FILED

August 8, 1996

Cecil Crowson, Jr.

Appellate Court Clerk

IN THE COURT OF APPEALS OF TENNESSEE

WESTERN SECTION AT JACKSON

 ________________________________________________

CASSANDRA HUGHLETT, 

Plaintiff-Appellee,

Vs. C.A. No. 02A01-9505-CV-00118

Shelby Circuit No. 40395 T.D.

SHELBY COUNTY HEALTH CARE

CORPORATION, REGIONAL MEDICAL

CENTER AT MEMPHIS a/k/a THE MED, 

ET AL, 

Defendant-Appellant.

___________________________________________________________________________

FROM THE CIRCUIT COURT OF SHELBY COUNTY

THE HONORABLE ROBERT L. CHILDERS, JUDGE

Gavin M. Gentry of Memphis

For Defendant-Appellant

Louis P. Chiozza, Jr., of Memphis

For Plaintiff-Appellee

AFFIRMED AND REMANDED

Opinion filed: 

W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.

CONCUR:

DAVID R. FARMER, JUDGE

HOLLY KIRBY LILLARD, JUDGE

The sole issue in this case is whether a plaintiff in a medical malpractice action may

recover from a defendant health care provider the amount of plaintiff’s medical expenses paid

by the Tennessee Medicaid program which is a part of the federal social security program.
1The University of Tennessee Medical Group, Inc., was initially named as a defendant,

but was later dismissed and is not involved in this appeal.

2

On April 9, 1991, plaintiff Cassandra Hughlett underwent a cesarean section to aid in the

birth of her child. Her complaint against defendants, Shelby County Health Care Corporation,

Regional Medical Center at Memphis, a/k/a “The Med,” and the University of Tennessee

Medical Group, Inc., alleges that at some point during the course of the surgery, a surgical

sponge and/or “lap pack” was placed in the plaintiff’s abdomen and was not removed at the

conclusion of the surgical procedure. The complaint avers that subsequent to her discharge from

the hospital, the plaintiff experienced severe pain as a result of the sponge and/or lap pack, and

that she was readmitted to the hospital to remove the “foreign body.” Plaintiff alleges that the

defendants1 were negligent in their provision of medical treatment to her and that such

negligence was a proximate cause of the her injuries. The defendant’s answer denies any

negligence and joins issue on the material allegations of the complaint.

“The Med” filed a motion in limine to exclude evidence of the plaintiff’s medical

expenses paid for by social security benefits. At the hearing on the motion in limine, counsel for

the parties announced that a settlement had been reached between the parties, and that the only

issue remaining for decision was the question of whether the plaintiff could recover $6,777.17,

the amount of the Medicaid payments, from the defendants. The trial court held that the amount

of the Medicaid payments made to, or on behalf of, plaintiff as a result of her injuries were

recoverable from the defendants, and by order entered March 2, 1995, the court entered judgment

for the plaintiff in the amount of $6,777.17. Shelby County Health Care Corporation has

appealed and presents the following issue for review:

Whether or not social security benefits are included in Tennessee

Code Annotated § 29-26-119 as a collateral source? Or, stated

another way: Whether or not the plaintiff in a medical malpractice

case can recover from the defendant the amount of plaintiff’s

medical expenses paid for by social security benefits.

The issue in this case requires an interpretation of T.C.A. § 29-26-119 (1980), which
3

provides:

29-26-119. Damages. - In a malpractice action in which liability

is admitted or established, the damages awarded may include (in

addition to other elements of damages authorized by law) actual

economic losses suffered by the claimant by reason of the

personal injury, including, but not limited to cost of reasonable

and necessary medical care, rehabilitation services, and custodial

care, loss of services and loss of earned income, but only to the

extent that such costs are not paid or payable and such losses are

not replaced, or indemnified in whole or in part, by insurance

provided by an employer either governmental or private, by social

security benefits, service benefit programs, unemployment

benefits, or any other source except the assets of the claimants or

of the members of the claimants’ immediate family and insurance

purchased in whole or part, privately and individually.

The medical expense payments were made pursuant to Tennessee’s “Medical Assistance

Act of 1968" codified as T.C.A. § 71-5-101, et seq. (1995). The 1968 Act is intended “to make

possible medical assistance to those recipients determined to be eligible under this chapter to

receive medical assistance that conforms to the requirements of title XIX of the Social Security

Act [codified in 42 U.S.C. 1396 et seq.(1992 & Supp. 1996)] and the regulations promulgated

pursuant thereto.” T.C.A. § 71-5-102 (1995). 

T.C.A. § 71-5-117 provides in part, pertinent to the issue before us:

71-5-117. Recovery of benefits - State’s right of subrogation -

Assignment of insurance benefit rights - Commissioner

authorized to require certain information identifying persons

covered by third parties - State’s right of action. - (a) Medical

assistance paid to, or on behalf of, any recipient cannot be

recovered from a beneficiary unless such assistance has been

incorrectly paid, or, unless the recipient or beneficiary recovers

or is entitled to recover from a third party reimbursement for all

or part of the costs of care or treatment for the injury or illness for

which the medical assistance is paid. To the extent of payments

of medical assistance, the state shall be subrogated to all rights of

recovery, for the cost of care or treatment for the injury or illness

for which medical assistance is provided, contractual or

otherwise, of the recipients against any person. Medicaid

payments to the provider of the medical services shall not be

withdrawn or reduced to recover funds obtained by the recipient

from third parties for medical services rendered by the provider

if these funds were obtained without the knowledge or direct

assistance of the provider of medical assistance. When the state

asserts its right to subrogation, the state shall notify the recipients

in language understandable to all recipients, of recipient’s rights

of recovery against third parties and that recipient should seek the

advice of an attorney regarding those rights of recovery to which

recipient may be entitled. 

42 U.S.C. § 1396a (Supp. 1996) states in pertinent part:
4

1396a. State plans for medical assistance

(a) Contents

 A state plan for medical assistance must --

* * *

(25) provide --

(A) that the State or local agency administering such plan will

take all reasonable measures to ascertain the legal liability of third

parties (including health insurers, group health plans (as defined

in section 607(1) of the Employee Retirement Income Security

Act of 1974 [29 U.S.C.A. § 1167(1)]), service benefit plans, and

health maintenance organizations) to pay for care and services

available under the plan, including-- 

(i) the collection of sufficient information (including the

use of information collected by the Medicare and Medicaid

Coverage Data Bank under section 1320b-14 of this title and any

additional information as specified by the Secretary in

regulations) to enable the State to pursue claims against such third

parties, with such information being collected at the time of any

determination or redetermination of eligibility for medical

assistance, and 

(ii) the submission to the Secretary of a plan (subject to

the approval by the Secretary) for pursuing claims against such

third parties, . . . .

* * *

(B) that in any case where such a legal liability is found to exist

after medical assistance has been made available on behalf of the

individual and where the amount of reimbursement the State can

reasonably expect to recover exceeds the costs of such recovery,

the State or local agency will seek reimbursement for such

assistance to the extent of such legal liability . . . .

The Med asserts that Medicaid payments are a part of social security benefits and that

“the wording of the statute [T.C.A. § 29-26-119] is clear that plaintiff cannot recover medical

expenses paid for by social security benefits.”

Our Supreme court was faced with a similar issue in Nance by Nance v. Westside Hosp.,

750 S.W.2d 740 (Tenn. 1988). In Nance, the Court considered the question of whether worker’s

compensation benefits were included within the scope of T.C.A. § 29-26-119. Plaintiff Nance

sustained a back injury during the course of his employment with Stauffer Chemical Company.

During surgery to repair a damaged disc, he suffered an adverse reaction to an anesthetic

resulting in serious permanent injuries. The plaintiff’s guardian brought a medical malpractice

suit against the hospital and other health care providers. Stauffer Chemical intervened in the suit

in order to assert its statutory subrogation lien for worker’s compensation benefits paid to and
5

for Nance. The defendants asserted that under T.C.A. § 29-26-119, the worker’s compensation

benefits “paid or payable” to the plaintiff constituted collateral source benefits that were not

recoverable against the defendants.

The Court determined that although worker’s compensation benefits are not specifically

provided for in T.C.A. § 29-26-119, such benefits are included in the general wording “any

other source,” because worker’s compensation benefits are within the same classification of

benefits specified in the statute. The Court held that the plaintiff could recover from the

defendants the amount of worker’s compensation benefits paid to, or on behalf of, the plaintiff.

The Court stated:

[W]e think the Legislature intended to exclude worker’s

compensation benefits from the scope of T.C.A. § 29-26-119 by

the inclusion of the modifying phrase “and such losses are not

replaced, or indemnified.” In order to mitigate the damages, the

statute requires that the benefits be paid or payable and also

indemnify or replace the tort victim’s losses. That phrase avoids

a double recovery by tort victims and also removes from the

statute any collateral source that has subrogation rights. Where

benefits carry a right of subrogation and a legal obligation on the

part of the tort victim to repay the collateral source, the tort

victim’s losses have not been replaced or indemnified.

Nance, 750 S.W.2d at 743. 

We view the decision in Nance as dispositive of the issue before us. The Med, however,

contends that Nance is distinguishable because worker’s compensation benefits are notspecified

in the statute, while social security benefits are so specified. This distinction is tenuous at best.

The Nance Court held that worker’s compensation benefits were included within the scope of

the statute, even though not specifically listed. 

Defendant also asserts that pursuant to T.C.A. § 71-5-117, the state has only a right of

subrogation, and, therefore, if the recipient of the medical assistance cannot recover, the state

cannot recover. We must respectfully disagree. The Nance Court held that where there is a right

of subrogation, or a legal obligation on the part of the tort victim to repay the collateral source,

the victim’s losses have not been “replaced or indemnified,” and, therefore, the benefits so paid

are recoverable by the plaintiff. We fail to find a meaningful distinction between the nature of

the benefits paid in Nance and the benefits paid in the case at bar.

Defendant argues that the right to recover the amount of the Medicaid payments is based
2For similar results, see Lusby by and through Nichols v. Hitchner, 642 A.2d 1055 (N.J.

Super. Ct. App. Div. 1994), Marmorino v. Housing Authority of the City of Newark, 461 A.2d

171 (N.J. Super. Ct. LawDiv. 1983).

6

solely on subrogation pursuant to T.C.A. § 71-5-117, and that since the recipient’s claim is

barred by T.C.A. § 29-26-119, there can be no claim by the subrogee. Defendant may have

overlooked the provisions of 42 U.S.C. 1396a (a) 25(A) which mandates that Medicaid

payments to a tort victim should be borne by the tortfeasor when possible. The effect of 42

U.S.C. § 1396a (a) 25(A) was considered in Harlow v. Chin, 545 N.E.2d 602 (Mass. 1989),

where the plaintiff brought a medical malpractice action against a doctor based on the doctor’s

failure to diagnose a herniated disc in the plaintiff’s back. Plaintiff had received Medicaid

benefits and defendant argued that the Medicaid payments constituted collateral source benefits

under the Massachusetts medical malpractice statute, and, therefore, plaintiff could not recover

the amount of the Medicaid payments from the defendant. In holding that the amount of the

Medicaid payments were recoverable, the Supreme Judicial Court of Massachusetts stated:

A Federal statute requires that States receiving Federal funds

must pursue recovery of the funds from legally liable third

parties. 42 U.S.C. § 1396a (25) (1982). A Federal regulation

requires the State to reimburse the Federal government a

proportion of such recovery. A State statute duly provides for

recovery from third parties and subrogation of the plaintiff’s

claim. 

The defendants argue with regard to Medicaid benefits that there

is no right of subrogation “based in any federal law” within the

meaning of G.L. c. 231, § 60G(c). We disagree. The Federal

statute implementing partial reimbursement of State Medicaid

programs mandates that any State receiving these funds must

pursue reimbursement from legally liable third parties. The fact

that technically a State statute provides for the subrogation is

irrelevant. Because the Commonwealth’s pursuit of

reimbursement is required by Federal law, the right of

subrogation is “based in” Federal law.

545 N.E.2d at 610 (citations and footnotes omitted).2

At issue is whether the Medicaid program or the defendant health care provider should

bear the costs of Medicaid payments made to the injured tort victim. Both federal law and

T.C.A. § 71-5-117 require reimbursement of Medicaid payments by responsible third parties.

In Nance, the worker’s compensation statute accomplished the same purpose. In the case at bar,
7

as in Nance, the plaintiff’s “losses are not replaced or indemnified in whole or in part.” Nance

removes any doubt that benefits falling in this category are recoverable.

The judgment of the trial court is affirmed, and the case is remanded for such further

proceedings as may be necessary. Costs of the appeal are assessed against the appellant.

_________________________________

W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.

CONCUR:

_________________________________

DAVID R. FARMER, JUDGE

_________________________________

HOLLY KIRBY LILLARD, JUDGE