has been criticized too.  See Hanif v. Housing Authority, 200 Cal.App.3d 635, 640-41 (1988).  Tortfeasors argue that this approach provides a “windfall” to the tort victim because she is allowed obtained an amount higher than that actually paid to her doctors by her or on her behalf by an insurance company or Medicare/Medicaid, which, they argue, is inconsistent with the purpose of compensatory damages.  Regardless of the chosen approach, however, someone must receive a “windfall.”

It is true that under the reasonable value approach, the plaintiff might recover (depending upon her obligation to repay the third party who paid her expenses) more than what she or a third party actually had to pay.  But under either of the other two approaches, the tortfeasor receives a benefit because the amount of medical expenses is reduced (or eliminated) based solely upon who is paying the victim’s medical expenses (if anyone), a fact that is unrelated (or collateral) to the tortfeasor and his conduct.  Where a benefit must be bestowed upon one party, why should the wrongdoer get it?  See Arthur v. Catour, 216 Ill.2d 72, 79 (2005) (noting that a “benefit that is directed to the injured party should not be shifted so as to become a windfall for a tortfeasor”), quoting Restatement (Second) of Torts § 920A, Comment b, at 514 (1979).  Finding that providing the tort victim with the benefit was the lesser of two evils, the Willis court held that the reasonable value approach better furthered the spirit and twin aspects of the collateral source rule.

So what does the reasonable value approach mean in practice?  Regardless of who pays for the plaintiff’s medical bills (i.e., private insurer, public aid agency, charity, the doctor herself, etc.) and regardless of the amount actually paid in full satisfaction of those bills, the plaintiff may introduce into evidence the full amount charged by her physicians.  If those bills are paid, the Willis opinion stated, that amount is “prima facie” reasonable; if unpaid, the plaintiff “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.:

In rebutting the reasonableness of the expense, the defendant can examine any witness called by the plaintiff to establish the reasonableness of the bills or call his own witnesses to testify that the billed amounts do not reflect to reasonable value of services.  He may not, however, tell the jury about that lesser paid amount.  In other words, because the collateral source rule says that the jury is prevented from “learning anything about collateral income,” he cannot tell the jury that the bills were settled for an amount lower than what the plaintiff’s doctors actually billed for their services.