Preci Services Pty Ltd v Minister for Health, Housing and Community Services

[1992] FCA 485

Re: PRECI SERVICES PTY LIMITED
And: MINISTER FOR HEALTH, HOUSING AND COMMUNITY SERVICES
No. G630 of 1991
FED No. 485
Administrative Law
(1992) 15 AAR 505
(1993) 112 ALR 432, (1993) 26 ALD 682 (extracts)

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Gummow(1), French(1) and Einfeld(1) JJ.

CATCHWORDS

Administrative law - health - pathology laboratory - approval of accreditation for purposes of medical benefits - statutory construction - whether approval may be retrospective - late application - whether extension of expired approval possible - whether application for registration with testing agency capable of constituting application for approval.

Health Insurance Act 1973 s.16A, ss.23DN, 23DO

Re Mansfield and Department of Community Services and Health (1990) 22 ALD 71

HEARING

SYDNEY

#DATE 19:2:1992

Counsel for the Applicant: Mr I.J. Kalaf

Solicitors for the Applicant: Michael Damianos and Associates

Counsel for the Respondent: Mr M.J. Skinner

Solicitors for the Respondent: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicant pay the respondent's costs of the appeal including reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The payment of Medicare benefits in respect of services provided at a private pathology laboratory depends upon its approval as an accredited pathology laboratory under s.23DN of the Health Insurance Act 1973 ("the Act"). Such approvals are given for periods of up to 3 years by the Minister or his delegate. In this case, an approval given to a laboratory in 1989 pending completion of an assessment process by the National Association of Testing Agencies ("NATA"), expired on 23 November 1990. An application for further approval was received by the Department of Health, Housing and Community Services on 11 December 1990. Approval was granted from that date with the result that, for the period 24 November 1990 to 10 December 1990 inclusive, the laboratory was not entitled to Medicare payments in respect of the services it rendered. In this case that represented a loss of income of some $260,000.

1. On review of the approval of 11 December 1990, a departmental officer refused to extend it to cover the period of the hiatus basing his decision upon discretionary grounds relating to the way in which the owner of the laboratory had responded to the requirement to lodge its application for further approval and alleged lack of co-operation with the assessment process. The owner of the laboratory sought a review of that decision in the Administrative Appeals Tribunal. The Tribunal, constituted by its President, O'Connor J., found that there was no power retrospectively to extend the approval granted on 11 December nor to extend the previous approval which had expired on 23 November. It affirmed the decision of the officer. From that decision the owner of the laboratory appeals under s.44 of the Administrative Appeals Tribunal Act 1975 on a question of law.

2. The principal issue relates to the content of the ministerial power to approve premises as accredited pathology laboratories and involves the proper construction of s.23DN of the Act and certain statutory principles made under that section for the purpose of regulating the grant of such approvals. The factual background that follows is based upon the findings of the Tribunal and matters of fact which were not in dispute. In addition to the papers comprising the exhibits and record of proceedings before the Tribunal, the Court, by consent, received as an exhibit a copy of the initial application for approval of the premises which was made in November 1989. It also changed the designation of the respondent from the Department of Health, Housing and Community Services to the Minister for Health, Housing and Community Services to accord with the statutory position.
   Factual Background

3. Preci Services Pty Ltd ("Preci") conducts a pathology laboratory under the name Southwest Diagnostics at 6/92 Bathurst Street, Liverpool. Directors of the Company include its managing director, Mr Frank Boidi, Dr Emil Savides, who is supervising pathologist for the laboratory, and Messrs. Haddad and Ishak. Mr Con Kostakis is the laboratory manager. In November 1989 Preci had applied for the premises on which the laboratory is conducted to be approved as an accredited pathology laboratory for the purposes of the payment of medicare benefits under the Act. Such approval was given by the Minister or his delegate under s. 23DN of the Act. Under principles ("the Principles") determined by the Minister under the Act, it is a condition of approval that at the time an application is made evidence is provided that the premises in question have been inspected by an agency which has reported that they comply with standards adopted by the National Pathology Accreditation Advisory Council or that they are registered with NATA by reason of their compliance with the Standards and the Minister is satisfied that since registration they have complied with the Standards.

4. The application lodged in November 1989 was made at a time when the owner of the laboratory could not comply with those requirements as no assessment had been carried out. There is provision under the Principles for approval to be granted on a "transitional" basis where the applicant has made arrangements with an agency for inspection of the premises to determine whether they comply with the Standards. The Minister must be satisfied in such a case of various matters relating to the sufficiency of professional and support staff, involvement by the laboratory in an external quality assurance program and the prospect of unreasonable disadvantage to the applicant if required to make separate application for approval under the stricter criteria referred to. In this case it appears that the approval granted in November 1989, while given under s.23DN of the Act, was made pursuant to the less rigorous "transitional" criteria mentioned. With a view to further approval after 23 November 1990, assessments of the laboratory were carried out in March and May of that year by NATA which is an inspection agency approved under the Principles. There was evidence of a somewhat allusive and indirect nature indicating that in February 1990 Preci had made application to NATA for registration in the sense contemplated by the Principles.

5. On 4 October 1990, Mr John Jenner, then Acting Director of the Pathology Section of the Commonwealth Department of Community Services and Health wrote to Preci addressing his letter to the laboratory manager of Southwest Diagnostics and pointing out that the then current approval expired on 23 November 1990. A form entitled "Application for Approval of Premises as an Accredited Pathology Laboratory" was enclosed. The letter stated that:
   

"Failure to return the application form and fee before the date on which the current approval expires will result in the non-payment of Medicare benefits for any services rendered in the period when approval does not exist."

Unfortunately, the directors of the company were on leave until 5 November and the laboratory manager, Mr Kostakis, for reasons connected with illness and workload pressure, did not attend to the form until 3 December 1990. He then filled out as much of it as he could and left the rest to be completed by Mr Boidi. In the event, it was not returned to the Department until 11 December 1990.

1. In the meantime there had been difficulties with the NATA assessments carried out in March and May. On 7 November 1990, NATA wrote to Dr Savides enclosing a report dated 26 July 1990 and answering certain criticisms of their services which had been raised by him in earlier correspondence on 11 October. The report identified a number of deficiencies in the operation of the laboratory. These related to the extent of effective supervision by a pathologist, the need for updating and in some cases completion of methods manuals, major problems with quality control, particularly in biochemistry and the necessity for participation by the laboratory in an external quality assurance program. The Safety Manual was also said to require completion and perusal by all staff. A third assessment, it was said, would have to be carried out following a written response to the matters raised in the report. In that regard the NATA letter said:
   

"Those areas requiring attention are detailed in the report. We await your advice concerning these matters by 17 December 1990 and following this a third assessment will be organised."

1. On 11 December, Mr Jenner signed an instrument in the following terms:
   

"I, JOHN HERBERT JENNER, Delegate of the Minister of State for Community Services and Health, pursuant to sub-section 23DN(1) of the Health Insurance Act 1973, hereby approve the premises, or each of the premises, specified in the first Schedule as an Accredited Pathology Laboratory for the purposes of the Act and vary the approval previously granted in respect of each of the premises listed in the second Schedule in accordance with that Schedule. DATED THIS 11th DAY OF DECEMBER 1990

DELEGATE OF THE MINISTER OF STATE FOR COMMUNITY SERVICES AND HEALTH"

He did not disclose the fact of the approval to the principals of Preci, evidently with a view to pressing them into responding to the NATA requirements. A file note dated 21 December 1990 and signed by him referred to a conversation with Kostakis in the following terms:

"I rang Kostakis advising we were not prepared to renew appln until SW Diagnostics had responded to NATA assessment report. K indicated he was preparing a 60 page report but it would not be ready til late next week (Fri 28/12?). Reiterated that was still not prepared to approve until response rec'd. Also reiterated point made to Boidi earlier that lab had no APL since 23/11 and Medicare benefits would not be paid until APL was in place."

A further memo of a conversation with Boidi on 24 December included a note of what Jenner described as "reasons for not wanting to approve now" and referred, among other things, to the lateness of the application, the absence of any response to NATA's letter of 7 November and the failure to co-operate with that agency in providing information. A draft report from Southwest Diagnostics to NATA was sent to Jenner by facsimile on 27 December. On 28 December he wrote to Boidi saying, inter alia:

"On the basis of your 27 December 1990 response to the NATA report and that NATA is not available until 2 January 1991, I am prepared to approve the premises at 6/92 Bathurst Street, Liverpool as an accredited pathology laboratory from 11 December 1990 (the day the renewal application was received)...."

Not surprisingly, the Tribunal raised the question whether the instrument of approval apparently signed on 11 December 1990 had in fact been executed on 28 December and backdated. It summoned Jenner to give evidence in relation to this apparent inconsistency. In the event, it is evident that the Tribunal accepted Jenner's explanations and found that the approval was made on 11 December.

1. On 31 December 1990, Kostakis wrote to Brian Candler the Assistant Secretary of the Hospital and Health Services Branch of the Department. The letter set out an explanation of the delay in returning the completed application form and asked for assistance and consideration in granting payment of benefits claimed for the period from 23 November to 10 December. A meeting and telephone discussions ensued between Messrs Boidi and Candler and on 3 January 1991, Candler wrote to Boidi saying that the previous approval for the premises had ended on 23 November 1990 and the new application had not been received until 11 December. He went on:
   

"On the basis of the information you provided and for the reasons outlined yesterday, I am not convinced I should exercise any discretion powers I may have as delegate to comply with your request."

The letter concluded with advice that application could be made to the Administrative Appeals Tribunal for a review of that decision under s.23DO of the Act. Further submissions followed from Boidi on 8 January 1991 and from the applicants' solicitors on 15 February. On 4 April 1991, Candler purported to undertake a review of what he described as "his decision declining to approve the premises of South West Diagnostics as an Accredited Pathology Laboratory for the period 24 November 1990 to 10 December 1990". In a letter of that date to the applicant's solicitors he set out reasons for decision which proceeded on the assumption that he had a discretion to vary the original approval by backdating it to 23 November. Paragraph 5.7 of his letter concluded:

"In conclusion, my decision not to approve the premises at 6/92 Bathurst Street, Liverpool, NSW as an Accredited Pathology Laboratory for the period 24 November to 10 December 1990, was because I was not convinced that those responsible for the management of the laboratory had sufficient regard to the proper accreditation of the laboratory nor took adequate steps to ensure that an application was lodged before 23 November 1990."

1. On 26 April 1991, the solicitors for Preci lodged an application in the Administrative Appeals Tribunal seeking review of Candler's decision of 4 April 1991. The application was heard by the President of the Tribunal on 17 June and 8 August 1991 and on 19 September 1991 she published a decision in the following terms:
   

"The Tribunal affirms the decision under review."

On 11 October 1991 an appeal was lodged in this Court against that decision.

1. Before turning to the decision and the grounds of appeal, it is necessary to refer to some of the provisions of the Act and principles determined under the Act for the approval of accredited pathology laboratories. We are concerned with the Act as it stood after 1 January 1988 (Reprint No. 2). Subsequent amendments do not affect the present case.
   Statutory Framework

2. By s.16A(2) of the Act, subject to certain exclusions not presently relevant, medical benefits are not payable in respect of a pathology service unless the service was rendered in an accredited pathology laboratory and was a service of a kind in respect of which the laboratory was accredited. Section 23DN of the Act provides for the approval of premises as an accredited pathology laboratory. The relevant parts of that section as it stood at the time material for present purposes were:
   

"23DN(1) Where a person -

(a) makes an application, in writing, in accordance with the approved form, to the Minister for the approval of premises as an accredited pathology laboratory; and

(b) pays the prescribed fee,

the Minister, may in writing, approve the premises, for the purposes of this Act, as an accredited pathology laboratory and where the Minister gives such approval, the Minister shall specify in the approval -

(c) the kind of pathology services in respect of which the premises are approved for the purposes of this Act; and

(d) the period (being a period ending not later than 3 years after the day on which the approval takes effect) for which the approval is to have effect.

(2) The Minister may, in writing, determine principles to be applied by the Minister in the exercise of the Minister's powers under sub-section (1).

(3) The Minister shall, in exercising the Minister's powers under sub-section (1) at a particular time, apply the principles determined under sub-section (2) that are in force at that time.

(4) An approval under sub-section (1) -

(a) takes effect on the day on which the approval is given or on such later day as is specified in the approval; and

(b) ceases to have effect upon -

(i) the revocation of the approval; or

(ii) the expiration of the period specified in the approval as the period for which the approval is to have effect,

whichever first occurs,

(5) Where the Minister makes a decision under sub-section (1) approving or refusing to approve premises as an accredited pathology laboratory, the Minister shall give notice in writing of the decision to the person who applied for the approval.

(6) Where the Minister varies or revokes an approval given under sub-section (1) in relation to premises, the Minister shall give notice in writing of the variation or revocation to the proprietor of the premises.

(7) A notice under sub-section (5) or (6) shall include a statement to the effect that, subject to the Administrative Appeals Tribunal Act 1975, application may be made to the Administrative Appeals Tribunal for review of the decision to which the notice relates by or on behalf of a person whose interests are affected by the decision."

Sub-sections (8) to (13) inclusive need not be set out here. The section was amended with effect from 28 December 1990 by s.30 of the Community Services and Health Legislation Amendment Act (No.2) 1990 (No. 141 of 1991). The amendments deleted the words "later day" in sub-s.23DN(4)(a) and substituted the words "day (not being a day earlier than the day on which the application for approval was received by the Minister)".

1. Section 23DO(5) makes provision for applications to be made to the Administrative Appeals Tribunal for review, inter alia, of:
   

"(a) A decision by the Minister, under sub-section 23DN(1), approving or refusing to approve premises as an accredited pathology laboratory for the purposes of this Act;

(b) A decision by the Minister varying or revoking an approval given under sub-section 23DN(1),"

1. Principles were determined by the Minister under sub-s.23DN(2) on 23 November 1987 and have been amended on several occasions since that time. Part 2 of the Principles entitled "Principles of Approval" says, inter alia:
   

"2.1 Premises shall not be approved as an accredited pathology laboratory unless -

(a) the premises are situated in a relevant State and are the subject of an application for approval in accordance with Part 3;

(b) the requirements of Part 4 have been satisfied; or

(c) the premises are eligible to be approved in accordance with Part 5.

2.2 Premises shall not be approved as an accredited pathology laboratory in accordance with Parts 3 or 4 unless the Minister is satisfied that the premises to which the application relates are operated to comply with the Standards and in particular that there is, or are, in respect of the premises ...."

and the paragraph then sets out ten specific requirements. Part 3 imposes requirements for compliance with relevant State laws. Part 4 provides for independent assessment by an approved inspection agency and in 4.2 says:

"4.2 Premises shall not be approved as an accredited pathology laboratory unless the applicant has, at the time that the application was made, provided evidence that-

(a) the premises have been inspected by an agency which has reported that the premises comply with the Standards; or

(b) the premises are at the time that the application is made, registered with the National Association of Testing Authorities and the Royal College of Pathologists of Australasia, provided that-

(i) the premises were registered by reason of complying with the Standards; and

(ii) the Minister is satisfied that the premises have, since being registered, complied with the Standards."

The term "Standards" is defined in Part 1.1 as follows:

""Standards" means the standards adopted by the National Pathology Accreditation Advisory Council and as in force on the date on which this determination is made."

Part 5 makes provision for the approval as accredited pathology laboratories of premises which do not meet the requirements of Part 4.2:

"5.1 Notwithstanding any other provision of this determination premises may be approved as an accredited pathology laboratory where -

(a) the applicant makes an application in accordance with this Part and, at that time, has made arrangements with an agency for the inspection of the premises to determine whether the premises comply with the Standards;

(b) the Minister is satisfied that, in respect of the premises;

(i) there are sufficient professional and support staff, with adequate training and experience, to supervise and conduct the work of the laboratory; and

(ii) the laboratory is enrolled in a relevant external quality assurance program or programs commensurate with the division or divisions of pathology for which the laboratory has sought approval; and

(iii) the Minister is satisfied that an applicant would be unreasonably disadvantaged by being required to make a separate application for approval in accordance with Part 3 or Part 4."

The Tribunal's Reasons for Decision

1. The Tribunal took as its point of departure, the question whether the Minister, in responding to the application lodged on 11 December 1990, had any power to grant an approval covering the period since the expiry of the previous approval, namely 24 November to 10 December 1990. In concluding that there was no such power, it referred to and endorsed a decision of the Tribunal differently constituted in Re Mansfield and Department of Community Services and Health (1990) 22 ALD 71 at 77 that the word "later" appearing in sub-section 23DN(4) required that approvals be given prospectively.

2. Having concluded on that basis that there was no power available to the Minister or his delegate as at 11 December 1990 to approve accreditation on the basis of the application lodged on that date with effect from any earlier date, the Tribunal went on to consider whether the previous approval which had ended on 23 November could have been extended. The submission was made on behalf of the applicant, that the Minister could have acted under sub-s.23DN(6) to vary the approval previously granted by extending its expiry date. The Tribunal concluded, however, that the variation did not extend to an approval which had ceased to have effect. This construction was put on policy grounds that related to the uncertainties generated by retrospective variations of expired approvals.

3. A submission was also made that the applicant should have been treated as having in place an application for approval under Part 5 of the Principles at all material times since February 1990. This seems to have been based on the proposition that the application for registration with NATA made in February 1990 could have been so regarded on the basis that the assessment process was thus put in train. It was submitted to the Tribunal that approval under Part 5 did not require the lodgment of any separate formal application. The Tribunal rejected this submission on the basis, inter alia, that it is a practice necessary for good administration that decision-makers be able to determine when they are being asked to make a decision. No particular form of application is prescribed by Part 5 but it is at least necessary for an applicant to make it clear that he or she is applying under that Part.

4. The Tribunal concluded with the observation that if Candler had indeed had a discretion to vary the effective date of the approval, he would appear to have exercised it in a punitive fashion having regard to the financial loss accruing to the applicant as a result of the gap in the accreditation approval.
   The Grounds of Appeal

5. The Notice of Appeal against the Tribunal's decision identifies as the question of law raised in the appeal whether, in the circumstances of the case, there is power pursuant to sub-s.23DN(6) of the Act and Part 5 of the Principles to "grant an application commencing 24 November 1990".

6. The first ground of appeal relates to the allegedly inadequate treatment by the Tribunal of an argument for the applicant that it could claim the benefit of the transitional provisions under Part 5 of the Principles. And as part of that ground the argument put in the applicant's written submission to the Tribunal was set out:
   

"...the ongoing application for the approval of premises pursuant to part 4 and commencing in February 1990, is the only requirement to support an application for transitional arrangements pursuant to Part 5 where it can be shown that 5(a) (b)(i) (b)(ii) (c) have been complied with."

1. The second ground again related to an alleged failure on the part of the Tribunal to address points raised in what was called the applicant's second limb of its second argument. The relevant part of a written submission made to the Tribunal was set out as an element of the ground:
   

"The gravamen of the Applicants second argument is that the terms of the application and approval process which includes instrument number 300430L have been varied by the issue of the written report delivered on the 8th November 1990 which has the effect to extend the period of the application and approval process to the 17th December 1990 for the purpose to allow compliance with part 2 and part 4 of the said principles and contemporaneous provision is made pursuant to part 5 of the said principles for transitory arrangements conditional upon compliance with part 5 of the said principles during the period 24th November 1990 to 17th December 1990."

This appears to be a reference to the requirement by NATA in its letter of 8 November 1990, that a response to its report of 26 July 1990 be forthcoming by 17 December 1990 before the third assessment would be undertaken.

1. The third ground is a complaint that the Tribunal wrongly identified the basis upon which application had been made to Candler to approve accreditation for the period from 23 November to 11 December. The ground goes on to say that:
   

"The application for review pursuant to part five (5) of the principles relates to a grant of variation of approval number 300430L by extending the period from the 24th November 1990 to the 10th December 1990 which comprises of the following representations:

(a) Letter dated 31st December 1990 Document T1.74, 75, 76

(b) The meeting convened on 2 January 1991 at the Office of the Respondent.

(c) Letter dated 8 January 1991 Document T1.78,79

(d) Submission dated 4 February 1991 Document 71.61 (sic) - T1.115 consecutively"

This ground seems to be contending that the decision complained of was responding to an application for approval of accreditation under Part 5 in respect of the period 23 November to 11 December 1990 notwithstanding that assessment by the inspection agency had not then been completed. The "application" for approval in those terms is, on the face of the grounds as stated, to be constructed out of two letters, a meeting and the written submission referred to.

1. The fourth ground again contends that the:
   

"...applicant's application to be eligible for approval for variation was in accordance with part five (5) of the said principles during the period 24th November 1989 to 23rd November 1990 in respect to approval number 300430L issued on 27th November 1989 and that identifiable representations were made for the grant of approval being made during the period 31st December 1990 to 4th February 1991."

This ground seems to depend upon the proposition that Candler had the power to make a retrospective approval under Part 5 of the Principles for the period 23 November 1990 to 11 December 1990 as an extension of the existing approval.

A Short Question of Power

1. The proper disposition of this case turns shortly upon the construction of s.23DN of the Act and the scope of the power thereby created to approve premises as an accredited pathology laboratory. At the outset, it is important to note that s.23DN is the source and the only source of that power. The statutory principles which the Minister is authorised, under s.23DN(2), to make are "...principles to be applied in the exercise of the Minister's powers under sub-section (1)". The term "principles" used in this context suggests "a general rule as a guide to action" (Shorter O.E.D.). That these rules are to be applied "in the exercise of the Minister's powers" indicates that they regulate the manner of their exercise and the criteria to be applied in determining whether or not to grant an approval. The Principles do not extend the powers created by the section. An approval of premises applying the strict criteria of Parts 3 and 4 of the Principles is an approval under s.23DN(1). So too, is an approval on the more lenient basis prescribed by Part 5. In a sense the words "provisional" and "transitional" used in argument to describe approvals under Part 5 are misleading. While they no doubt reflect the administrative realities, such approvals are legally as full and effective as those given according to Part 4.

2. The process by which the Minister may move to exercise the powers under s.23DN(1) requires "an application, in writing, in accordance with the approved form". In this case the relevant application was that lodged on 11 December 1990. Assuming that some application was lodged with NATA in February 1990 for registration of the premises as complying with the Standards, that was no more than an application to NATA. It could not have been an application for approval of the premises under s.23DN and therefore not an application upon which the Minister or his delegates, Jenner or Candler, could act.

3. The only application before Jenner on 11 December 1990 was the application lodged on that day and it is clear beyond debate that the words of s.23DN(4) as it then stood would not permit an approval pursuant to that application with effect from any day earlier than the day on which the decision to approve was taken. The Tribunal in this case, and in Re Mansfield (supra), correctly construed the section in this regard. That being so there could be no power on the part of Candler to substitute an approval to take effect earlier than 11 December 1990.

4. The suggestion that Candler might have had the power as delegate of the Minister to vary the approval given in November 1989 by extending it from 23 November to 10 December, also has the difficulty that sub-s.23DN(6) contemplates variation or revocation of an approval still in force. It would be a strange construction and one productive of uncertainty which would treat the sub-section as authorising the revocation or variation of approvals no longer in effect. We do not favour such a construction in the absence of clear words in support of it. Candler had no discretion to extend the approval given on 23 November 1989 after it had expired.

5. In the circumstances, no situation arose after 23 November 1990 in which the Minister or his delegates could have approved the premises as an accredited pathology laboratory with effect from that date. The appeal must be dismissed with costs, including costs reserved by Sheppard J. on 13 December 1991.