                    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,
                                                                         FILED
                                                            August 8, 1996
      Defendant-Appellant.
___________________________________________________________________________
                                                           Cecil Crowson, Jr.
                                                                         Appellate C ourt Clerk
                 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.
              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


       1
        The University of Tennessee Medical Group, Inc., was initially named as a defendant,
but was later dismissed and is not involved in this appeal.

                                                       2
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:

                                                 3
               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

                                                  4
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 not specified

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

The Nance Court held that the specifically listed benefits in T.C.A. § 29-26-119 are in the

classification of “collateral source benefits,” and that worker’s compensation benefits are in the

same classification. Thus, the statutory language “any other source” includes worker’s

compensation benefits.

        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,

                                                 5
       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

       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



       2
        For 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
       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,

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




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