TRIAL MEMORANDUM IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS MUNICIPAL DEPARTMENT, FIRST DISTRICT THE CHILDRENS MEMORIAL

HOSPITAL, Plaintiff, -vsPONCIANO LOPEZ and FRANCISCA LOPEZ, Defendants. ) ) ) ) ) ) ) ) ) ) )

No. 09 M1-103189

TRIAL MEMORANDUM INTRODUCTION In this action the plaintiff, Children's Memorial Hospital (hereafter "hospital"), seeks to recover damages for services rendered to the defendants. This memorandum discusses the legal issues in this case. I. CHILDREN'S MEMORIAL HOSPITAL MUST PROVE THAT THE AMOUNT IT SEEKS REPRESENTS REASONABLE VALUE OF THE SERVICES RENDERED This case concerns the hospital's action to recover for services it rendered defendants' daughter, Elidia Lopez. As in most hospital collection actions, there is no agreement between the parties as to the actual prices of the services rendered. The rule in such cases is well established:

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In Illinois where there is a contract, express or implied, under which one party supplies articles or services to another and there is no provision setting out the amount the supplier is to be compensated, the law implies that there is an agreement to pay a reasonable price for the goods and services. To recover under a contract of this nature, the supplier has the burden of proving that his charges for materials and services rendered are reasonable. A statement of account, standing alone, is not proof of the reasonableness of a supplier's charges. (citations omitted). Protestant Hospital Builders v. Goedde, 98 Ill.App.3d 1028, 1031, 424 N.E.2d 1302, 1305-06 (5th Dist. 1981). Since defendants deny that the amount sought by the hospital is appropriate, the ultimate issue in this action is the question of what was the reasonable value of the services rendered by the hospital. The determination of reasonableness involves a factual inquiry. "[E]vidence of the amount charged alone does not indicate reasonableness." Victory Memorial Hospital v. Rice, 143 Ill. App. 3d 621, 625, 493 N.E.2d 117, 119 (2d Dist. 1986). Caselaw establishes a two-pronged proof requirement for hospitals: This court, in Victory Memorial Hospital v. Rice, 143 Ill. App. 3d 621, 625, 493 N.E.2d 117, established what a plaintiff hospital must prove for damages in order to recover payment for its bills under an implied contract theory. A hospital must establish that its charges are reasonable in that they are the usual and customary charges of that particular hospital and are comparable to the charges of other area hospitals. Sherman Hospital v. Wingren, 169 Ill. App. 3d 161, 164, 523 N.E.2d 220, 222 (2d

Dist. 1988). A. The Charges to the Defendant Are Not the Usual and Customary Charges of the Hospital. The defendant in this case was not charged the hospital's usual and customary charge because this hospital engaged in "cost shifting". Cost shifting--or variable pricing--is a practice utilized by most hospitals in which different payers pay different amounts for identical hospital services. For example, a patient covered by Medicaid may pay $1,500 for an appendectomy while a self-paying patient may have to pay $2,500 for the same operation. Cost shifting in the context of hospital charges has been defined by the Illinois Health Care Cost Containment Council (IHCCCC): "Cost shifting" affects hospital prices for certain payers. Hospital prices are not used as the basis of payment by all payers. Major payers that pay for hospital services on other than a charge basis are Medicare, Blue Cross/Blue Shield, and the Illinois Medical Assistance Program. . . . Hospital prices must be established to combine with other revenues described above to produce sufficient income for hospitals to continue operations. So called "cost shifting" then results in higher charges to individuals who personally pay for all or a portion of their hospital confinement and to insurers and employers whose hospital benefits are based on hospital prices. "Report to the Honorable Members of the 84th Session of the Illinois General Assembly by the IHCCCC," March 1, 1985, at 19, (emphasis added). Cost shifting is a prevalent practice in Illinois hospitals. The Illinois legislature recognized this in creating the IHCCCC, which is statutorily responsible for "[m]inimizing cost shifting between publicly supported patients and private payers." Ill.Rev.Stat. ch. 111-1/2, - 3 -

6502-2(b)(2). In 1986, the IHCCCC elaborated on cost shifting and its effect on the public: Cost shifting occurs when the provider's cost of services rendered (as opposed to the charge to the patient) is more than the payment and the difference is shifted to other payers. In other words, cost shifting occurs when some individuals are asked to pay for the cost of other individual's services. Cost shifting normally occurs when there are cross subsidies among payers. Cross subsidies among payers occur when some payers pay less and some payers pay more for an identical service. Cross subsidization among payers is inequitable and should be minimized. IHCCCC, "Health Care In Illinois, A System In Transition," March 1982 at 17, attached hereto as Exhibit B (emphasis added). The impact of cost shifting by the hospital in the present action is clear. It is possible, if not probable, that the non-Medicaid covered defendants in this cause have been charged an amount for services which exceeds the amount the hospital accepts from other payers, for identical services. It is also possible that the amount defendants' insurer, Shelastomer Chicago, did pay on this bill would have been sufficient to cover the entire bill if the defendants had been charged a lesser amount. The effect is anomalous, for it results in indigent individuals, such as the defendants herein, subsidizing other poor and even those patients with certain insurance coverage. It is a nationwide problem on which Congress has legislated, but which continues to bedevil hospitals and patients alike. See 42 U.S.C. 1395x(v)(1)(A) and

Saint Mary of Nazareth Hospital v. Schweiler, 718 F.2d 459, 473 (D.C. App. 1983) ("non-Medicare payers are forced to bear some of the costs of the Medicare program"). The inquiry into cost shifting is clearly relevant to this case. Under the Victory Memorial Hospital v. Rice, supra, analysis, the hospital's usual and customary charges as well as its costs must be scrutinized to make the determination of the reasonableness of the bill. The cost shifting inquiry will reveal that the charges to defendant are higher because the hospital customarily has lower actual charges for other payers. The inquiry will also show that the hospital's costs are not equitably recouped in its charges; that self-payers and non-Medicaid patients like the defendants are forced to subsidize other payers. These factual matters are

intrinsically relevant to the adjudication of the reasonableness of the hospital bill. B. The Hospital Will Not Be Able to Establish That Its Charges to the Defendant Are Comparable to Charges At Other Area Hospitals. [Here discuss Majid, Dreyer, Victoria Memorial Hospital and Sherman Hospital cases.] II. MEDICAL PROCEDURES AND SERVICES PROVIDED TO ELIDIA LOPEZ BY CHILDREN'S MEMORIAL HOSPITAL LACKED PROPER MEDICAL NECESSITY Defendants should not be compelled to pay for unnecessary care rendered by a hospital. The hospital's action is based on an implied contract for the services rendered. As noted in Rubloff & Co. v. Dover National Bank, 80 Ill.App.3d 867, 875, 400 N.E.2d 614, 620 (1st Dist. 1980), "[a] contract implied in law is equitable in - 5 -

its nature, predicated on the fundamental principle that no one should unjustly enrich himself at another's expense." Therefore, Elidia Lopez' hospital bill are to be

examined in light of whether the services were medically necessary. To provide for any other construction of the implied contract would be to allow the hospital to unjustly enrich itself by unnecessarily providing services and prolonging hospital stays so the hospital could collect greater revenues.

The implied contractual obligation not to unnecessarily charge for services is even stronger in the context of this case considering the fiduciary obligation of the hospital to its patient. Emmett v. Eastern Dispensary and Casualty Hospital, 396 F.2d 931, 935 (D.C. Cir. 1967). The situation in the instant proceeding is akin to that presented in Neville v. Davinroy, 41 Ill.App.3d 706, 711, 355 N.E.2d 86, 90 (5th Dist. 1976), where the court reversed an award of attorney fees because more than just the number of hours billed had to be considered in assessing fees. The court found that the value of services must be determined by closely examining the need for and results of the services billed. The hospital has the burden of showing by evidence the reasonable value of its services. Inherent in this inquiry is whether the medical services were necessary in the first place. The "assessment of the reasonableness of a private hospital's charges must include consideration and recognition of the particular hospital's costs, functions and services." Victory Memorial Hospital v. Rice, 143 Ill. App. 3d. 621, 625, 493 N.E.2d 117, 120 (2d Dist. 1986). In addition, the reasonableness of the charges is measured against "the usual and customary charges for services" in the particular hospital. Id. at 625, 493 N.E.2d at 120, cited with approval in Sherman Hospital v. Wingren, 169 Ill. App. 3d 161, 164, 523 N.E.2d 220, 222 (2d Dist. 1988) (emphasis supplied). See In Re Estate of Wade, 156 Ill. App. 3d 844, 846, 510 N.E.2d 99, 100 (1st Dist. 1987) (initial inquiry of the court is the reasonableness and necessity of the private duty nursing services). In the instant case, the hospital must initially prove the medical necessity of Elidia Lopez' hospitalization in order to meet its burden of proving the value of the services rendered. The hospital was under a duty to review the hospital treatment it provided to Elidia Lopez in the hospital. The Illinois Supreme Court in its landmark opinion in Darling v. Charleston Community Memorial Hospital, 33 Ill.2d 326, 211 N.E.2d 253 (1965), established that hospitals - 7 -

can be held liable, even for the negligence of private physicians with staff privileges, for failing to comply with the hospital's duty of care owed to patients. The court held that the Standards for Hospital Accreditation, the state licensing regulations and the hospitals own by-laws demonstrate that the medical profession and other responsible authorities regard it as both desirable and feasible that a hospital assume certain responsibilities for the case of the patient. Id. at 257. Each of these standards has been violated by the hospital's conduct. The Darling court cited with approval Bing v. Thunig, 2 N.Y.2d 656, 143 N.E.2d 3, 8 (1957), in which a New York court stated: The conception that the hospital does not undertake to treat the patient, does not undertake to act through its doctors and nurses, but undertakes instead simply to procure them to act upon their own responsibility, no longer reflects the fact. Present day hospitals, as their manner of operation plainly demonstrates, do far more than furnish facilities for treatment. They regularly employ on a salary basis a large staff of physicians, nurses and interns, as well as administrative and manual workers, and they charge patients for medical care and treatment, collecting for such services, if necessary, by legal action. Certainly, the person who avails himself of "hospital facilities" expects that the hospital will attempt to cure him, not that its nurses or other employees will act on their own responsibility.

The Darling court noted that the "medical profession and other responsible authorities regard it as both desirable and feasible that a hospital ensure certain responsibilities for the care of the patient. Id. at 332, 211 N.E.2d at 253. The Supreme Court found that the Charleston "hospital failed to review" the private, treating physician's work or to require consultation, and thus upheld the jury finding that this was negligence. Id. at 333, 211 N.E.2d at 254. The failure of the hospital to exercise its review

responsibility in this case to determine the medical necessity of Elidia Lopez' hospitalization is negligence and a breach of the hospital's responsibility to defendants' daughter requiring that the claim for these unnecessary services brought be dismissed. See also Dreyer Medical Clinic v. Corral, 227 Ill. App.3d 221, 591 N.E.2d 111, 115 (2d Dist. 1992), where the medical clinic failed to present any evidence that its services were necessary.

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