1. Do you have a source for that story?
Unfortunately no, it was in one of the histories of the Ardennes battle I read when I was doing research on the 1944/45 Ardennes campaign and it stuck in my mind. It's not mentioned on the web in any way I can find but I believe it was in one of the official US Army histories. I'll look through my library and try and refind it for you.
***EDIT*** Story confirmed in reference you provide below.
2. This historical account makes it clear that medical units weren't as "sacrosanct" as you make them sound:
Medical Service in the European Theater of Operations
I have access to all the US Army official histories though so I'll look it up in real text.
***EDIT***
All right, I got the original text for this book - it refers specifically to the Ardennes Offensive. I am afraid that, taken as a whole, it doesn't support your case at all. The money-shot is early on in which, describing the Malmedy Massacre by Kampfgruppe Peiper it says
"This was not to be the only desultory act of this kind to be committed by this unit, which gained the dubious distinction of being the only group to kill prisoners in the course of the Ardennes offensive."
A little later on, it mentions an incident which tends to confirm the story above.
"With the newly taken prisoners still lined up in the courtyard a German captain addressed them and announced that they were prisoners of the Fifth Panzer Army and that the Germans planned to set up a clearing station in the convent. The captured medical staff were to remain there to take care of the American wounded. The German medical personnel consisting of five officers and 50 enlisted men arrived shortly thereafter. The officers attempted to be friendly but at the same time appropriated all of the American hospital supplies. The German equipment consisted of paper bandages, crude instruments, and make-shift sterilizers (snip) The captured surgeons continued to look after the American wounded in the days that followed to the best of their ability under steadily deteriorating conditions. Among the scores of casualties who arrived many died from lack of blood. There was no heat and supplies were giving out. The only bright spot in the situation was that on Christmas Eve the Germans sent a few bottles of wine to the basement where the Americans were quartered. Just as the surgeons were about to dole out this unexpected gift to the casualties, four shells landed in rapid succession in the courtyard, and four Americans were injured by falling beams and flying glass.
This confirms that these American medical personnel were relatively well-treated and continued with their medical duties. Now, this bit is important. The Geneva Convention states that PoWs (which this group were despite their medical status) may be used for non-combatant work provide they are appropriately paid for that work. So, under these rules, the Germans were obliged to pay the Americans for their medical duties. This confirms the second part of the story I related. At a guess, the Heer pay corps, being as wonderfully bureaucratic as any other military pay corps, decided that "appropriate" meant "what a German officer of equivalent rank would get". QED.
There is a description a bit later of a German attack on a medical unit that resulted in heavy casualties to the staff and patients. It's not clear whether the Germans knew this was a medical unit. The attack lasted 15 minutes and ended when an American officer reached the German commander and told him what was happening. This could be an error or a German unit operating under the Russian Front "Nasty Plan",
Another money-shot. "Beyond taking care of its wounded, the U.S. Army extended the same quality of care to enemy wounded that were being captured in increasing numbers."
Overall, I would say this book confirms my original suggestion and provides a kind-of source for the "used and paid" story. I'm lucky in that when people quote a source, I have the resources to get the original and read it. Or, to be honest, get one of my minions to find it.
Sacrosanct is overstating it, I agree although the situation in WW2 was greatly better than it is now. Oddly WW1 was pretty bad with the Germans actually making an operational principle of "The War on the Wounded" which involved deliberate attacks on hospitals and hospital ships. This does not appear to have happened in WW2 France, Italy and North Africa although it was common practice in Russia.
This reference
“Medic!” | AMERICAN HERITAGE gives an interesting overview of the situation and there are a couple of accounts in there (particularly one of a German unit that encountered an American ambulance that had got lost and was behind German lines. The German troops sent it back to American lines; the Americans responded by sending over a crate of cigarettes. The problem for the Germans was that they had two postures. A friend of mine calls these "the nice plan" which applies in Western Europe and Italy and "the nasty plan" which applied on the Russian Front. Now it seems fairly clear from looking at events, German units that had spent the was in France or Italy behaved quite well. The trouble came when units were brought from the Russian Front, they brought "the nasty plan" with them. hence Oradour sur Glane et al. Downward cycles are hard to stop when they get started. However, the ultimate answer to this came from the medics themselves; their response to medics being killed was to make themselves more visible not less. US Medics started wearing two red cross armbands instead of one and painted their helmets white with a large red cross. Evidence (quoted in the reference above) suggested that medics being killed was either the result of random indirect fire or the medic not being recognized,
The Russian front was completely different; there Russian medical personnel were killed out of hand. The legend of the "clean Heer" was a post-war construct; essentially there was no difference between the Heer and the SS on the Russian Front. It is worth noting that in a war where the opposing armies consist of millions of young men with guns, there's going to be a proportion of nut-cases and the resulting unfortunate incidents. That's why its best to study this side of things from general principles rather than specific incidents.
Another problem was the depth of the battlefield. In WW1, "the zone of war" was very sharply defined as the range of artillery (10-15 miles at most) from the other side. Outside the "zone of war", essentially peace reigned. The BBC TV Series The Great War has an entire episode devoted to this dichotomy. It started to break down with the German zeppelin raids on London etc but even by 1919, the division was still clear. In WW2 it wasn't. The Zone of War was hundreds of miles deep and very fuzzy. That made target discrimination harder.
The final contributor is time. The situation with regard to the Geneva Convention cycled downwards as the war went on. What was normal in 1940 was rare by 1945 and vice versa. I would say the best summary would be that in France and Italy right up to 1944, people tried to do the right thing; after the big influx of German troops from Russia, they didn't.