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,
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 plaintiffs 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 plaintiffs bills had been paid by Medicaid and/or Medicare. The trial court granted plaintiffs 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 $80,163.47 to $19,005.50. The trial court granted defendant’s motion and reduced plaintiffs medical expenses award to the amount paid by Medicare and Medicaid. The court stated in its order that, “In the event plaintiffs 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.
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,
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,
On the evidentiary question, the Third District held that allowing the plaintiff to submit the amount initially billed by his providers was consistent with Arthur.
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Nickon,
ANALYSIS
1. Standard of Review
The issues in this case involve how the collateral source rule applies in cases in which the plaintiffs 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,
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,
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,
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 seeks compensation.” Peterson,
“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,
“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 plaintiffs loss.
‘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 plaintiffs 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 plaintiffs loss had been covered in part by insurance. Arthur,
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 reasonableness based on the bills alone because the entire billed amount had not been paid. Arthur,
3. Did Peterson Survive Arthur?
This court has been criticized both internally (see Arthur,
A. Actual Amount Paid
Examples of cases following the actual-amount-paid approach are Dyet v. McKinley,
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,
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 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,
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,
Another obvious criticism of this approach is that, like the actual-amount-paid approach, it undermines the collateral source rule by using the plaintiffs 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 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,
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,
“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 when the low rate was intended as a gift to him.” Restatement (Second) of Torts §911, Comment h, at 476-77 (1979).
See Johnson,
These cases have been criticized for relying on section 911, comment h, of the Restatement. In Bynum v. Magno,
“ ‘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,
See also Moorhead,
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 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,
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,
“[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 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 or she would have been in if the wrong had not been done. Hanif,
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.
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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 injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.’ ” Arthur,
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,
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.,
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 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,
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,
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 defendants are free to challenge a plaintiffs 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,
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,
“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 plaintiffs] award for expenses for medical treatment by introducing 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,
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 plaintiffs losses have been compensated for, even in part, by insurance.” Arthur,
5. Did the Trial Court Err in Reducing Plaintiffs 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 plaintiffs 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 plaintiffs 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 plaintiffs loss.” (Emphasis added.) Arthur,
Here, we find that the trial court erred in reducing plaintiffs 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,
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 plaintiffs 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.
Notes
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,
For an example of a court applying the majority rule, see Degen v. Bayman,
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.