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Chapter 1 Uninsureds Suit for Exorbitant Hospital Charges

Alan A. Alop is Deputy Director of the Legal Assistance Foundation of MetropolitanChicago, 111 West Jackson, Chicago, Illinois, phone: (312) 347-8310, fax: (312) 341-1041. Mr.

Alop has over twenty-five years experience in litigating consumer cases, including consumerfraud, RICO, collection abuse, consumer credit matters, and defense of collection matters. He isthe author ofDefending Hospital Collection Cases: A Practical Guide and was lead attorney inRosario v. Livaditis, 963 F.2d 1013 (7th Cir. 1992), a successful fraud class action against avocational school.

Mr. Alop is a 1971 graduate of the University of Chicago Law School. He worked forsix years with the Duval County Legal Aid Association in Jacksonville, Florida from 1971 to1977, as a staff attorney and later Director of Litigation. Since 1977 he has been employed as asupervisory attorney with the Legal Assistance Foundation of Chicago (LAFC), where hespecialized in consumer fraud and consumer credit cases. In 1997 he was named Deputy

Director of LAFC. In 1998 the National Consumer Law Center named Mr. Alop the NinthAnnual Vern Countryman Award winner. Mr. Alop has litigated over a hundred class actioncases and lectured on consumer-law-related topics.

This chapter contains pleadings related to a hospitals exorbitant charges to its uninsuredpatients.1 Section 1.1 is a state court complaint against a hospital for charging uninsured patientstwo to four times the amount it charges insured patients for the same treatment. It alleges thatthe practice is an unfair practice, a breach of the hospitals implied contract to charge thereasonable value of the services, a breach of its tax obligation as a nonprofit to provide free care,and unconscionable conduct. The complaint sought declaratory relief and an injunction. Section1.2 is the patients memorandum of law in opposition to a motion to dismiss all of the plaintiffs

claims. The memorandum also argues that the defense that Medicare requires theunconscionable charges is not true. Section 1.3 is the patients memorandum of law replying toan amicus in support of dismissal. It argues that the failure of state legislation that would havebanned excessive hospital charges was not of any legal significance. It argues that the hospitalfailed to maintain policies to provide free care for the poor. It argues that the patients claims areproperly before the court for decision. Section 1.4 is a request to the hospital for the productionof documents. Section 1.5 is a set of interrogatories to the hospital.

1 See generally NCLCs Fair Debt Collection Ch. 14 (5th ed. 2004); NCLCs 8 Consumer Law Pleadings on CD-Rom Ch.4 (2002).

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1.1 Complaint

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS

COUNTY DEPARTMENT, LAW DIVISION

PHYLLIS POE, )

[PLAINTIFF 2] as next friend of )

[PLAINTIFF 3], and )

[PLAINTIFF 4], )

)

Plaintiffs, )

)

v. ) No. [REDACTED]

)

OUR LADY OF THE RESURRECTION ) Calendar W

MEDICAL CENTER, ) Judge Nudelman)

Defendant. )

AMENDED COMPLAINT FOR BREACH OF CONTRACT, UNCONSCIONABLE

ACTIONS, AND VIOLATION OF THE CONSUMER FRAUD ACT

Phyllis Poe, [Plaintiff 2], as next friend of his daughter, [Plaintiff 3], and [Plaintiff 4], by

their attorneys, the Legal Assistance Foundation of Metropolitan Chicago, complain against Our

Lady of the Resurrection Medical Center, as follows:

Introduction

1. In this action, plaintiffs challenge practices of Our Lady of the Resurrection Medical

Center which result in uninsured patients with poverty-level incomes being required to pay two to

four times the hospital rates of patients who are insured.

Factual Statement2

2. Plaintiff Phyllis Poe resides in Chicago, Illinois.

3. Plaintiff [Plaintiff 2] resides with his daughter, [Plaintiff 3], in Chicago, Illinois.

2The facts alleged in this section are intended to apply to each Count set out below, as if re-

alleged therein.

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[Plaintiff 3], who is twenty-four years old, suffers from mental retardation.

4. Plaintiff [Plaintiff 4] resides in Chicago, Illinois.

5. The defendant, Our Lady of the Resurrection Medical Center (the hospital), is a

non-profit hospital located on the Northwest Side of Chicago, Illinois.

Plaintiff Poe

6. On November 12, 2001 plaintiff Poe was treated in the emergency room of the

hospital for heart problems.

7. In November 2001 and currently, Ms. Poe had no health insurance, a low income, and

no significant assets. She is unable to pay the hospitals bill.

8. The hospital billed Ms. Poe its full, un-discounted charges, an amount of $1509, for

services rendered on November 12, 2001.

9. Had Ms. Poe possessed health insurance at the time service was rendered to her by

the hospital, or had she been covered by governmental health insurance such as Medicaid or

Medicare, the hospital would have accepted as full reimbursement a discounted amount significantly

less than $1509.

10. The hospital has sued Ms. Poe to recover the $1509. At no point in the course of that

litigation did the hospital or its attorneys inform Ms. Poe that she might be eligible for charity care

services.

11. The lawsuit by the hospital against Ms. Poe has inconvenienced and aggravated her.

Plaintiff [Plaintiff 3]

12. On at least five instances in 2002 and 2003 the hospital provided emergency medical

treatment to [Plaintiff 3].

13. In 2002 and 2003, [Plaintiff 3] had no health insurance, a low income, and no

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significant assets. She is unable to pay the hospitals bill.

14. The hospital billed [Plaintiff 3] its full, un-discounted charges, in excess of $22,000,

for services rendered 2002 and 2003.

15. Had [Plaintiff 3] possessed health insurance at the time service was rendered to her

by the hospital, or had she been covered by a governmental health insurance such as Medicaid or

Medicare, the hospital would have accepted as full reimbursement an amount significantly less than

$22,000.

16. The hospital has sent numerous collection letters to the [Plaintiff 2 and Plaintiff 3]

household seeking full payment. These letters have aggravated the[m].

Plaintiff [Plaintiff 4]

17. From April 27, 2003 through May 4, 2003, [Plaintiff 4] received emergency medical

treatment from the hospital.

18. On April 27, 2003, [Plaintiff 4] was admitted to the hospital on an emergency basis

due to severe abdominal pain. On April 30, 2003, [Plaintiff 4] received surgery to remove her

gallbladder and multiple large stones from her bile duct.

19. Upon admission to the emergency room on April 27, 2003, [Plaintiff 4] advised the

hospital that she did not have insurance. A hospital employee asked [Plaintiff 4] why she came to

the hospital if she had no insurance. [Plaintiff 4] advised that she came to the hospital because she

was suffering from extreme pain. The employee demanded that [Plaintiff 4] contact friends or

relatives who had a credit card to pay the bill or she would have to go to Cook County hospital.

20. In April and May of 2003 and currently, [Plaintiff 4] had no health insurance, a low

income, and no significant assets. She is unable to pay the hospitals bill.

21. The hospital billed [Plaintiff 4] its full, un-discounted charges, an amount of

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$31,699.50, for services rendered from April 27, 2003 through May 4, 2003.

22. Had [Plaintiff 4] possessed health insurance at the time service was rendered to her

by the hospital, or had she been covered by governmental health insurance such as Medicaid or

Medicare, the hospital would have accepted as full reimbursement a discounted amount significantly

less than $31,699.50.

23. The hospital sent collection notices to [Plaintiff 4] which caused her aggravation.

Facts Applicable to All Plaintiffs

24. The amounts charged to Ms. Poe, [Plaintiff 3], and [Plaintiff 4] exceed the reasonable

value of services rendered in that:

a. The hospital charges are higher than most other Chicago area hospitals; in2003 the hospital had the highest total charge to cost ratio in Illinois,392.11%; and

b. The charges to the plaintiffs are not the hospitals usual and customarycharges, such as the charges paid by Blue Cross and HMOs; only a smallpercentage of the hospitals patients are required to pay the full, un-discounted hospital charges, as were the plaintiffs.

25. At all pertinent times the hospital had a policy and practice of charging uninsured

patients significantly higher rates for services than those charged to insured patients. In many

instances uninsured patients like the plaintiffs are required to pay two to four times as much as an

insured patient would have to pay.

26. At all pertinent times the hospital has received an exemption from state taxation by

claiming that it functions as a charity organization, dispensing free or reduced-cost services to all

patients who need such assistance.

27. The hospital did not screen the plaintiffs to determine whether their incomes should

have qualified them for charity care.

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28. The hospital does not have policies and practices that ensure that low-income, needy

patients obtain free or reduced-cost services.

29. The hospital has, in the past ten years, greatly reduced the amount of free care or

reduced-cost care it provides to low-income patients. The amount of charity care provided by the

hospital, when measured as a percentage of its gross charges, is now approximately one-half as

much as the average non-profit hospital in Chicago.

30. The hospital has a policy and practice of attempting to collect its charges from even

the poorest of patients through collection agents, lawsuits, and the garnishment of wages. Pursuant

to that policy, it instituted a lawsuit against plaintiff Poe and has hired several collection agencies

that have hounded plaintiff [Plaintiff 3].

31. The plaintiffs were not informed by the hospital of any procedure through which their

bill for hospital services could be waived or reduced.

32. The plaintiffs may need emergency medical treatment again in the near future. Should

this occur, it is likely that they would be transported to the hospital given the proximity of the

hospital to their residences.

COUNT I: Consumer Fraud Act

33. Plaintiffs brings this Count as an action for damages, injunctive and declaratory

relief for the hospitals violation of the Illinois Consumer Fraud and Deceptive Practices Act,

815 ILCS 505/1 et seq., ("Consumer Fraud Act").

34. At all pertinent times defendant engaged in trade or commerce within the meaning of

the Consumer Fraud Act, and plaintiffs were consumers within the Acts coverage.

35. The hospitals actions, as set out above, constitute unfair acts and practices within the

meaning of and in violation of 815 ILCS 505/2 of the Consumer Fraud Act in that:

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a. charging higher rates to the uninsured poor and attempting to collect suchcharges violates public policy which requires charitable organizations toprovide free or reduced-cost services to the needy;

b. charging the uninsured poor rates that are double and triple the rates charged

to insured persons is immoral, unethical, and oppressive in that there is nojustification for variable charges which discriminate against persons on thelowest rung of our economy; and

c. the acts of the hospital, as set out above, injure all uninsured, low-incomepatients of the hospital by requiring them to pay rates that exceed thosecharged to insured patients.

36. Defendants acts, as set out above, were wilful and deliberate.

37. Plaintiffs and other patients were damaged in the amount that their hospital charges

exceeded those charged to insured patients for the same services.

38. Compensatory relief will not wholly remedy the plaintiffs as they may need further

emergency services at the hospital and there is a public policy need for the challenged practices of

the hospital to be enjoined.

WHEREFORE, plaintiffs pray that this Court:

A. Declare that the actions of the hospital, as set out above, constitute unfair acts or

practices under the Consumer Fraud Act;

B. Enter judgment for the plaintiffs and against the defendants for (1) compensatory

damages equal to the amount of the hospital bill which should have been written off as charity care

or the amounts by which the charges to plaintiffs exceed those to insured patients, whichever is

greater; (2) $3000 for inconvenience and aggravation; and (3) $100,000 punitive damages;

C. Enjoin the hospital from continuing to charge uninsured persons with low incomes

amounts two to four times higher than insured patients must pay; and

D. Grant such other relief as the Court deems just and proper.

COUNT II: Breach of Contract

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39. At the time services were provided to the plaintiffs by the hospital, no written

contract was executed fixing the exact amount to be paid to the hospital.

40. Under Illinois law, where services are provided without an agreed price term, an

implied contract exists for the reasonable value of services rendered.

41. The charges to the plaintiffs exceeded the reasonable value of services provided by

the hospital for the reasons set out above, in paragraph 24.

42. The plaintiffs have performed their duties under the implied contracts.

43. The hospital, by charging the plaintiffs amounts in excess of the reasonable value of

services rendered, has breached it obligations under the implied contract and damaged the plaintiffs

in the amounts by which the bills exceed the reasonable value of services rendered.

WHEREFORE, plaintiffs pray that this Court:

A. Declare that the actions of the hospital, as set out above, constitute a breach of

contract;

B. Enter judgment for the plaintiffs and against the defendants for compensatory

damages equal to the amounts by which the charges to plaintiffs exceed the reasonable value of

services rendered; and

C. Grant such other relief as the Court deems just and proper.

COUNT III: Breach of Statutory Obligation

44. At all pertinent times the hospital has availed itself of the tax exemptions provided by

35 ILCS 200/15-65, which allows charitable organizations to avoid property taxation.

45. In return for obtaining its tax exemption, the hospital is required under Illinois law to

provide free care where the patient is unable to pay.

46. The plaintiffs are members of the class of persons that the tax exemption statute was

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intended to benefit.

47. As set out above, the hospital has breached its duties under the tax exemption statute

by failing to provide free or reduced cost care to plaintiffs and others similarly situated.

48. The hospitals breach of its statutory duty to provide free care to the indigent has

damaged the plaintiffs and members of the public. The hospital continues to engage in the same

policies as set out above.

WHEREFORE, plaintiffs pray that this Court:

A. Declare that the actions of the hospital, as set out above, constitute violations of the

hospitals duties under the tax exemption law;

B. Enjoin the hospital from continuing to charge uninsured persons with low incomes

any amounts for services; and

C. Grant such other relief as the Court deems just and proper.

COUNT IV: Unconscionability

49. The actions of the hospital, as set out above, are unconscionable under Illinois

common law in that:

a. charging uninsured, low-income patients two to four times the rate thatinsured patients pay for identical services--price-gouging the poor--shocksthe conscience of a reasonable person;

b. charging uninsured, low-income patients fees for services while takingadvantage of a tax exemption that requires provision of free services to theindigent is egregious and unlawful conduct;

c. the transactions between the hospital and the plaintiffs were not negotiatedtransactions; a disparity in bargaining power existed, with all power residingin the hospital; and

d. the hospitals charges may be the highest in the state.

50. Plaintiffs were damaged by the unconscionable practices of the defendant in that they

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have been billed for services in excessive amounts and in amounts significantly higher than those

charged to insured patients.

WHEREFORE, plaintiffs pray that this Court:

A. Declare that the actions of the hospital, as set out above, are unconscionable;

B. Enjoin the hospital from continuing to charge uninsured persons higher rates than

insured persons;

C. Enjoin the hospital from requiring low-income patients to pay for hospital services

that should be provided as charity care under the hospitals duty as a tax exempt charitable

organization; and

D. Grant such other relief as the Court deems just and proper.

One of the Plaintiffs attorneys

Alan A. Alop #91017Nareen KimLegal Assistance Foundationof Metropolitan Chicago

111 W. Jackson Third FloorChicago, Illinois 60604-3502(312) 347-8310

Attorneys for Plaintiffs

CERTIFICATE OF SERVICE

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I, ALAN A. ALOP, certify that I served the attached by mailing a copy to:

Michael L. Shakman Grabowski Law CenterEdward W. Feldman 2800 S. River Rd. Suite 410Miller Shakman & Hamilton Des Plaines, IL 60018

208 S. LaSalle St. Suite 1100Chicago, IL 60604

and depositing the same in the U. S. mail at 111 W. Jackson, Chicago, IL 60604 at 5:00 P. M. onMay , 2004.

_____________________________________Alan A. Alop

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1.2 Memorandum Opposing Defendants Motion to Dismiss

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS

COUNTY DEPARTMENT, LAW DIVISION

PHYLLIS POE, )

[PLAINTIFF 2] as next friend of )

[PLAINTIFF 3], and )

[PLAINTIFF 4], )

)

Plaintiffs, )

)

v. ) No. [redacted]

)

OUR LADY OF THE RESURRECTION ) Calendar W

MEDICAL CENTER, ) Judge Nudelman)

Defendant. )

PLAINTIFFS MEMORANDUM OF LAW IN OPPOSITION TO THE

DEFENDANTS MOTION TO DISMISS

Alan A. Alop #91017Nareen KimLegal Assistance Foundation

of Metropolitan Chicago111 West Jackson Third FloorChicago, IL 60604(312) 347-8310

Attorneys for Plaintiffs

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I. INTRODUCTION .................................................................................................................... 1

II. OUR LADYS MEDICARE DEFENSE IS GROUNDLESS. ............................................. 2A. The Thompson Letter ........................................................................................... 2

B. Uniform Charge Structure................................................................................... 5C. Bad Debt Rules ...................................................................................................... 6

III. THE AMENDED COMPLAINT PLEADS A VIOLATION OF THE CONSUMER

FRAUD ACT. .................................................................................................................... 7A. The CFA Must Be Liberally Construed To Protect Consumers. ..................... 8B. Hospital Billing Activities Are Within The Ambit Of The CFA. ..................... 9

C. CFA Claims Of.................................................................................................... 14D. Count I Of The Amended Complaint States A CFA Claim For Unfair Acts.16

(1) First Prong: Public Policy. .................................................................... 17

(2) Second Prong: Immoral, Unethical, Oppressive Or UnscrupulousActs. .......................................................................................................... 19

(3) Third Prong: Substantial Injury To Consumers. ............................... 20IV. PLAINTIFFS CLAIM FOR UNCONSCIONABLE CONDUCT STATES A CAUSE

OF ACTION. ................................................................................................................... 21

V. PLAINTIFFS CLAIM FOR BREACH OF STATUTORY OBLIGATION STATES ACAUSE OF ACTION. .................................................................................................... 23

VI. PLAINTIFFS CLAIM FOR BREACH OF CONTRACT STATES A CAUSE OFACTION........................................................................................................................... 28A. Plaintiffs Have Sufficiently Alleged That The Charges To Them Were Not 29

B. Plaintiffs Have Sufficiently Alleged That The Charges To Them Were NotOur Lady's........................................................................................................... 31

VII. PLAINTIFFS STATE GROUNDS SUFFICIENT FOR THE RECOVERY OF

COMPENSATORY AND PUNITIVE DAMAGES AND EQUITABLE RELIEF. . 32A. Compensatory Damages..................................................................................... 32

B. Punitive Damages................................................................................................ 33C. Equitable Relief................................................................................................... 34

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I. INTRODUCTION

In this case three indigent, uninsured patients of Our Lady of the Resurrection Medical

Center (Our Lady) were billed for hospital services or sued by Our Lady for collection. For

purposes of the motion to dismiss, the following must be accepted as true:

1. Our Ladys charges to the three indigent, uninsured plaintiffs, are double toquadruple its rates to insured patients, and in 2003 Our Lady had the highestcharge-to-cost ratio in Illinois. Amended Complaint (Am. Comp.) at 24-25.

2. Our Lady did not screen the plaintiffs to determine whether they were qualifiedfor free services, does not have policies and practices to ensure that needy patients

obtain free services, and did not inform the plaintiffs of the availability of freeservices. Am. Comp. at 27-28, 31.

3. Our Lady has a policy and practice of attempting to collect its charges from eventhe poorest of patients. Am. Comp. at 30.

4. Our Lady has received an exemption from state taxation as a charity institution,but in the past ten years has greatly reduced the amount of charity care provided.Am. Comp. at 26, 29.

The plaintiffs allege that these actions of the hospital constitute: (1) unfair practices as

defined by the Illinois Consumer Fraud Act; (2) breach of contract; (3) breach of the hospitals

duty to provide charitable care to the poor in return for its tax exempt status; and (4)

unconscionable acts under Illinois common law. The plaintiffs seek damages, injunctive relief,

and declaratory relief.

Our Lady points an accusing finger at the federal government. Our Lady contends that

federal Medicare law requires them to charge somebody the full, un-discounted hospital rates, so

they have selected three categories of patients to pay their full rates:

(1) patients whose insurers have no negotiated agreement with Our Lady, such asthose who go to Our Lady even though their insurer does not list Our Lady as anapproved provider;

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(2) liability insurance carriers paying medical expenses of auto accidents; and(3) the uninsured, i.e., the poor.

Defendants Memorandum of Law in Support of Motion to Dismiss (Def. Memo.) at 3, n. 1.

Our Lady does not blanch at the inclusion of category three on this list; this is their routine

practice. As shown below, this Medicaid made me do it defense is groundless. Medicare does

notrequire hospitals to charge the uninsured four times the rates it charges the insured. The

federal government recently chided hospitals for taking this position. See Section IIA, (The

Thompson Letter) below.

Furthermore, Our Lady receives millions of dollars in tax relief each year by virtue of its

tax-exempt status as a charitable institution. In return for this valuable exemption, Illinois law

requires that a tax-exempt hospital provide free care to all who need and apply for it.... Alivio

Medical Ctr. v. Illinois Dept of Revenue, 299 Ill. App. 3d 647, 650-651, 702 N.E.2d 189, 192

(1st Dist. 1998). The plaintiffs are all poor, uninsured, former patients of Our Lady who should

have received free service but did not. Our Lady blithely ignores the fact that the plaintiffs are

emblematic of thousands of indigent patients to whom this hospital has breached its duty to

provide free care and to whom, instead, it has added insult to injury by charging them double and

triple the rates assessed insured patients and suing them when they are unable to pay these

exorbitant bills.3

II. OUR LADYS MEDICARE DEFENSE IS GROUNDLESS

A. The Thompson Letter

Given the emphasis Our Lady has placed on its argument that its actions are the result of

3 A federal class action alleging similar claims as raised in this case was filed against OurLady and the chain of Resurrection hospitals on June 22, 2004. Cygan v. Resurrection MedicalCenter et al., (N.D. Ill. 04 CV 4168).

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Medicare requirements, it is necessary to rebut this proposition early. A key to this inquiry is a

February 19, 2004 letter Secretary of Health and Human Services (HHS) Thompson wrote to

the American Hospital Association (AHA) as follows:

Your letter suggests that HHS regulations require hospitals to bill allpatients using the same schedule of charges and suggests that as a result, theuninsured are forced to pay full price for their care. That suggestion is notcorrect and does not accurately reflect my policy....[H]ospitals can providediscounts to uninsured and underinsured patients who cannot afford their hospitalbills....Nothing in the Medicare program rules or regulation prohibit suchdiscounts....[H]ospitals have the ability to offer discounts to uninsured andunderinsured individuals....

I strongly encourage you to work with AHA member hospitals to take

action to assist the uninsured and underinsured and therefore, end the situationwhere, as you said in your own words, uninsured Americans and others oflimited means are often billed and required to pay higher charges.

Exhibit A, attached hereto. Secretary Thompson directed the Centers for Medicare & Medicaid

Services (CMS) and the Office of Inspector General (OIG) to prepare a summary of existing

HHS policy. These documents also cut against Our Ladys claims. The CMS summary

provides:

Ql: Can a hospital waive collection of charges to an indigent, uninsuredindividual?

Al: Yes. Nothing in the Centers for Medicare & Medicaid Services(CMS) regulations, Provider Reimbursement Manual, or Program Instructionsprohibit a hospital from waiving collection of charges to any patients, Medicareor non-Medicare, including low-income, uninsured or medically indigentindividuals, if it is done as part of the hospitals indigency policy. By indigencypolicy we mean a policy developed and utilized by a hospital to determinepatients financial ability to pay for services....

Q2: What if a hospital wants to discount charges to patients with largemedical bills?

A2: In the same way that a hospital can waive collection of charges forindividuals under its indigency policy, a hospital may also offer discounts to thosewho have large medical bills. Hospitals have flexibility in establishing their ownindigency policies. . . .

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Q5: How is the above any different than a hospital giving a discount toBlue Cross or any other insurer?

A5: For apportionment purposes, discounting charges to uninsured or

underinsured patients is no different than giving an allowance to Blue Cross orother commercial insurers for non-Medicare patients....

Q11: Does CMS have any requirements as to what documentation ahospital must secure in order to make an indigency determination? If so, what arethose requirements?

A11: For indigent patients who are not Medicare patients, the Medicareprogram does not prescribe any specific rules for providers to make indigencedeterminations; rather, the hospital is permitted to use its own business judgmentin determining whether or not a non-Medicare patient is indigent and therefore

entitled to a discount pursuant to its own indigency policy....

Q12: Are hospitals required to take low-income patients to court, or seizetheir homes, or send claims out to a collection agency when those patients dontpay their hospital bills?

A12: No. Nothing in the Medicare instructions requires the hospital toseize a patients home, take them to court, or use a collection agency. Hospitalsarent required under federal law to engage in any specific level of collectioneffort for Medicare or non-Medicare patients.

Def. Memo. Exhibit C-3-8. The OIG summary concludes in a similar vein: Hospitals

have the ability to provide discounts to uninsured and underinsured patients who cannot afford

their hospital bills....[T]he OIG has never brought a case based on a hospitals bona fide

discounting of its bill for an uninsured or underinsured patient of limited means. Id. at C-14.

After these summaries were published, HHS stated categorically that they reflect[ed] no change

to existing policy. CMS, HHS, Medlearn Matters No. SE0405 (attached as Exhibit B)

(emphasis in original). Another letter from Secretary Thompson, dated November 20, 2003,

also stated that Medicare policy...does not prevent hospitals from offering discounted charges to

indigent, uninsured or other low-income patients. Def. Memo. Exhibit A. Our Ladys

Medicare defense has thus been rejected by the agency responsible for administering Medicare.

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B. Uniform Charge Structure

Our Lady relies on provisions of the Medicare Provider Reimbursement Manual

(PRM) concerning the lower of cost or charges (LCC) principle. Def. Memo. at 8-10.

Under LCC, services to Medicare beneficiaries will be based upon the lower of the reasonable

costs of providing those services or the customary charges for the same services. PRM 2600.

But this principle is no longer generally applicable to the charges of acute care hospitals like

Our Lady. As the CMS summary attached to Secretary Thompsons February 19, 2004 letter

explains, the LCC provision is largely irrelevant in 2004. In addition, it does not preclude the

reduction of prices for those unable to pay:

Q6: Does the Medicare programs lesser of costs or charges (LCC)principle alter any of the above advice or prohibit hospitals from offeringdiscounts to the uninsured or the underinsured?

A6: The LCC principles is a feature of the prior cost method ofreimbursing hospitals, before the current payment rules were enacted in the1980s and 1990s. Under these old rules, Medicare paid hospitals the lesser ofthe hospitals costs or charges. If that system were still in effect for mostservices, the LCC principle could be implicated by discounting charges for the

uninsured, because if a hospital discounted its charges below its costs or failed tocollect from a substantial percentage of charge-paying patients, Medicarereimbursement to the hospital may be reduced.

The reality is that this LCC principle has limited applicability today...the

vast majority of services provided in hospitals in America today are not subject to

the LCC principle.

In the cases where the LCC is applicable, however, the Provider

Reimbursement Manual provides that if a hospital offers free care or care at a

reduced charge to patients determined to be financially indigent, and meets the

provisions in the manual, the reduced charges do not result in adjustment tocharges under LCC. And since charges are not adjusted, Medicare

reimbursement to the hospital is not affected either.

Def. Memo. Exhibit C-4-5 (emphasis added). Nothing in the Medicare LCC rules stands in the

way of Our Lady providing free and reduced price care to those who cannot otherwise afford

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care.

C. Bad Debt Rules

Our Lady also suggests that if it failed to use aggressive collection methods, it might not

be eligible for reimbursement for bad debts. Def. Memo. at 10-11.4 However, Medicare

reimbursement for bad debt is only available for the bad debt of Medicare recipients who fail to

honor their deductible or copayment obligations. Collection of the bad debt of Medicare

recipients is not at issue in this suit as plaintiffs are not covered by Medicare. Am. Comp. at

7, 13, 20.

In order to receive Medicare reimbursement for the bad debt ofMedicare patients, a

hospital must engage[] in reasonable, consistent collection efforts from the Medicare patient.

Def. Memo. Exhibit C-5 (A9).5 Our Lady will not lose any reimbursement if it fails to make

efforts to collect from non-Medicare patients since Medicare does not pay any portion of their

bills. CMS makes clear that Medicare requires no collection efforts from non-Medicare patients

and no documentation of such efforts. Id. at C-6 (A11 and 12). And even as to Medicare

patients, the hospital can forego any collection effort if it determines the patients are

medically indigent. Id. at C-5 (A9).6

4 The relevance of this argument is dubious in that the Amended Complaint does notchallenge Our Ladys collection methods, but rather the amounts it is attempting to collect.

5Even in respect to Medicare patients, the rules specifically do not require use of a

collection agency or threatening or filing suit. PRM 310.

6 The federal government has no concern about a hospital not collecting non-Medicarepatient debt. Rather, the concern is if hospitals attempt to collect non-Medicare debt but do nottry to collect Medicare debt, expecting the government to reimburse the Medicare bad debt. Thiswas the problem in the two cases cited by Our Lady, Mt. Sinai Hosp. Medical Ctr. v. Shalala,196 F.3d 703, 705-06 (7th Cir. 1999) and University Health Services, Inc. v. HHS, 120 F.3d1145, 1147-48 (11th Cir. 1997). Reimbursement denials of the covered patients in those casesthus does not in any way suggest that hospitals must engage in any particular practices to collect

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Our Lady states that Medicare allows hospitals to provide free or discounted care to

financially indigent patients, but only if indigence is determined on a case-by-case basis subject

to verification. Def. Memo. at 11. Plaintiffs do not seek relief inconsistent with that statement

of the law. But the Amended Complaint alleges that Our Lady has not implemented practices

and policies to effectively identify the needy, inform them of the availability of free care, and

process their applications. Am. Comp. at 27, 28, 31. That is what happened to the plaintiffs.

Rather than blocking the relief sought in this case, Medicare law is consonant with the plaintiffs

position.

III. THE AMENDED COMPLAINT PLEADS A VIOLATION OF THE CONSUMER

FRAUD ACT.

Resolution of the motion to dismiss requires this Court to determine whether the

allegations of the Amended Complaint, when interpreted in the light most favorable to the

plaintiffs, sufficiently state a cause of action. Jackson v. South Holland Dodge, Inc., 197 Ill. 2d

39, 755 N.E.2d 462 (2001). The plaintiffs Amended Complaint does state a cause of action

under the Illinois Consumer Fraud Act, 815 ILCS 505/1 et seq. (CFA"). Contrary to the

contentions of Our Lady, hospital billing activities do fall within the purview of the CFA, a CFA

claim for unfairness sans deception is recognized in Illinois, and the allegations of plaintiffs

complaint, if proven, constitute "unfair" practices under the CFA because the challenged actions

offend public policy, are oppressive, and injure consumers.

A. The CFA Must Be Liberally Construed To Protect Consumers.

The keystone provision of the CFA provides, in pertinent part, that:

...unfair or deceptive acts or practices...in the conduct of any trade or commerce

from non-Medicare patients.

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are hereby declared unlawful whether any person has in fact been misled,

deceived or damaged thereby.

835 ILCS 505/2. The express language of the CFA provides that "[t]his Act shall be liberally

construed to effect the purposes thereof." 815 ILCS 505/11a. See also Connick v. Suzuki Motor

Co. Ltd., 174 Ill. 2d 482, 503-504, 675 N.E. 2d 584, 594 (1996) ( [CFA] should be liberally

construed....). The First District Court of Appeals ruled that Section 505/11a constitutes:

...a clear mandate from the Illinois legislature that our courts utilize the Act to the

utmost degree in eradicating all forms of deceptive and unfair business practices

and grant appropriate remedies to injured parties.

People v. All American Aluminum, 171 Ill. App. 3d 27, 33, 524 N.E.2d.1067, 1070 (1st Dist.

1988).

Our Lady's arguments ignore the broad sweep the legislature and the courts have accorded the

CFA.

B. Hospital Billing Activities Are Within The Ambit Of The CFA.

Our Lady suggests that hospital billing practices do not come within the ambit of the

CFA. Yet the language of the CFA states ...unfair or deceptive acts or practices...in the conduct

ofany trade or commerce are hereby declared unlawful.... 835 ILCS 505/2 (emphasis added).

Trade or commerce is defined in the CFA as:

the advertising, offering for sale, sale or distribution of any services...and shall

include any trade or commerce directly or indirectly affecting the people of this

State.

815 ILCS 505/1(f). The Illinois Supreme Court relied on this provision to reject a collection

agencys argument that its collection of unpaid parking tickets was not trade or commerce

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within the meaning of the CFA. People ex rel. Daley v. Datacom Sys. Corp., 146 Ill. 2d 1, 29-

30, 585 N.E.2d 51, 64 (1991). The Court labeled the collection agencys argument a restrictive

construction of those terms, noting that the CFA applies to any trade or commerce and the

distribution ofany services.... Id. (emphasis in original). The Court stated [t]his section [815

ILCS 505/1(f)] reveals legislative intent to extend the reach of the statute broadly. Id.

Defendant sweeps aside the Courts call for a broad construction of the terms trade or

commerce, claiming that the medical billing activities challenged in this action do not constitute

trade or commerce. No Illinois decision has ever held that, and the cases cited by defendant do

not support its contention. In Feldstein v. Guinan, 148 Ill. App. 3d 610, 499 N.E.2d 535 (1st

Dist. 1986), a doctor sued his employer when the employer refused to honor a one-year

employment contract. Id. at 612, 499 N.E.2d at 536-537. The Court held that the suit could not

proceed because the plaintiff was not a consumer within the meaning of that term as used in

the CFA. Employment relationships, in other words, are not contracts for goods or services by

consumers, within the purview of the CFA. See Barille v. Sears Roebuck and Co., 289 Ill. App.

3d 171, 682 N.E.2d 118 (1st Dist. 1997) in which an employees action against her employer

was held outside the scope of the CFA. Our Lady labors to make Feldstein, which was a simple

employment dispute between doctors, more than it is. The Court in Feldstein carefully limited

its holding to the practice of medicine as presented under the facts of this case. Id. at 615, 499

N.E.2d at 538. Even the most expansive reading of Feldstein would limit application of the CFA

only where the issue is the actual provision of healthcare, not where the commercial aspects of

medicine are in controversy. As the Court in Feldstein stated:

...although the practice of medicine may have a business aspect, the commercialphases of medicine which directly affect the public are not at issue here.

Id. The controversy presented in this case is the business aspect of medicine, excessive billing

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practices, which quite plainly affect the public in direct fashion. Thus, Feldstein is inapposite to

the issues in this case.

Defendants reliance on Doe v. Northwestern Univ., 289 Ill. App. 3d 39, 682 N.E.2d 145

(1st Dist. 1997), and Evanston Hosp. v. Crane, 254 Ill. App. 3d 435, 627 N.E.2d 29 (1st Dist.

1993), is equally misplaced. In Doe, six persons asserted a CFA claim against the University

and a dental student working in the Northwestern University dental clinic, where they had

received root canals, tooth extractions, and other dental surgery. Doe, 289 Ill. App. 3d at 42, 682

N.E.2d at 147. The plaintiffs sought damages for emotional distress due to the fact that the

student who provided these dental services had tested positive for HIV. Id. The controversy in

Doe thus concerned the actual provision of healthcare services, not the commercial aspects

following in the wake of such services. Without analysis, Doe cited Feldstein as having

excluded medical services from the purview of the CFA. Id. at 45, 682 N.E.2d at 149. But

Doe expressly limited its holding in a manner that gives no support to Our Ladys argument:

...we hold that the provision of dental services for educational purposes does not constitute

trade or commerce within the meaning of the [Consumer Fraud] Act. Id. The issue in Doe

was not a commercial aspect of a medical provider. It centered on the actual provision of

medical services, the dental surgery itself. This is a world removed from the case at bar, where

the plaintiffs complain of the harsh billing practices of a hospital. Evanston Hospital provides no

more support to Our Lady than does Doe. In Evanston Hospital twopro se counterclaims were

asserted against the hospital, one for medical malpractice and the second, under the CFA, for

deception and misrepresentations regarding the health care services provided. Id. at 436-437,

627 N.E.2d at 31. The CFA counterclaim alleged that a hospital patient was not given medical

guidance that a hospital publication promised, and that he did not receive high quality patient

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care as promised by the hospitals Patient Guide. Id. at 443, 627 N.E.2d at 35. The Court

held that the CFA was not applicable to medical negligence issues but noted that it was not

extending that holding to the business aspects of medical practice:

The misconduct alleged here and in Frahm amounts to professional malpractice, andcannot be equated with the misdeeds of an ordinary commercial enterprise, against

which the Consumer Fraud Act was expressly enacted to protect consumers and

businessmen. Although the practice of medicine may have a business aspect, thecommercial phases of medicine which directly affect the public are not at issue here. TheConsumer Fraud Act is intended to reach practices of the type which affect consumersgenerally and is not available as an additional remedy to redress a purely private wrong.

Id. at 443-444, 627 N.E.2d at 35-36 (citations omitted; emphasis added). The decision in

Evanston Hospital reiterates the same distinction made in Feldstein and Doe. While the CFA

may not encompass medical service disputes such as negligence and the quality of health care,

the commercial aspects of medicine fall within the scope of the CFA.7

Our Lady also points to Cripe v. Leiter, 184 Ill. 2d 185, 703 N.E.2d 100 (1998), where

the Supreme Court did notallow a commercial aspect of lawyering, the billing process, to be

subject to the CFA. But Cripe is based on a rationale which is inapplicable to this case. First,

Cripe relies heavily on the fact that the regulation of attorney conduct in this state has been the

prerogative of this court. Id. at 195, 703 N.E.2d at 105. Pursuant to that prerogative, the

Supreme Court has issued rules governing attorney conduct and administered a comprehensive

regulatory scheme, including disciplinary measures. Attorney fees, the issue raised by the

plaintiff in Cripe, are regulated by the Court and specific provisions of the Rules of Professional

Conduct address this area. The Court has backed up its rules with discipline; the decision

7 Our Lady also cites Frahm v. Urkovich, 113 Ill. App. 3d 580, 447 N.E.2d 107 (1st Dist.1983), where the Court refused to subject an attack on an attorneys professional skills to therequirements of the CFA. Frahm, like Feldstein and Doe, differentiated between professionalpractice and commercial aspects of the profession. Id. at 584, 447 N.E.2d at 1010.

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specified instances where sanctions had been imposed on attorneys who charged excessive fees.

Id. The underpinning of this rationale is the principle of separation of powers. The Supreme

Court in Cripe fired a shot across the bow of the legislature, holding that regulation of the

profession of law is the sole domain of the Illinois Supreme Court, and not the state legislature.

Cripe is also grounded on the fiduciary status between attorney and client:

Moreover, an attorneys billing for legal services cannot be separated from theattorney-client relationship. Unlike ordinary merchant-consumer relationships,the relationship between attorney and client is fiduciary in nature....Because ofthat fiduciary relationship, the attorneys fees are subject to scrutiny andregulation not applicable to the fees for most commercial services.

Id. at 198-199, 703 N.E.2d at 107. Our Lady strains to compare the case at bar with Cripe, but it

cannot be done. There is no comparable separation of powers argument with regard to the

medical profession. The Supreme Court does not regulate the medical profession or medical

fees, so applying the CFA to hospital billing practices does not infringe on any constitutional

principle. And even the defendant concedes that there is no fiduciary relationship regarding the

billing of hospital patients, as there is in the attorney-client relationship. Def. Memo. at 16. The

two pegs on which the Court in Cripe hung its decision do not exist here. Cripe provides no

support to the hospitals contention that its billing practices are not trade or commerce within

the meaning of the CFA.8

Two Illinois federal courts have also weighed in on the issue of whether the business

8

Our Lady argues that extensive regulation of the billing of patients is enough to bring itwithin the first rationale of Cripe. Def. Memo. at 16-17. But Our Lady fails to specify anyregulations that specifically prohibit excessive fees by hospitals. The AMA Code of Ethicssection cited by defendant (E-6.0-6.13) does not evidence regulation as defendant claims in that:(1) it applies only to physician fees, not hospital charges; and (2) it does not preclude theimposition of excessive fees, as attorney regulations do. The oblique reference to Medicareregulations is equally uninstructive. Medicare regulations do not prohibit hospitals fromexacting excessive fees.

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aspects of medical services constitute trade or commerce within the scope of the CFA. In

Gadson v. Newman, 807 F. Supp. 1412 (C.D. Ill. 1992), the Court held that a business dispute

between two doctors and a hospital was subject to a CFA claim. First, Gadson emphasizes that

Frahm and Feldstein were only tangentially related to the business aspects of the legal and

medical professions, a distinction the Court labels crucial. Id. at 1416. Second, the Court

relied on the fact that legislative history of the 1973 amendments to the CFA showed that

proponents of the amendments viewed the new CFA as very broad...it encompasses just about

every conceivable transaction... Id. at 1418, n.1. Finally, the Court noted that the CFA requires

that courts construing Section 505/2 of the CFA give consideration ...to the interpretations of

the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal

Trade Commission Act. Id. at 418-419. The Court then proceeded to consider federal

guideposts, finding that ...Congress has repeatedly rejected proposals to strip the FTC of the

power to regulate professions, and that federal courts have consistently applied the FTC Act to

the business aspects of the medical profession. Id. See also Dimensions Medical Ctr., Ltd. v.

Principal Fin. Group, Ltd., 1995 U.S. Dist. LEXIS 1420 (N.D. Ill. 1995) where the Court applied

the CFA to a claim of wrongful billing for medical services, finding that ...the weight of Illinois

Appellate authority applies the CFA to the legal and medical professions for the business

related aspects of those professions. Id. at *23-24.

C. CFA Claims Of Unfairness Do Not Require An Allegation Of Deception.

Plaintiffs claim in Count I is based on a CFA provision which, when boiled down to its

essence, is elegantly simple: ...unfair ordeceptive acts or practices...are hereby declared

unlawful.... 815 ILCS 505/2 (emphasis added). It could not be more plainly set out by the

legislature. The prohibition applies to unfair acts or practices ordeceptive acts or practices - not

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to acts or practices that are unfair anddeceptive. The clarity of the provision has not prevented a

number of courts from ruling that unfair ordeceptive means unfair anddeceptive. See Def.

Memo. at 17, n. 9. But the Illinois Supreme Court has definitively rejected that conclusion in its

decision in Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 775 N.E.2d 951 (2002),

holding that [r]ecovery may be had for unfair as well as deceptive conduct. Id. at 417, 775

N.E.2d at 960.

Our Lady relies on Laughlin v. Evanston Hosp., 133 Ill. 2d 374, 550 N.E.2d 986 (1990)

to argue two points, that deception needs to be alleged in a CFA claim and that Our Ladys

price discrimination is permissible. Laughlin does not establish either proposition in the

circumstances of this case. First, to the extent that Laughlin has been cited to require allegations

of deception in every CFA claim, Robinson implicitly overruled Laughlin.9 See Carter v.

Chicago & Illinois Midland Ry. Co., 130 Ill. App. 3d 431, 474 N.E.2d 458 (4th Dist. 1985).

Second, in Laughlin the price discrimination challenge was not made by consumers (patients)

arguing unfair practices, as here; it was made by third-party payors (insurers) arguing [u]nfair

methods of competition. Laughlin, at 376-377, 550 N.E.2d at 986-987. Nor did the plaintiffs in

Laughlin allege that consumers were injured by the challenged practices. Id. at 396, 550 N.E.2d

at 995 (Clark, J., concurring). Most importantly, the Court refused to label price discrimination

9 Even before Robinson, many lower courts ignored Laughlin, holding that anunfairness claim under CFA did not require allegations of deception. Mosiman v. BMW Fin.Services, NA, Inc., 321 Ill. App. 3d 386, 390, 748 N.E.2d 313, 317 (3d Dist. 2001); Saunders v.

Michigan Ave. Natl Bank, 278 Ill. App. 3d 307, 313, 662 N.E.2d 602, 608 (1st Dist. 1996). Seealso The Effect of Laughlin v. Evanston Hospital on Consumer Claims for Nondeceptive Actsor Practices, 9 Loyola Consumer Law Reporter 54 (1997). The Seventh Circuit recently citedRobinson in resolving a claim of unfairness that did not involve deception. Anthony v. CountryLife Mfg., LLC., 2003 U.S. App. LEXIS 13622 (7th Cir. 2003). Also relying on Robinson, aChancery Court decision has denied a motion to dismiss a CFA claim based solely on unfairness.Case v. Ameritech Services, Inc., No. 02 CH 19210. 2004 WL 73524, at *4-6 (Cir. Ct. January15, 2004).

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an unfair method of competition under Section 505/2 of the CFA10 because it found that public

policy was not offended in that case. While the Laughlin plaintiffs pointed to the public policy

against price discrimination in the federal Clayton Act, the Court noted that the Illinois

legislature, in the Illinois Antitrust Act, had specifically ...declined to include provisions against

price discrimination. In Laughlin then, the Court was confronted with conflicting public

policies; federal law made price discrimination unfair competition, but the state law rejected the

federal standard and did not prohibit the practice. The Court determined that when Illinois and

federal statutes contain conflicting statements of public policy, the standard set by the state will

govern as the public policy in Illinois. Id. at 391, 550 N.E.2d at 993. This action does not

present a case where state and federal public policies are split; both levels of government

condemn price gouging of the poor and uninsured by hospitals. Even if this Court accepted Our

Ladys view that federal Medicare policy mandates its imposition of its highest charges on the

poor and uninsured, Laughlin suggests that the state policy of affording the poor free hospital

care would trump the federal standard for purposes of the CFA unfairness test.11

D. Count I Of The Amended Complaint States A CFA Claim For Unfair Acts.

Our Ladys contention that the Amended Complaint does not contain sufficient

10 Unfair methods of competition and unfair or deceptive acts or practices...in theconduct of any trade or commerce are hereby declared unlawful.... 815 ILCS 505/2.

11In Perrin v. Pioneer Natl Title Ins. Co., 83 Ill. App. 3d 664, 673 404 N.E.2d 508, 514-

515 (1st Dist. 1980), the Court determined that price discrimination in the sale of title insurancedid not offend any articulated public policy of the state. The Court found that the plaintiffs couldnot satisfy the second unfairness criterion, oppressive conduct, as there were no allegations thatplaintiffs could not obtain title insurance from a competitor. While the plaintiffs in Perrin couldnot sufficiently allege the first two prongs of the unfairness standard, plaintiffs in this case havedone so. Perrin also noted that the business of title insurance is [not] so affected with a publicinterest as to require title insurers to charge reasonable or nondiscriminatory rates. Id. at 673,404 N.E.2d at 515. Health care charges are affected with a public interest.

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allegations to constitute "unfair" actions as prohibited by the CFA is wrong. In evaluating CFA

unfairness claims, the Supreme Court in Robinson set out three factors, derived from federal law,

that govern:

(1) whether the practice offends public policy; (2) whether it is immoral,unethical, oppressive, or unscrupulous; (3) whether it causes substantialinjury to consumers.

Id. at 418, 775 N.E.2d at 961. In addition, the Court in Robinson held that an unfairness claim

need not satisfy all three prongs. The Court adopted the standard set out in a Connecticut

decision, Cheshire Mortgage Services, Inc. v. Montes, 223 Conn. 80, 612 A.2d 113 (1992):

All three criteria do not need to be satisfied to support a finding of unfairness. A practice

may be unfair because of the degree to which it meets one of the criteria or because to a

lesser extent it meets all three. Robinson, at 418, 775 N.E.2d at 961 (citation omitted)

(emphasis added). In the case at bar the plaintiffs can satisfy all three requirements of the

unfairness test.12

(1) First Prong: Public Policy.

The Amended Complaint has two basic claims of unfairness: (a) that Our Lady charges

and seeks to collect from uninsured patients double and triple the amounts it charges insured

patients for the same services; and (b) that Our Lady, in utter disregard of its duties under state

tax exemption law, failed to provide service without charge to the indigent plaintiffs. These

practices of the hospital offend several public policies of the State of Illinois. First, the Illinois

Constitution provides that [t]he General Assembly by law may exempt from taxation... property

used exclusively for... charitable purposes.

12 Our Ladys reliance on 815 ILCS 505/10b(1), which precludes CFA actions where theconduct in question is specifically authorized by laws... is misplaced. As demonstrated above,no specific law authorizes the challenged practices of defendant.

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Article IX, Section 6. Pursuant to this provision, a statute allows non-profit hospitals such as

Our Lady to gain exemption from state property taxation ...when actually and exclusively used

for charitable or beneficent purposes... 35 ILCS 200/15-65. Our Lady has availed itself of this

tax exemption. Am. Comp. at 44. In determining what is charitable and beneficent, the

courts require the hospital to:

...dispense charity to all who need and apply for it...and...not appear to place

obstacles of any character in the way of those who need and would avail

themselves of the charitable benefits it dispenses...

Alivio Medical Ctr. v. Illinois Dept of Revenue, 299 Ill. App. 3d 647, 650-651, 702 N.E.2d 189,

192 (1st Dist. 1998). Further,

A hospital which treats all of its patients alike, charges no fee where the patient isunable to pay; charges a graduated fee according to ability to pay...is exempt fromtaxation.

Id. at 651, 702 N.E.2d at 192, quoting German Hosp. of Chicago v. Board of Review of Cook

County, 233 Ill. 246, 84 N.E. 215 (1908). Our Lady does not dispense charity to all who need it,

such as the plaintiffs in this case. Nor does the hospital treat all its patients alike. Insured

patients are charged dramatically lower rates for services than uninsured patients. Am. Comp. at

25. The Amended Complaint also alleges that Our Lady placed an obstacle in the path of the

plaintiffs, by failing to inform the plaintiffs how they could avail themselves of the hospitals

charity. Am. Comp. at 28, 31.

The challenged practices of the hospital offend other articulated policies of the State of

Illinois. For example, Section 5-17 of the Illinois Public Aid Code, 305 ILCS 5/5-17, concerns

programs to increase public access to hospital care. The statute provides that

(t)o help expand the availability of hospital care for all citizens of this State, it isthe policy of the State to implement programs that more equitably distribute the

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burden of providing hospital care to Illinois' low-income population and thatimprove access to health care in Illinois.

305 ILCS 5/5-17(a)(2). Pricing practices used by Our Lady, which exaggerate the prices

charged the poor and the uninsured, violate the public policy of improving access to health care

among low income residents of Illinois.13 The conclusion is inescapable: the allegations that

Our Ladys billing practices offend public policy are sufficient to present a claim under the CFA.

(2) Second Prong: Immoral, Unethical, Oppressive Or Unscrupulous

Acts.

The second prong of the test for unfairness under Robinson is whether the challenged

conduct is immoral, unethical, oppressive or unscrupulous. Id. at 418, 775 N.E.2d at 961. In the

case of Central Standard Life Ins. Co. v. Davis, 10 Ill. App. 2d 245, 255, 134 N.E.2d 653, 658-

659 (3d Dist. 1956), the term oppressive was defined, in another context, in terms ranging

from unreasonably burdensome and unjustly severe to an act of cruelty. Other Illinois

courts have found oppressive conduct in CFA cases, such as in Fahner v. Hedrich, 108 Ill. App.

3d 83, 90, 438 N.E.2d 924, 929 (2d Dist. 1982), where the victims were in a position in which

they had no reasonable alternative but to pay and agree to pay. The imposition on the plaintiffs,

of charges two to three times as high as those charged insured patients, in fact the highest

hospital charges in the State of Illinois, particularly in light of their indigence, constitutes

oppressive conduct. The same is true for the plaintiffs here, each of whom was brought to the

13 Other laws in Illinois reflect similar public policy statements. The CommunityBenefits Act, 210 ILCS 76/1 et seq. mandates hospitals to set out objectives and goals for charitycare. The Charitable Trust Act requires non-profit hospitals to annually report the level ofuncompensated services provided. 760 ILCS 55/7. The Illinois Health Finance Reform Actrequires hospitals to provide patient charge information to the State, recognizing that purchasersof health care need health care cost...data to enable them to make informed choices among healthcare providers in the market place. 20 ILCS 2215/4-1 et seq.

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hospital as an emergency patient, treated, and charged without any alternative. They did not

elect to be treated at Our Lady and they did not agree to pay the highest hospital rates in the

state. As in Fahner, ...failure to disclose such a large fee is deceptive, oppressive, and

potentially injurious to the consumer. Id.14

(3) Third Prong: Substantial Injury To Consumers.

The third requirement of the unfairness test is substantial injury to consumers. The

plaintiffs, who are indigent, should not have been billed for their treatment given Our Ladys

statutory duty to provide free health care to all who need it. Plaintiffs have suffered the injury of

being billed and/or sued for large medical bills which they do not owe. There are pernicious

consequences of attempting to collect an inordinate sum from those who are seriously ill....These

burdens may be increased as the patient and family struggle to pay for the necessary healthcare.

Wooster Community Hosp. v. Anderson, 108 Ohio App. 3d 290, 295, 670 N.E.2d 563, 566

(1996). Our Ladys billing practices may also cause injuries if the plaintiffs are deterred from

seeking additional medical care. A person with limited income may not seek out medical

treatment if he or she knows that their wage possibly is subject to a twenty-five percent

garnishment. Id. at 295, 670 N.E.2d at 566.15 Each day the billing practices of Our Lady cause

substantial injury to consumers.

14 In Saunders v. Michigan Ave. Natl Bank, 278 Ill. App. 3d 307, 314, 662 N.E.2d 602,608 (1st Dist. 1996) the Court found a total absence of the type of oppressiveness and lack ofmeaningful choice necessary to establish unfairness, relying on the fact that the plaintiff could

have avoided an overdraft charge and could have selected a different bank. The plaintiffs in thiscase had no reasonable alternative to Our Ladys harsh pricing policies; as emergency patients,they were taken to Our Lady, the nearest hospital.

1524% of those with unpaid medical debt reported being deterred from seeking medical

care in one study. Andulis, et al., Paying for Health Care When You Are Uninsured: How MuchSupport Does the Safety Net Offer? (Access Project Jan. 2003)(www.accessproject.org/medicaldebt.html).

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IV. PLAINTIFFS CLAIM FOR UNCONSCIONABLE CONDUCT STATES A

CAUSE OF ACTION.

Count IV of the Amended Complaint states a cause of action for unconscionability. Our

Lady first argues, based on one case, Neade v. Portes, 193 Ill. 2d 433, 739 N.E.2d 496 (2000),

that the unconscionability count is duplicative of the breach of contract claim. However, Neade

simply refused to recognize a new cause of action for breach of fiduciary duty when a

traditional medical negligence claim sufficiently addresses the same alleged misconduct. Id. at

445, 739 N.E.2d at 503. The claim of unconscionability is not a new cause of action. Illinois

courts have recognized the concept of unconscionability long before the UCC became law.

Tinsman v. Moline Beneficial Fin. Co., 531 F.2d 815, 818, n. 5 (7th Cir. 1976). The plaintiffs

can plead their case in the alternative. See 735 ILCS 5/2-613(b). The issues raised by the

unconscionability claim are not identical to those arising out of the breach of contract cause of

action and the relief sought by the two claims is markedly different. The Court can decide, after

all evidence is heard, whether one claim duplicates another.

Our Lady also suggests that plaintiffs must allege both procedural and substantive forms

of unconscionability. Def. Memo. at 30. But Illinois law holds that [u]nconscionability can be

either procedural or substantive or a combination of both. Franks Maintenance & Engr v.

C.A. Roberts Co., 86 Ill. App. 3d 980, 989, 408 N.E.2d 403, 409-10 (1st Dist. 1980). In this case

it is both. Without citation to any authority, Our Lady asserts that where the law implies a

price term to a contract, there can be no procedural unconscionability, simply because the price

term was implied by the law. This circular argument not only defies logic, but is based on the

erroneous premise that the prices charged to plaintiffs were set, or implied by the law. In

truth, the $22,000 charged plaintiff [Plaintiff 3] and the amounts charged the other plaintiffs

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were not implied by law; these figures are excessive amounts fixed by the hospital. Plaintiffs are

invoking the unconscionability doctrine to ask this Court to declare the amounts sought by

defendant as excessive.

The procedural unconscionability includes the fact that plaintiffs like [Plaintiff 3] never

had an opportunity to negotiate the $22,000 she was billed; that all bargaining power rested in

the hands of the hospital; that plaintiffs had no meaningful choice as to any contractual

provision; and that Our Lady did not take basic steps to disclose to plaintiffs their entitlement to

charity care or to inform them how to apply for the charity care. Each of these factors was listed

as relevant to procedural unconscionability in the Franks Maintenance case. Id. at 989, 408

N.E.2d at 410.

Defendant is wrong when it argues that the plaintiffs have not alleged substantive

unconscionability. Allegations of an excessive price or interest rate are sufficient, for pleading

purposes, to state a claim for substantive unconscionability. In Brown v. C.I. L., Inc., 1996 U.S.

Dist LEXIS 4917 (N.D. Ill. 1996); adopted at 1996 U.S. Dist LEXIS 4053 (N.D. Ill. 1996), the

plaintiffs claimed that an excessive interest rate was unconscionable. Noting that these contract

term appear unreasonably unfavorable to CIL, the Court refused to dismiss a claim for

unconscionability. Brown, at *59. Other courts have also followed this course. In Cobb v.

Monarch Fin. Corp., 913 F. Supp.1164 (N.D. Ill. 1995) the Court stated:

At this stage of the litigation we cannot hold, as a matter of law that Cobb has

failed to state a claim of unconscionability. The annual percentage rates charged

by the Lender Defendants, ranging from 57% to 101%, appear unreasonably

favorable to the lenders...

Cobb, 913 F. Supp. at 1179. See also Von Lehn v. Astor Art Galleries, Ltd., 380 N.Y.S.2d 532

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(N.Y. Sup. Ct. 1976) (price of $67,000 for carvings worth half that unconscionable); Perdue v.

Crocker Natl Bank, 38 Cal.3d 913, 702 P.2d 503 (Cal. Sup. Ct. 1985) (bank charge of $6 for

overdraft costing bank 30 may be unconscionable). Charging indigent patients four times what

others pay for the same services is, in one word, unconscionable.

V. PLAINTIFFS CLAIM FOR BREACH OF STATUTORY OBLIGATION STATES

A CAUSE OF ACTION.

Plaintiffs Count III asserts that they have an implied right of action to sue a hospital

which has breached its duties, under the Illinois property tax code exemption statute, to provide

free care to them. Defendants motion to dismiss Count III of the Amended Complaint should be

denied.

The property tax code exemptions are intended to promote charity care to individuals in

need by offering a tax incentive to institutions that provide services actually and exclusively

used for charitable or beneficent purposes. 35 ILCS 200/15-65. [C]haritable exemptions are

justified on the basis that the exempt entity confers a public benefit - a benefit which the society

or the community may not itself choose or be able to provide, or which supplements and

advances the work of public institutions already supported by tax revenues. Bob Jones Univ. v.

United States, 461 U.S. 574, 501 (1983). The public-benefit requirement highlights the quid

pro quo nature of tax exemptions: The public is willing to relieve an organization from the

burden of taxation in exchange for the public benefit it provides. IHC Health Plans, Inc. v.

Commissioner of Internal Revenue, 325 F.3d 1188, 1195 (10th Cir. 2003). Tax exemptions have

historically been granted to certain hospitals because:

the care of the sick is essential to the public welfare. The need cannot be fully

met by reliance solely on private hospitals operating from profit motivation.

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Provision for it must be made by charitable hospitals or the state. The grant of tax

exemption to these hospitals...encourages and facilitates their performance of a

governmental duty which would otherwise have to be performed by the state.

Legat v. Adorno, 138 Conn. 134, 144, 83 A.2d 185, 191 (1951).

The Illinois courts have clearly articulated strict guidelines in determining whether a

health care provider is considered a tax exempt charitable institution. See Methodist Old

Peoples Home v. Korzen, 39 Ill. 2d 149, 233 N.E.2d 537 (1968), Alivio Medical Ctr. v. Illinois

Dept of Revenue, 299 Ill. App. 3d 647, 702 N.E.2d 189 (1st Dist. 1998), Riverside Medical Ctr.

v. Dept of Revenue, 342 Ill. App. 3d 603, 795 N.E.2d 361 (3d Dist. 2003). In order for a

hospital to be exempt, [i]ncidental acts of charity are not enough, but the use of its property

must be exclusively for charitable purposes. Alivio at 650, 702 N.E.2d at 192. The courts have

outlined the following criteria for evaluating whether a hospital is considered charitable:

(1) the use was for the benefit of an indefinite number of persons, persuadingthem to educational or religious conviction, for their general welfare or in someway reducing the burdens of government; (2) the charitable institution must have

no capital, capital stock or shareholders, earns no profits or dividends; (3) theinstitution must dispense charity to all who need and apply for it, does not providegain or profit in a private sense to any person connected with it, and does notappear to place obstacles of any character in the way of those who need andwould avail themselves of the charitable benefits it dispenses; (4) the institutionhas the burden of proving that its property actually and factually is so used; and(5) the terms exclusively used means the primary purpose for which property isused and not any secondary or incidental purpose.

Id. at 650-1, 702 N.E.2d at 192.

Illinois courts have denied hospitals tax exempt status because they have not satisfied the

outlined criteria. In Alivio, the court denied the hospitals tax exemption status because it held

that the hospital charged the same amount regardless of the patients financial classification and

because the hospital did not advertise that it provided charity care. Id. at 651-2, 702 N.E.2d at

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192-3. In Riverside, the Court held that a medical center that billed patients and later wrote off

the amount as bad debt was not providing charity care. Id. at 609, 795 N.E.2d at 366.

Defendants practice of charging uninsured and indigent patients more than insured patients is

even more egregious conduct than that of the hospitals denied tax exemption status in Alivio and

Riverside.

The Illinois Supreme Court has laid out four factors to be considered in determining if a

private right of action may be implied from a statute.

Implication of a private right of action is appropriate if: (1) the plaintiff is amember of the class for whose benefit the statute was enacted; (2) the plaintiffs

injury is one the statute was designed to prevent; (3) a private right of action isconsistent with the underlying purpose of the statute; and (4) implying a privateright of action is necessary to provide an adequate remedy for violations of thestatute.

Metzger v. DaRosa, 209 Ill. 2d 30, 36, 805 N.E.2d 1165, 1168 (2004). The four factors exist in

this case.

The plaintiffs in this case are clearly members of the class for whose benefit that statute

was enacted. Our Lady incorrectly concludes that the hospital, the exempted taxpayer, is the

primary intended beneficiary of the tax exemption provisions and that charity recipients are not

intended beneficiaries. Our Lady acknowledges that the statute is designed to encourage

charitable deeds, but illogically argues that this is but an indirect effect and that no particular

class of charity recipients is specified. If the primary intended beneficiary of the property tax

code exemption statute is the organization receiving the tax break, as defendant suggests, the

Illinois courts would not demand that hospitals meet such stringent standards to prove that they

are charitable institutions. See Folletts Illinois Book and Supply Store v. Isaacs, 27 Ill. 2d 600,

606, 190 N.E.2d 324, 327 (1963). Only in exchange for providing low or no-cost medical care

to those people who need it, do hospitals receive a tax exemption by the state. Therefore, it is

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clear that the plaintiffs, as the recipients of charity care, are members of a class for whose benefit

the statute was enacted.

Plaintiffs also satisfy the second factor as the plaintiffs injury is one the statute was

designed to prevent. The underlying purpose of the statute is to provide a public benefit to the

community. Our Ladys failure to provide charity health care pursuant to its tax exempt status

caused injury to the plaintiffs because they were denied this public benefit. The third factor also

exists as a private right of action here is consistent with the underlying purpose of the statute.

The underlying purpose of the property tax exemption statute is to encourage organizations such

as hospitals to operate with a charitable purpose, serving a public need, in this case providing

health care to the poor. Affording the Plaintiffs a right of action will gain them free health care,

a result in line with the goal of the tax exemption laws.

The fourth factor is also present because an implied private right of action is necessary to

provide an adequate remedy to redress Our Ladys violation of the statute. Though the state of

Illinois, Department of Revenue, has authority to regulate whether or not an organization is

operating according to its charitable purposes, a civil private right of action is necessary to

uphold and implement the underlying premise of the statute. Our Lady argues that there is no

need for a private right of action because the Department of Revenue can withhold or revoke tax

exemption status if the prerequisites are not satisfied. However, nothing in the statute suggests

that the legislature intended to limit the available remedies to administrative ones. Furthermore,

an implied right of action is not excluded simply because a government department is granted

regulatory power within a statute. See Corgan v. Muehling, 143 Ill. 2d 296, 314, 574 N.E.2d

602, 610 (1991); Rodgers v. St. Marys Hosp. of Decatur, 149 Ill. 2d 302, 308-9, 597 N.E.2d

616, 619 (1992). In Rodgers, the court found a private right of action was necessary to provide

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an adequate remedy for violation of the X-Ray Retention Act by a hospital even though the

regulation was enforced by the Department of Public Health. Id. at 619-20, 597 N.E.2d at 619.

The court stated that the threat of liability was a much more efficient method of enforcing the

regulation than requiring the Public Health Department to hire inspectors to monitor the

compliance of hospitals with the provisions of the Act. Id. Similarly, in Corgan, the court found

that the Psychologist Registration Act permitted a private right of action for nuisance even

though an agency regulated its provisions. Corgan at 314, 574 N.E.2d at 610. The Court held

that a private right of action under the Act was appropriate and that it was unlikely that patients

injured by unqualified and unregistered psychologists would initiate their complaints through the

administrative system without a potential for a tangible reward. Id. at 315, 574 N.E.2d at 610.

Therefore, even though the Department of Revenue can determine an institutionss tax-exempt

status in Illinois, the plaintiffs are not precluded from bringing their own claim.

Defendant also cites to Schlenz v. Castle, 115 Ill. 2d 135, 503 N.E.2d 241 (1986), a

lawsuit described by the Court as part of a twenty year war against revenue officials. Id. at 138,

503 N.E.2d at 242. In Schlenz, plaintiffs, individual taxpayers, argued that property belonging to

third parties had been under-assessed or improperly exempted from taxation. Id. at 141, 503

N.E.2d at 243. The court held that the taxpayers had no cause of action because their interest in

the taxation of any parcel of exempt property is extremely remote... Id. at 144, 503 N.E.2d at

245. Further, the Court relied on the fact that the taxpayers were afforded a comprehensive

panoply of administrative remedies under the Revenue Act. Id. at 142, 503 N.E.2d at 244.

Unlike in Schlenz, the plaintiffs in this case are: (1) not suing governmental officials; (2)

directly affected by defendants failure to implement its charitable duties as they have been

charged exorbitant rates by the so-called charitable institution; and (3) without any other

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adequate remedy at law to challenge defendants practice of overcharging them because there is

no specific administrative relief available to them through the Department of Revenue.16

VI. PLAINTIFFS CLAIM FOR BREACH OF CONTRACT STATES A CAUSE OF

ACTION.

Plaintiffs Count II sufficiently alleges that Our Lady, by charging the plaintiffs more

than the reasonable value of services rendered, breached its contractual obligations. In Illinois,

where there is a contract under which one party supplies services to another and there is no

provision setting out the amount to be compensated, the law implies that there is an agreement

to pay a reasonable price for goods and services. Protestant Hosp. Builders v. Goedde, 98 Ill.

App. 3d 1028, 1031, 424 N.E.2d 1302, 1305-06 (5th Dist. 1981). The determination of

reasonableness involves a factual inquiry. [E]vidence of the amount charged alone does not

indicate reasonableness. Victory Memorial Hosp. v. Rice, 143 Ill. App. 3d 621, 625, 493

N.E.2d 117, 119 (2d Dist. 1986). Illinois courts have established a two-pronged proof

requirement for a hospital bill to be deemed reasonable under an implied contract theory. The

charges must be the usual and customary charges of that particular hospital and they must be

comparable to the charges of other area hospitals. Sherman Hosp. v. Wingren, 169 Ill. App.

3d 161, 164, 523 N.E.2d 220, 222 (2d Dist. 1988).

Defendant claims that the plaintiffs have failed to allege specific facts to show that Our

16 Defendant also distorts the ruling in Chemtech Indus., Inc. v. Goldman Fin. Group,

Inc., 809 F. Supp. 729 (E.D. Mo.1992), to conclude that requirements for favorable tax treatmentin a tax code do not create private rights of action in third parties. In Chemtech, a new plansponsor was proposing to transfer, pursuant to 26 U.S.C.S. 420, excess pension assets in thenew plan to a 401(h) account to fund retiree health care benefit expenses. Id. at 730. The courtin Chemtech held that there was no private cause of action specifically under the InternalRevenue Code for enforcement of 26 U.S.C.S. 420 because, although benefit plans which failto comply with these requirements will not obtain favorable tax status, 420 does not prohibittransfers which fail to meet the requirements. Id. at 734.

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Ladys charges to the plaintiffs were not "usual and customary charges" or were not "comparable

to the charges of other area hospitals. Def. Memo. at 27. While the plaintiffs need only allege

that the hospital has contravened one of the two prongs of the Sherman Hospital test, the

Amended Complaint sufficiently alleges that Our Lady has failed to satisfy both of these prongs.

A. Plaintiffs Have Sufficiently Alleged That The Charges To Them Were Not

"comparable to the charges of other area hospitals."

The plaintiffs specifically allege that Our Ladys charges are higher than most other

Chicago area hospitals, and that, in 2003, Our Lady had the highest total charge-to-cost ratio of

all hospitals in Illinois, 392.11%. Am. Comp. at 24(a). Contrary to defendants interpretation,

the allegations in 24(a) do not in any way concede that Our Lady's charges are comparable to

other Chicago area hospitals. Defendant states that the allegation is "fully consistent with Our

Lady being merely slightly above the others in a tight distribution." Def. Memo. at 27. But the

Amended Complaint does not allege that Our Ladys prices are only "slightly above" other

hospitals in a "tight distribution." That is the language of the defendant, unsupported by any

affidavit or factual data. Our Ladys claim that their prices are reasonable on this basis is a

factual defense that the Court need not resolve in order to rule on the motion to dismiss. See

Green v. Trinity Int'l Univ., 344 Ill. App. 3d 1079, 801 N.E.2d 1208 (2nd Dist. 2003) (Dismissal

of a breach of contract claim was improper where the trial court considered a factual defense in

granting a motion to dismiss).

Defendant also claims that the plaintiffs allegation that Our Ladys 392.11%

charge-to-cost ratio is the highest amongst Illinois hospitals, is insufficient to show that their

prices are not comparable to other hospitals in the area.17

Def. Memo. at 27. As defendant

17 Defendant incorrectly relies on Fehr Constr. Co. v. Postl Sys. of Health Bldg., 288 Ill.

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concedes, a hospitals costs can be relevant in determining the reasonableness of a hospitals

charges. Def. Memo. at 27, citing Victory Memorial Hosp. v. Rice, 143 Ill. App. 3d 621, 624-5,

493 N.E.2d 117, 119-20 (2d Dist. 1986). The court in Victory ruled that:

any assessment of the reasonableness of a private hospitals charges must include

consideration and recognition of the particular hospitals costs, functions, and

services to make a valid determination of whether such charges were reasonable

for that hospital alone or compared to the charges of other area hospitals.

Id. at 625, 493 N.E.2d at 120. The charge-to-cost ratio demonstrates that Our Ladys higher

prices cannot be justified by arguing that the hospital needed to cover its costs. The fact that Our

Lady had the highest charge-to-cost ratio in Illinois is a sufficient allegation that its charge are

not comparable to other hospitals.

Defendant also argues that the plaintiffs fail to state a claim because they have not

alleged that the specific prices charged to each of them for their individual treatments (e.g. the

charges of particular procedures, room charges, medications, etc.) were not comparable to other

area hospitals. Def. Memo. at 28. While the allegations of Count II do not separately challenge

each of the hundreds of itemized charges imposed on the plaintiffs, the allegation that the total

amounts charged to the plaintiffs were higher than those of other hospitals is adequate to state a

claim. Proof of each outrageous overcharge will be a product of discovery. The combination of

634, 124 N.E. 315 (1919), to argue that "the market generally determines what is reasonable, nota formula" and misstates the holding. Def. Memo. at 27. In Fehr, plaintiffs were contractorswho sought a mechanics lien against property to pay for improvements made by the owners.The court held that the improvements were not trade fixtures but were permanent and attached tothe property and determined the reasonable cash market value of the fixtures including labor todetermine the lien against the property. Id. at 641, 124 N.E. at 318. Fehr is distinguishable; itsholding is totally inapplicable in determining whether a hospitals charges are reasonable andcomparable to other hospitals.

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the allegations in the plaintiffs Amended Complaint, that Our Lady has both higher prices than

other area hospitals and a higher charge-to-cost ratio, sufficiently plead that the prices charged to

the plaintiffs were not reasonable.

B. Plaintiffs Have Sufficiently Alleged That The Charges To Them Were Not

Our Lady's "usual and customary charges."

The charges applied to the plaintiffs cannot be considered "usual" or "customary"

because the hospital imposes significantly lower prices to the large majority of their patients.

Most patients who receive medical care at Our Lady have insurance of some kind. Our Lady

charges all of these insured individuals what they call a "discount