Tennessee and other states are violating federal Medicaid law by not sharing their portion of a multibillion-dollar tobacco settlement with low-income smokers whose health has been ruined by their nicotine addictions, their lawyers say.

That assertion, contained in a growing number of lawsuits nationwide, challenges the 1998 agreement signed by 46 state attorneys general, including Tennessee's, to settle claims against the major tobacco companies. None of these cases has yet succeeded, but recent court decisions in Wisconsin, Iowa and Tennessee may breathe new life into them. The decisions seem to support the claim that under federal law, states can only be reimbursed for smoking-related medical expenses incurred by Medicaid patients, and they must give any additional settlement money directly to the patients. This summer, the Tennessee General Assembly voted to split the first $202 million installment of the state's tobacco settlement into two funds: an agriculture account that, among other things, could help tobacco farmers make the transition to other crops, and a separate fund for health programs. The legislature did not specify whether the programs must include smoking cessation, or whether any of the money would go directly to low-income smokers injured by their use of tobacco. "The states' attorneys general made a pretty good deal -- so good they've got money left over," said Ted Carey, a Nashville lawyer involved in one of the Tennessee cases. "Properly, a portion of it ought to go to the people who were injured and who were used as a vehicle by the states" to obtain the settlement. State officials deny they are doing anything illegal. "It's ridiculous," responded Russell T. Perkins, special deputy attorney general for Tennessee. "Cases across the country support our position." There may not be a clear legal way to attack the settlement agreement, which Vanderbilt University law professor Thomas R. McCoy describes as "perverse." The size of the tobacco settlement -- Tennessee's share is estimated to be more than $4 billion over 20-25 years -- will go up or down depending on how much money the tobacco companies make. Money grab? That creates a powerful incentive for states to encourage, or at least not discourage, the sale of cigarettes -- even to "those injured parties who are addicted to nicotine," McCoy said. One might conclude, he added, that "the states didn't give a rat's behind about the smokers -- they were just out there to grab some money." "Not true," retorted Perkins. "The goal of the settlement is to have less people smoke." In the tobacco debate, Tennessee has had to balance some powerful interests, among the most powerful of which are the tobacco growers and tobacco manufacturers. In 1997, Tennessee-grown tobacco earned $227 million, an amount topped only by the crops in North Carolina and Kentucky, according to the U.S. Centers for Disease Control and Prevention. Tennessee also ranked near the top of the list when it came to the proportion of its adult population who smoked in 1997 -- 27%, sixth-highest in the country. The state also has a high smoking-related death rate. More than 9,000 Tennesseans died from smoking-related causes every year between 1990 and 1994, at a rate that was exceeded by only six other states. More than $1 billion is spent annually in Tennessee on smoking-related medical costs, according to the CDC. Yet the plight of thousands of Tennessee smokers, many of them suffering from emphysema, lung cancer and other diseases, attracts little attention, much less sympathy, said Knoxville lawyer David Lee, who with his father, J.D. Lee, has filed several challenges to the state's tobacco settlement. "These are the forgotten, left-behind people, the people who are getting their lives and money squeezed out of them," Lee said. "They are the hated people because they smoke. They're hated because they're poor. They're hated because they're old." Immune from suits Last year, the Lees tried to intervene in the state's 1998 lawsuit against the tobacco companies, which was quickly settled as part of the national "master settlement agreement." Their motion was dismissed by the state Supreme Court. The Lees said they plan to appeal next month to the U.S. Supreme Court. A similar case filed by several Nashville lawyers, including Carey, was recently dismissed by U.S. District Judge Todd Campbell, who held that states are immune from being sued under the 11th Amendment of the U.S. Constitution. The case has been appealed to the 6th Circuit Court of Appeals in Cincinnati. In the meantime, the Lees filed seven more lawsuits in Davidson County Circuit Court on behalf of sick smokers enrolled in TennCare, the state's Medicaid managed-care program for low-income, disabled and previously uninsured Tennesseans. With Nashville lawyer Dixie Cooper, they also have filed a federal court claim that the nationwide settlement is unconstitutional. "There are many people in Tennessee who feel they have been wronged by the tobacco companies," state Attorney General Paul Summers said in July. "Some have cancer. Some have heart or lung problems. Many have suffered. "Even though the tobacco settlement does not prevent them from suing the tobacco companies themselves, they will see this pot of money as a source of compensation for their suffering. ... (We) will vigorously defend against these efforts." State officials argue that they sued the tobacco companies, and later settled with them, not only to recover tobacco-related medical expenses, but to prevent the companies from making deceptive claims about the health effects of smoking and to keep them from promoting -- through directed advertising -- the use of cigarettes by young people. The states also have been able to keep control of the tobacco settlement money, and -- in a handful of cases -- to defeat the efforts of sick smokers to get a share of it, primarily by claiming their constitutional protection against being sued. Important cases What gives smokers' lawyers hope are three recent court decisions that seem to question, if not knock down, some of the states' arguments: In the Blankenship case, the Tennessee Supreme Court held last year that TennCare can't recover medical expenses associated with an automobile accident until the TennCare recipient has first recovered damages from the estate of the person who hit him. Smokers' lawyers said that ruling is similar to federal Medicaid law, which allows states to recover Medicaid expenses incurred by a recipient who was injured, either in a car wreck or by tobacco -- but any additional recovery must go to the recipient. Two months ago in Iowa, a federal judge refused to dismiss a claim by Medicaid recipients for part of that state's tobacco settlement money. The judge ruled, in part, that Iowa's 11th Amendment immunity against being sued is not absolute. Last week, the 7th Circuit Court of Appeals in Chicago dismissed a claim by Wisconsin Medicaid recipients because of restrictions on the amount of damages that can be collected under that state's Medicaid program. But the court declined to rule on the state's immunity defense, calling it complex, and it questioned the state's assertion that its tobacco settlement was not essentially a recovery of tobacco-related Medicaid expenses. Antonio Ponvert, a Connecticut lawyer involved in similar cases in 12 other states, including Tennessee, said he hoped these decisions would lead to an enforcement of the Medicaid law, which was designed to help recipients become independent so they can get off Medicaid and the public dole. "It's the right thing to do," he said. But "it's a long shot ... because there are so many people with vested interests and there is so much money at stake."

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