TennCare has a statutory subrogation interest provided by Tenn. Code Ann. sec. 71-5-117. Under the statute, once a personal injury plaintiff’s attorney is on notice that TennCare has an interest, the attorney has an obligation to contact TennCare or the plaintiff’s managed care organization “before the entry of a judgment or settlement” to find out the amount of TennCare’s asserted subrogation interest. Tenn. Code Ann. sec. 71-5-117(g). TennCare’s subrogation interest is often small in comparison to the tort victim’s damages, if for no other than reason than the amount that health care providers write off from the patient’s medical expenses when accepting payment from TennCare. When a plaintiff’s damages bump into the available insurance policy limits, however, TennCare’s subrogation interest can be a significant barrier to accepting a reasonable settlement. Fortunately, Tenn. Code Ann. sec. 71-5-117 provides a remedy if TennCare or its MCO will not accept a reasonable reduction – a hearing by the trial judge to adjudicate TennCare’s subrogation amount.
In essence, Tenn. Code Ann. sec. 71-5-117 codifies both the “made whole” rule and the “common fund” rule, reducing TennCare’s recovery by the same factors that the plaintiff faces in evaluating a settlement.
First, the trial judge determines TennCare’s gross subrogation interest. The court looks to the medical expenses that the plaintiff could expect to prove at trial. The court also hears evidence introduced about TennCare’s total payments for those medical expenses. Tenn. Code Ann. sec. 71-5-117(g).
Next, the trial judge values the damages that the plaintiff could expect to receive at trial. The court does not look to recoverability at this point; only to the total amount that the plaintiff would be entitled to if the case was a slam dunk with billions of dollars in insurance coverage. This is the starting point for calculating the reduction.
The trial judge then determines the comparative fault that would likely be apportioned to persons from whom the plaintiff cannot recover: the plaintiff herself; an immune nonparty; a government entity liable for more than its statutory limits; or a nonparty. Tenn. Code Ann. sec. 71-5-117(g). Because the plaintiff cannot recover for any fault apportioned to these persons, neither can TennCare. TennCare’s subrogation interest is reduced by the total percentage of fault that would be apportioned to all persons or entities under subsec. (g).
TennCare’s subrogation interest is further reduced based upon a pro rata share of the plaintiff’s “ordinary and reasonable attorney fees” and “litigation costs.” Tenn. Code Ann. sec. 71-5-117(c) and (h).
The trial court also considers the likelihood that the plaintiff would collect a judgment from the parties at fault. Tenn. Code Ann. sec. 71-5-117(j). This necessarily includes an inquiry into the probability that the plaintiff would receive a successful verdict against each defendant, the availability of insurance coverage to pay for each defendant’s fault, and each defendant’s personal (or corporate) assets. TennCare’s subrogation interest is reduced based upon these factors as well.
Finally, the trial court reduces TennCare’s gross subrogation interest down to a net subrogation interest based on the total effect of all of the above reductions. Tenn. Code Ann. sec. 71-5-117(j).
Obviously, this is a very fact specific endeavor. Nonetheless, this Order provides a basic example of the framework that should be submitted to and adjudicated by a court. Download file.