Sydney X-Ray Pty Ltd v Health Insurance Commission
[2004] FCA 1276
•1 OCTOBER 2004
FEDERAL COURT OF AUSTRALIA
Sydney X-Ray Pty Ltd v Health Insurance Commission [2004] FCA 1276
CONTRACT – formation of contract – whether agreement in writing – where terms of delivery uncertain – where contracting parties subsequently agreed to substitute different product.
ADMINISTRATIVE LAW – exercise of statutory discretion – where decision-maker reconsidered decision with adverse result – whether power to exercise discretion spent – applicability of estoppel to administrative law.
WORDS & PHRASES - meaning of ‘purchase’.
Health Insurance Act 1973 (Cth)
Health Insurance (Diagnostic Imaging Services Table) Regulations 2003
Health Insurance (Diagnostic Imaging Services Table) Regulations 2000GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, applied
Hick v Raymond & Reid [1892] AC 22, applied
Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193, followedMacquarie Dictionary (3rd ed)
SYDNEY X-RAY PTY LTD v HEALTH INSURANCE COMMISSION
N641 of 2003MADGWICK J
1 OCTOBER 2004
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N641 of 2003
BETWEEN:
SYDNEY X-RAY PTY LIMITED
APPLICANTAND:
HEALTH INSURANCE COMMISSION
RESPONDENT
JUDGE:
MADGWICK J.
DATE:
1 OCTOBER 2004
PLACE:
SYDNEY
REASONS FOR JUDGMENT
HIS HONOUR:
BACKGROUND
By its amended claims, the applicant in these proceedings seeks judicial review pursuant to the Administrative Decisions (Judicial Review Act) 1977 (‘the ADJR Act’) and/or declaratory relief in respect of a decision made by the respondent, on 2 February 2004.
The proceedings concern whether the use of a Magnetic Resonance Imaging (‘MRI’) machine operated by the applicant from October 1998 to September 1999 at one of its premises, located at Randwick, would have attracted Medicare benefits. Under the Health Insurance Act 1973 (Cth) (‘the Act’), Medicare benefits are payable in respect of services, among others, performed by certain medical practitioners using eligible equipment. The legislative framework is set out in more detail below. The issues for determination in these proceedings are primarily whether the MRI machine was eligible equipment and, accordingly, whether one of the practitioners using replacement equipment for that machine was an eligible provider. The legislation allows replacement equipment to qualify.
By way of history, until 7 February 2003 (when it sold its business) the applicant’s operation included a medical practice at Randwick, undertaking diagnostic imaging services, including MRI scans and CT scans. (It was not disputed, however, that the applicant retains a commercial interest in the outcome of the questions finally agitated before me.) In the second half of 1997, the applicant made arrangements to buy from Australian Medical Imaging Pty Limited (‘AMI’) an Elscint Esteem 1.5 Tesla MRI system (‘the Esteem’) and also a CT scanner. It did not take delivery of the Esteem because in early 1998 it was offered and accepted a more advanced machine; the Elscint Prima 1.0 (‘the Prima’) which was installed in late 1998. Subsequently, the Prima was replaced with a General Electric machine (‘the GE’).
The principal question concerns whether, within the meaning of a regulation the Esteem was, before 10 February 1998, ‘purchased … (under a contract in writing …)’.
THE STATUTORY LANDSCAPE AND THE PROCEEDINGS
The Health Insurance Commission Act 1973 (‘the Act’) establishes the Health Insurance Commission (see s 4). The functions of the Commission are defined in ss 5 and 6 to include functions conferred on it under the Act.
Section 10 of the Act makes Medicare benefits available in respect of medical expenses incurred in respect of a professional service rendered in Australia to an eligible person subject to and in accordance with that Act.
A ‘professional service’ is defined in Section 3 of the Act to include relevantly:
‘…
(f)a diagnostic imaging service that is rendered by or on behalf of a medical practitioner pursuant to a Subsection 16B request; or
(g)a diagnostic imaging service (other than a service referred to in paragraph (t)) that is a clinically relevant service rendered by or on behalf of a medical practitioner.’
‘Diagnostic imaging service’ is defined in Section 3 of the Act as an R-type or an NR-type diagnostic imaging service to which an item of the table relates. (The classification of a service as R-type or NRtype is not relevant to these proceedings).
Section 20(1) of the Act provides that the Medicare benefit in respect of a professional service is payable by the Commission on behalf of the Commonwealth to the person who incurs the medical expenses in respect of that service.
Section 4AA of the Act provides that regulations may be made which prescribe a table of diagnostic imaging services and the amount of fees payable for each item of service.
The current diagnostic imaging services table (‘the Table’) is in Schedule 1 of the Health Insurance (Diagnostic Imaging Services Table) Regulations 2003 (‘the 2003 Regulations’). Recalling that a medicare benefit is payable in respect of services performed by certain medical practitioners using ‘eligible equipment’, the effect of the Regulations is to make certain MRI equipment ‘eligible equipment’ (see items 63000 to 63946 in Part 3 of the Table).
The 2003 Regulations commenced on 1 November 2003 and replaced (‘the 2002 Regulations’). There is no relevant difference between the 2002 and 2003 Regulations.
Part 2 of the Table sets out the rules according to which the Table is to be interpreted. Rule 31 sets out the criteria for an eligible NR service (ie. the requirements that must be satisfied in order to claim a MRI service as an Item 63000 to 63946 and thereby receive Medicare benefits). These include that the service be provided by an ‘eligible provider’ as required by Rule 33 and defined in Rule 34.
The eligibility criteria set out in Rule 31 relevantly provide:
‘Items 63000 to 63946 apply only to an MRI ... service performed
(a)on request, in accordance with rule 32, by a specialist or consultant physician;
(b)in a permissible circumstance, in accordance with rule 33; and
(c)with eligible equipment, in accordance with rule 35 or 36.’ (emphasis added)
Only Rule 35 is relevant to these proceedings. It is in the following terms:
‘35. MRI and MRA Services - eligible equipment
For rule 31, equipment is eligible equipment, if the equipment is eligible equipment within the meaning of rule 31 of Part 2 of Schedule I to the Health Insurance (Diagnostic Imaging Services Table) Regulations 2000 [‘the 2000 Regulations’], as in force on 31 October 2001.’Rule 31 of the 2000 Regulations relevantly provided:
‘31. MRI and MRA services - eligible equipment
(1)For rule 27, equipment that complies with this rule is eligible equipment.
(2)The equipment must be located in Australia in a medical practice, or the radiology department of a hospital, that offers a comprehensive range of diagnostic imaging procedures
...
(4)For a medical practice or hospital located in a metropolitan area the equipment must:
(a)have been installed in a medical practice, or hospital, in Australia before 7:30pm on 12 May 1998, Eastern Standard Time; or
(b)if uninstalled at that time on that day, have been purchased or leased (under a contract, in writing, that did not contain an option to cancel) before 10 February 1998; or
(c)be replacement equipment for equipment mentioned in paragraph (a) or (b).
(5)Equipment mentioned in paragraph (3)(a) or (b) or (4)(a) or (b) ceases to be eligible equipment when replaced by other equipment.
(6)The Commission must have been given, before 11 October 1999:
(a)the statutory declaration under subrule 30(2), in relation to the equipment; and
(b)if paragraph … 4(b) applies, the copy contract mentioned in subrule 30(3).
(7)...’ (emphasis added)
Rule 30 of the 2000 Regulations, which is relevant to the requirement that the HIC be given a statutory declaration, was in the following terms:
‘30(1)For rule 29, an eligible provider is a specialist in diagnostic radiology who satisfies the Commission that:
(a)he or she is a participant in the Royal Australasian College of Radiologists’ Quality and Accreditation Program; and
(b)the equipment he or she proposes to use for providing services of the kind mentioned in Group 15 in the diagnostic imaging services table (the proposed equipment) is eligible equipment in accordance with rule 31 or 3 IA.
(2)If the equipment the eligible provider proposes to use is eligible equipment in accordance with rule 31, the Commission must have been given a statutory declaration:
(a)stating the matters mentioned in paragraphs (1)(a) and (b); and
(b)specifying the location of the proposed equipment; and
(c)specifying the kinds of diagnostic imaging procedures offered at that location; and
(d) if the proposed equipment has not been installed at that location and is equipment to which subrule 31(3) or (4) applies, stating the date that it was installed (the installation date); and
(e)if paragraph (d) applies, and the installation date was 12 May 1998 - stating the time at which the equipment was installed.
(3)If paragraph (2)(d) applies, and the equipment was not installed before 7:30pm on 12 May 1998, Eastern Standard Time, the specialist must have given the Commission, with the statutory declaration, a copy of the contract for the purchase or lease of the equipment.
(4)The Commission may request a specialist to:
(a)give the Commission documents to support the statements made in the statutory declaration; and
(b)answer questions put to the specialist by the Commission about those statements.’
The legislative position may therefore be summarised as follows:
·Medicare benefits are payable with respect to a professional service;
·diagnostic imaging services constitute a professional service provided by an eligible provider;
·Items 63000 to 63946 of the Diagnostic Imaging Services Table relate to MRI services. Those MRI services are therefore diagnostic imaging services; and
·to claim Items 63000 to 63946, the eligibility criteria set out in rule 31 of the 2000 Regulation (which includes that the services were performed with eligible equipment and that the relevant statutory declaration requirements have been met) must be satisfied.
THE RESPONDENT’S DECISION
By a letter dated 4 February 2004, a delegate of the respondent decided, in respect of a claim for Medicare benefits for a procedure, performed on 12 December 2003 on the GE MRI machine, that a Medicare benefit was not payable. As indicated, the resolution of that claim principally concerns whether the Esteem fell within Rule 31(4)(b).
The delegate said:
‘The evidence and reasoning on which I base my decision is as follows:
·I have seen no evidence that there was a finalised, signed contract for the purchase of the Esteem.
·I have seen no evidence that there is a document, or series of documents, setting out the final and entire terms and conditions for the purchase of the Esteem.
·On 18 August 1997, Sydney X-Ray received a quotation from AMI for a 1.5 Tesla Esteem MRI machine at a cost of US$660,000 and for an Elscint CT Twin Scanner at a cost of US$575,000.
·The quote of 18 August 1997 contains some terms and conditions. I note that the quotation, under the heading Warranty, refers to a “formal contract” which is said to contain further details of the applicable terms and conditions. I have not seen any document that could be described as a “formal contract”.
·The payment terms embodied in the quotes of 18 August 1997 do not include references to the payment of a deposit.
·Subsequent correspondence from AMI to Sydney X-Ray dated 1 September 1997 and 4 September 1997 refers to the clarification of payment terms and many prior discussions on that topic. To me, this indicates that negotiations between Sydney X-Ray and AMI regarding the purchase of the Esteem were ongoing and the terms of any agreement were not settled.
·The letter from AMI of 1 September 1997 clarifies payment terms and refers to a deposit of US$160,000 with respect to the MRI equipment and a deposit of 25%, namely US$143,750 for the CT scanner.
·The letter from AMI of 4 September 1997 further clarifies payment terms and refers to a deposit of US$66,000.00 with respect to the MRI equipment and confirms a deposit of 25%, namely US$143,750 for the CT scanner.
·The only documented variation to the quote of 18 August 1997 relates to the deposit that was payable with respect to the MRI machine and on my reading of the correspondence, this was an unresolved issue between the parties and as such, supports my view that there was no final and concluded contract in writing for the purchase of the Esteem.
·A page dated 4 September 1997, signed by Michael Mitchell, Peter Kitchener and Ross Glasson on behalf of Sydney X-Ray and Randwick CT is said by Alan Amodeo to represent an acceptance of the quote of 18 August 1997 (and the payment terms, as varied by the letters of 1 September and 4 September 1997) for the Esteem. This is new evidence, provided by Robinson Legal as part of the submissions dated 27 January 2004. Even if a such a document were found to exist, I would not be satisfied that it constitutes a settled and finalised contract in writing for the purchase of the Esteem, given the subsequent negotiations and variations referred to below.
·The origin of this page, or the pages to which it was annexed, is unclear. However, this document does not by itself, or in conjunction with the other evidence before me, demonstrate that there was a contract in writing, or indeed any contract, for the purchase of the Esteem as the terms were not settled at this stage. If there was a contract for the purchase of the Esteem it must have come later than 4 September 1997.
·On or about 1 October 1997, Taramac (the partnership between Sydney X-Ray and Dr Ross Glasson which ran the Randwick CT business) received three invoices from AMI for MRI equipment - invoice number 976, invoice number 974 and invoice number 975. The MRI equipment identified in invoice numbers 974, 975 and 976 of 1 October 1997 appears to be the Esteem
·Invoice 974 is annotated with figures in handwriting which are consistent with the variations to the payment terms set out in the letter from AMI dated 4 September 1997. The unit price of US$660,000.00 is said to take into account the demonstration site discount;
·Invoice 975 indicates a total system price of US$1,290,000.00;
·Invoice 976 is said to have been itemised for tax deduction purposes. It includes a training component of US$18,000.00 (illegible). This is inconsistent with the terms of the quote of 18 August 1997 which provides that the cost of training was to be included in the unit price. As there is no documentation recording any negotiations about a variation of this term, based on the discrepancy between the quotation and the invoice of 1 October 1997, I infer that negotiations between Sydney X-Ray and AMI regarding the purchase of the Esteem were on-going and the terms of any agreement were not settled at that date.
·I note that Dr Glasson and Mr Amodeo have noted that this invoice was later altered to reflect the price of the Prima, although the machine described in the body of the invoice is the Esteem. That invoice number 976 was altered in such a manner suggests that the deal for the purchase of the Esteem had not been concluded and as such, there was no finalised contract in writing for the purchase of that machine.
·The invoices dated 1 October 1997 do not contain a reference to a deposit having been paid by Sydney X-Ray (or related entities) to AMI.
·I note that an internal memorandum from Dr Glasson to the Sydney X‑Ray partners and Michael Mitchell dated 21 November 1997 states that a deposit of $200,000 has been paid to AM1. There is no reference in the memorandum to whether this amount was in US or Australian dollars.
·I note that the Reserve Bank website sets out the range of Australian/US dollar exchange rates between 1 September 1997 and 20 March 1998 as between 0.6336 and 0.7384 giving a US dollar range for AUD$200,000.00 between $126,720.00 and $147,680.00 and an Australian dollar range for US$200,000.00 between US$315,656.00 and US$270,855.00.
·On 1 December 1997 the Commonwealth Bank approved finance arrangements for the import of a MRI system at a cost of US$660,000 and CT Twin Scanner at a cost of US$575,000 by Sydney X‑Ray. The correspondence from the Commonwealth Bank does not refer to a deposit having been paid by Sydney X-Ray to AMI with respect to either piece of equipment.
·There are no financial statements, receipts, accounting or book-keeping records provided to me by any person to support the submission that Sydney X‑Ray paid a deposit in respect of the Esteem.
·1 note the statement of Alan Amodeo that he recollects Sydney X‑Ray paid a deposit to Elscint in Israel by way of a direct transfer. However, I have seen no documentation which supports Mr Amodeo's recollection of events.
·A memorandum from Michael Mitchell to “All Partners” dated 9 March 1998 states that “An order would need to be placed now in order to have either machine operational in time to fit in with the original plans
agreed”. I infer from this document that Sydney X-Ray was not committed to a supplier with respect to the purchase of any MRI equipment prior to 10 February 1998.
·Even if I were to accept that a $200,000.00 deposit had been paid between September and November 1997, the evidence does not make clear whether the deposit was paid in Australian or US dollars and whether it was paid with respect to a MRI machine and CT, or a CT scanner alone. Given the uncertain nature of the evidence with regard to this issue, I cannot be satisfied that a deposit was in fact paid.
·1 have considered the information in the affidavit of Mr Amodeo dated 22 January 2004 together with the transcript of interview between Mr Amodeo and HIC officers on 17 January 2000 and 19 May 2000. I have assessed his evidence and statements to HIC officers and have included that information in my overall assessment and balancing of evidence in forming my view on whether the GE MRI machine is “eligible equipment”. I conclude that the statements provided by Mr Amodeo are not inconsistent with my conclusion that negotiations between Sydney X‑Ray and AMI were ongoing and as such, there was no final and settled contract in writing for the purchase of the Esteem.
…
“Eligible provider”The statutory test to determine whether Dr Schmaman is an “eligible provider” is set out in rule 34 of the 2003 Regulations. That rule refers to, and applies, the meaning of “eligible provider” as set out in rule 30 of the 2000 Regulations.
I note that Dr Schmaman had provided HIC with a statutory declaration dated 23 June 1999 for the purposes of satisfying HIC of the matters referred to in rule 30 of the 2000 Regulations.
Paragraph 30(1)(b) requires that the type of equipment proposed to be used by the provider should be 'eligible equipment' for the purposes of rule 31. I have discussed the issue of “eligible equipment” above.
Subrule 30(2) requires that HIC must have been given a statutory declaration by the person seeking to be an eligible provider stating a number of things. Amongst the information required is the date on which the equipment was installed if it is equipment to which subrule 31(3) or (4) applies. If the proposed MRI equipment was not installed before 7.30pm on 12 May 1998, that person must have given HIC, with their statutory declaration, a copy of the contract for the purchase or lease of the equipment (subrule 30(3)). The contract must have been in writing, did not contain an option to cancel and be for the purchase or lease of a MRI machine before 10 February 1998 (paragraph (30(2)(d) and subrule 30(3)). That statutory declaration and the copy of the contract had to have been given to HIC by 11 October 1999 (subrule 31(6)).
I understand that the MRI equipment that Dr Schmaman proposed to use at Sydney X-Ray was not installed before 7.30pm on 12 May 1998 and therefore he had to give HIC a copy of the contract in writing for purchase or lease of MRI equipment before 10 February 1998. I note that the statutory declaration dated 23 June 1999 given to HIC by Dr Schmaman does not attach a copy of a contract for the purchase or lease of any MRI machine. The documents attached to Dr Schmaman's statutory declaration are Commonwealth Bank documents relating to the provision of credit to Taramac.
The issue of whether Dr Schmaman was an eligible provider was addressed in the submission and evidence sent through Phillips Fox by Robinson Legal on 27 January 2004. In addition, a new statutory declaration from Dr Schmaman was provided at that time.
Part of the eligibility criteria set out in the regulations for the payment of a medicare benefit for an MRI service is that the person seeking to be an eligible provider must have given a statutory declaration to HIC before 11 October 1999 (subrule 31(6) of the 2000 Regulations). The statutory declaration made by Dr Schmaman on 27 January 2004 does not satisfy that requirement. In addition, the effect of subrule 30(3) is that the contract to be attached to the statutory declaration must be the contract for the purchase or lease of the Esteem. The contract that Dr Schmaman attached to the statutory declaration of 27 January 2004 was for the purchase of a later machine, the Prima.
I have not turned my mind to whether the medicare benefits which are said to have been paid in the past for procedures performed by Dr Schmaman were in fact properly paid given the statutory declaration did not attach the appropriate contract.
I do not consider that HIC is estopped from making a new decision pursuant to the provisions of the Health Insurance Act and HIC's obligations to administer that legislation,
It is my view that Dr Schmaman is not an “eligible provider” as;
·he does not satisfy the statutory requirements in relation to the statutory declaration and the provision of a copy of the contract mentioned in subrule 30(3); and
·the equipment that he proposed to use is not eligible equipment under rule 31 (as discussed above).
I note the submission from Robinson Legal referred to a statutory declaration from Dr Glasson which attached no copy of a contract and which, it is alleged, HIC considered satisfied the legislative criteria for an eligible provider. I am advised that HIC has a copy of the Dr Glasson statutory declaration with a copy of the contract dated 24 March 1998 for the purchase of the Prima attached. Under the legislation as it applied at that time, that was sufficient to satisfy the legislative requirements. I do not consider this point is relevant to the decisions on the 1999 and 2003 claims but I considered it important to correct any misconceptions.’
The course of dealings between AMI and Sydney X-Ray
An introductory word about some of the relevant business entities may be useful. Australian Medical Imaging Pty Ltd (‘AMI’) traded in Australia as Elscint. AMI was, however, the agent for an Israeli entity also known as Elscint, a designer and manufacturer of medical imaging equipment.
Sydney X-Ray Pty Ltd (‘Sydney X-Ray’), the applicant, was the corporate entity of a number of medical practitioners, including Dr Kitchener but not including Dr Ross Glasson. Dr Glasson and Sydney X-Ray were in partnership; that was known as the Taramac Partnership (‘Taramac’). Taramac carried on a business known as Randwick CT. For some years, Taramac had owned a CT scanning machine.
As early as 1993, Dr Glasson and the other Randwick CT doctors considered purchasing a Magnetic Resonance Imaging (‘MRI’) for the Randwick practice. It appears that by 1996 there was an in-principle decision on the part of Taramac to install a MRI machine at the Randwick premises. Indeed, in 1996 there were negotiations between Sydney X-Ray and Mr Amodeo, a director of AMI concerned with sales of the relevant kinds of equipment. In a letter from Mr Mitchell, the General Manager of Sydney X-Ray, of 22 October 1996 he indicated that that entity ‘would like to place an order’ for MRI equipment, about which there had been the negotiations earlier in 1996. For unexplored reasons that proposed purchase seems not to have proceeded.
A MRI machine is more technically advanced, much heavier and more complex to install than a CT machine. The intended installation of a MRI machine at the Randwick premises necessitated major structural works to strengthen a room and to shield it from extraneous electro-magnetic and other radiations. In 1996 AMI arranged an engineering inspection to confirm 1994 advice, obtained by Sydney X-Ray, that installation in the proposed room at the Randwick premises was viable.
It seems that in 1997 the idea arose, within Taramac, that its CT scanner should be replaced and that a MRI machine should be purchased at the same time as that replacement, in order to improve Sydney X-Ray’s bargaining position. Elscint made CT scanners as well as MRI machines. Elscint were anxious to introduce their MRI machines into Australia to compete with longer established vendors. Within the Elscint/AMI camp, the idea arose of using the Randwick CT site as a demonstration site for Elscint products. Elscint were willing, therefore, to offer very good prices to AMI on a combined deal of a CT scanner, Elscint’s then current MRI machine (the Esteem), and an operator’s console to service both the diagnostic machines.
On 18 August 1997, Mr Amodeo wrote to Dr Glasson for Sydney X-Ray as follows:
‘We have pleasure in enclosing our quotations for both the Elscint Esteem 1.5 Tesla Magnetic Resonance Imaging system and the Elscint CT Twin scanner as requested.
If you still have our earlier quotation for the CT Twin scanner, you will notice that we have included more options at a lower price. All the options listed on our current quotation we believe are necessary and there would be no price reduction should you decide that you do not want a particular one. The price is firm as it has already been considerably discounted for you.
If we can be of any further assistance to you please do not hesitate to contact us.’
The text of the two quotations referred to in that letter is set out at Appendix A for the Esteem and Appendix B for the CT scanner.
There is some debate about whether the ‘acceptance of order’ portion at the end of the Esteem quotation and the ‘accepted by Sydney X-Ray’ portion at the end of the CT quotation were later signed, any signed versions being no longer able to be found. No positive finding that the signatures were placed there is, in my view, justified.
It appears that in Israel, Elscint insisted on Sydney X-Ray committing itself to deposits. Mr Amodeo again wrote to Sydney X-Ray on 1 September 1997 in the following terms:
‘Further to our Quotations of 18th August 1997, we would like to clarify the payment terms for both the MRI system and the CT Twin scanner.
Magnetic Resonance Imaging System
A deposit of US$160,000.00 to be paid when the order is placed with Australian Medical Imaging Pty. Limited and the balance, namely US$500,000.00 to be paid by irrevocable Letter of Credit twelve (12) months at sight.
CT Twin Scanner
A 25% deposit, namely US$143,750.00, to be paid when the order is placed with Australian Medical Imaging Pty. Limited and the balance by irrevocable Letter of Credit nine (9) months at sight.
I trust you will find these payment terms satisfactory as they have been reached after many discussions.
If we can be of any further assistance to you please do not hesitate to contact us.’
The doctors associated with Sydney X-Ray were not keen to pay any more than they needed to by way of deposits, particularly in relation to the MRI machine, as a long lead time for preparation of the premises, installation and fine-tuning were contemplated and, until the machine was operational, it would be producing no revenue. Plainly, there were negotiations at least after receipt of the letter of 1 September 1997, between the parties because, on 4 September 1997, Mr Amodeo again wrote to Sydney X-Ray in the following terms:
‘Further to our Quotation of 18th August, 1997, we would like to clarify the payment terms for both the MRI system and the CT Twin Scanner.
Magnetic Resonance Imaging System
A deposit of US$66,000.00 to be paid when the order is placed with Australian Medical Imaging Pty. Limited and the balance, namely US$594,000.00, to be paid by irrevocable Letter of Credit twelve (12) months at sight.
CT Twin Scanner
A 25% deposit, namely US$143,750.00, to be paid when the order is placed with Australian Medical Imaging Pty. Limited and the balance by irrevocable Letter of Credit nine (9) months at sight.
In addition to the above points I would also like to clarify some additional outstanding items.
1. Training for the CT Twin Scanner
One Radiographer from Sydney X-Ray is to be sent to the Gold Coast Hospital, Southport, Queensland, with Australian Medical Imaging Pty. Limited covering the cost of both the airfare and accommodation. An additional week of on-site training will be given following this.
2. Magnetic Resonance Imaging System
A Radiographer will receive on-site training by an Applications Specialist from overseas for a period of one week. Following this Mr. George Hawcroft will be available for a period of 12 months at the request of Sydney X-Ray.
3. Advertising
Australian Medical Imaging Pty. Limited will share the cost of producing the advertising material for both the CT Twin and MRI systems.
I trust that these additional modifications to our offer will completely satisfy Sydney X-Ray’s requirements.’
The evidence for the applicant is that, attached to the letter, was another page in the following form:
‘Offered By: Australian Medical Imaging Pty. Limited
On Behalf Of: Australian Medical Imaging Pty. Limited
No. 2 The Esplanade
ASHFIELD NSW 2131ACN No: 003 784 674
Signed: _______________________
Date: 4th September 1997
Accepted by Sydney X-Ray
Signed: _______________________
_______________________
_______________________
Date: 4th September 1997’
Certainly a document exists in that form with the words ‘Sydney X-Ray’ crossed out and the signatures of (a) Mr Mitchell and his description as ‘General Mgr.’; (b) Dr Glasson, together with his description as ‘Partner Randwick CT’; and (c) Dr Kitchener, undescribed, but the principal proponent with Dr Glasson of the purchase by Sydney X-Ray of a MRI machine and, along with Dr Glasson, the person who carried the negotiations with AMI throughout.
I see no reason to doubt that that document was signed when the handwriting indicates it was, on 4 September 1997, and I think it is probable that, by that acceptance, Sydney X-Ray were accepting that which had been, to use a neutral term, proposed by the letter and attachments of 18 August and the letter of 4 September 1997.
Sydney X-Ray had taken steps, commencing on 26 August 1997, to arrange the lease of adjoining premises, additional space being needed as a result of the intended installation of the MRI equipment. It is clear that after 4 September 1997 planning and expenditure by AMI to install the MRI as well as the new CT continued.
On 1 October 1997 AMI sent to Taramac three versions of an invoice for an Esteem machine. Invoice number 974 showed a ‘total system price’ of US$1,290,000 ‘less demonstration site finance’ of US$630,000, producing a balance of US$660,000. Invoice number 975 simply showed the figure of US$1,290,000. Invoice number 976 showed various amounts for subsidiary items of shipping, packing, training, installation, software, warranty, cryogen and onsite training. However the only copy produced in evidence for the main item, the MRI machine itself, shows a handwritten price of US$512,000 and, accordingly, a total, again in handwriting, of US$825,000. Somebody has also written in handwriting on that version ‘payable by US$200,000 on establishment of letter of credit with balance secured by L/C 12 months at sight’.
Mr Amodeo’s memory is that the fact that those several invoices had something to do with Sydney X-Ray’s request for them and that company’s needs for tax purposes. Dr Glasson, by reconstruction, believes that he would have signed and returned Invoice number 976 as it originally stood, but that the figures were altered when the Prima was later purchased in 1998. As with a number of matters, I think Dr Glasson (and Mr Amodeo) were
attempting, years after the events in question, to remember and reconstruct them, and I think it unlikely that Dr Glasson did do that.
In November 1997, a deposit of A$200,000 was paid to AMI. That, and a few more thousand dollars paid early in 1998, in my opinion were derived, as the respondent submitted, by reference to the then Australian currency value of the US$143,750 proposed by AMI in its letters of 1 and 4 September 1997. Debate raged as to whether that circumstance was an indicator that the deal was proceeding at that time only as to the CT scanner. There is no piece of paper to evidence it, but both Mr Amodeo and Dr Glasson gave evidence of a recollection that, one way or the other, the A$200,000 was accepted as a deposit for both machines. Certainly, on 21 November 1997, Dr Glasson reported to the Sydney X-Ray partners and to Mr Mitchell, ‘deposit of $200,000 has been paid to AMI. I expect CBA approval of letter of credit and finance by Wednesday 26/11/97. Exchange rate details relating to the deposit in Australian Dollars has yet to be finalised’. It is clear from the same report that planning and preparation work was proceeding in respect of a MRI as well as the CT equipment.
On 1 November 1997, Sydney X-Ray’s banker advised approval of a financial facility ‘to assist with the import of the following equipment:-
‘◊ Magnetic Resonance Imaging System cost USD $660,000
◊ CT Twin Scanner purchase price USD $575,000
◊ Total USD $1,235,000’There was a reference to the facilities including a ‘Bills Discount Facility (to cover deposits required) Up To AUD$300,000’ and to a ‘residual of purchase price’ to a maximum of A$1,600,000.
The bank indicated that there would be a ‘line fee’ of 2.65% per annum and a loan establishment fee of $8,000. The facilities also included:
‘Irrevocable Letter of Credit
Irrevocable Letters of Credit(LOC) are to be established in favour of Australian Imaging Pty Limited for the following amounts:-
USD$431,250 for CT Twin Scanner payable on 15 August 1998
USD$594,000 for Magnetic Resonance Imaging System date payable to be determined.’By January 1998, Mr Mitchell advised all Sydney X-Ray staff (some were employed at Bondi Junction and at Macquarie Street as well as at Randwick) that ‘Randwick CT are in the process of having MRI installed and a new Elcint CT Spiral Scanner’.
By 6 February 1998 the new CT scanner was in place and working.
In the meantime, Elscint had developed a new and markedly superior MRI machine, the Prima, and AMI and/or another representative of Elscint gave the partners of Sydney X-Ray a presentation showing the capacities of the Prima machine. The date of that presentation is said, without contradiction, to have been on or about 24 February 1998.
Unbeknown to all relevant actors, in late 1999 the date of 10 February 1998 was retrospectively designated as the cut-off date for the purchase by written contract of an eligible machine.
On 9 March 1998 Mr Mitchell advised the partners in Sydney X-Ray as follows:
‘most of you have seen the improvements now available with Elscint’s new MRI. We need to decide if the new machine is preferable to the older 1.5 tesla [the Esteem] agreed upon. An order would need to be placed now in order to have either machine operational in time to fit in with the original plans agreed. [Dr Kitchener] has negotiated with Elscint in Israel and advises that they have made their best offer.
OLD DEAL .
Price US$660.
Workstation excluded apparently not essential but desirable later…
Installation excluded approx. costs
Was up to [illegible]
Deposit $160 now
Balance $500 in 12 months
USD$660
NB total cost with installation of workstation approx USD$778
…
NEW DEAL
Price USD$825K
Includes workstation: apparently now needed from day 1
Includes installation (extensive shielding not needed for new model)Deposit $200 now
Balance 625
…
NB: delivery is delayed in comparison to prior agreement: can deliver in June to be operational in September 1998’In the document, there followed references to various administrative matters including the need to ‘do a new forecast cashflow to see if the MRI project is still viable’ and a recommendation that ‘we do not order any MRI until the new agreement with Ross Glasson is signed’.
Dr Glasson explained these references, seemingly credibly, as his partners (and Mr Mitchell on their behalf) using the occasion to apply some pressure to him in relation to some partnership issues between them.
The response to this letter by the partners was apparently not to purchase the Prima. This prompted Drs Glasson and Kitchener to write to them and to Mr Mitchell on 20 March 1998, arguing the case for the Prima. They began:
‘1. After long consideration we agreed to purchase the [Esteem] scanner.
The tone of the entire letter is suggestive that the partners had made a decision not to shift from the Esteem to the Prima, not that they had recently considered de novo whether to buy any MRI machine and, if so, whether it would be the Esteem or the Prima. There is indeed nothing to suggest that there ever was an express decision not to purchase any MRI machine. The respondent’s case however is that there never was a firm enough decision to purchase the Esteem so as to ground a conclusion that Sydney X-Ray had an intention to enter into binding legal relations on 4 September 1997.
It is clear that Drs Glasson and Kitchener regarded themselves as having agreed to purchase the Esteem. Indeed the whole new question prompted by the advent of the Prima was whether it would be substituted for the Esteem agreed upon, rather than transforming a single possible option not yet agreed upon into merely one such option of two.
It appears that the pro-Prima forces carried the day and that a quotation dated 20 March 1998 for the Prima for US$825,000 was accepted. A copy of accompanying ‘Conditions of Sale’ included:
‘DELIVERY
Based on current factory loadings we anticipate shipment to be in either June or July 1998 provided an order is received by the end of March 1998.’On 31 March 1998, Dr Glasson wrote to a Ms P Rodgers of the Health Department in Woden ACT, enclosing product information for the Prima, and stated:
‘… this scanner will not be available for installation until June/July, and I am concerned that our decision to wait rather than complete the installation of the 1.5 Tesla unit we had agreed upon could disadvantage the Practice if M.R.I. scanners installed, after say April/May, are excluded from new arrangements for Commonwealth funding support of M.R.I.’ (emphasis added)
A further meeting of Taramac was held on 21 April 1998, and the minutes of the meeting record:
‘It was resolved that:
1. MRI- As the tentative order placed on the Elscint 1.5t MRI has long since elapsed the timing for order of the newer MRI offered by Elscint was agreed as desirable by 30/4/98. Agreed that an order for the newer MRI should be placed with AMI…’ (emphasis added)
By October or November 1998 the Prima machine was installed and about a year later replaced by yet another machine, a General Electric MRI machine.
In mid 1999, the partners sold a major interest in the Taramac Partnership and in Sydney X-Ray.
The respondent Commission, in October 1999 and in April 2002, informed Sydney X-Ray that it appeared that the MRI located at Randwick would fall foul of the 1999 regulations. Sydney X-Ray solicitors became involved after the second of these letters.
The business of Randwick CT, including the General Electric MRI machine, was again sold in February 2003. However it appears that additional consideration might be payable under the agreement for such sale if the MRI machine is eligible equipment and benefits are payable by the Commission with respect to services performed using the machine. There was no submission that Sydney X-Ray did not have appropriate standing to bring the proceedings, as amended.
Factual findings on disputed issues
The case was ably argued and in detail on both sides. It is not practicable or necessary to deal in terms with every argument, although I have of course carefully considered everything that was put to me. The respondent had respectable argument. In summary, the respondent’s position was:
(a)First, no binding contract was made in relation to the Esteem before 10 February 1998. At the most there was a commercial arrangement between the parties to the effect that a binding contract would be entered into upon placement of an order and payment of a deposit.
(b)Alternatively, if the August-September 1997 documents give rise to a contract, it is not the contract under which the Esteem was purchased. The signed acceptance of 4 September related only to the CT scanner. Even if it also related to the Esteem, two further points are made. First, the contract in relation to the Esteem was never performed because no order or deposit was placed. Second, it is a contract in the nature of an option or agreement to agree and expressly contemplates no legal obligation or purchase would occur until a deposit was paid and an order placed. That never occurred in relation to the Esteem.
(c)In the course of cross-examination of the Applicant's witnesses at the hearing, evidence was given for the first time of an arrangement whereby it is alleged that the agreement said to have been reached by the correspondence culminating on 4 September 1997 was varied orally so that a deposit of just over A$200,000 was agreed to be a deposit for both the CT scanner and the Esteem. This contention was dealt with as the ‘one deposit for all’ point. The Respondent submits that the Court should reject this evidence as a late and unreliable reconstruction which is also inconsistent with the terms of Mr Mitchell's Memorandum dated 9 March 1998 and the Minutes dated 21 April 1998. However, if the Court accepts it, there is no written evidence of this essential term. In those circumstances, and given the public policy underlying the Regulations (the need for clarity and certainty only being met by a written contract), the Esteem could not be said to have been purchased under a contract in writing.
Ultimately, however, it seems to me that the applicant’s submission should, as to most matters, prevail.
In my opinion, by 4 September 1997 the applicant, Sydney X-Ray, had made a firm decision to buy the Esteem at a price agreed and on terms as to payment, delivery and otherwise as set out in AMI’s 4 September letter. AMI were certainly, at that time, a firm seller. The point of Drs Glasson and Kitchener and Mr Mitchell signing the acceptance was to bind them to that deal.
AMI was in a rather weak bargaining position. It was a small firm representing a small, though obviously talented, manufacturer competing against large corporations such as General Electric. AMI was hardly in a position, until some calamitous loss might loom, to stand unbudgingly on any legal rights it might have had. Another background circumstance is that the manufacture of MRI machines including the Esteem was complex and their installation delicate, complex and lengthy. A major alteration of the premises at Sydney X-Ray was required but was in a real sense under way very soon after 4 September 1997.
Elscint’s practice, it appears, was not to assign to a purchaser a definite place in its queue of machines for manufacture until an order accompanied by a deposit had been received. The complexity of the machines, including as to installation, and the sums of money involved meant that, in relation to their sale, renegotiation and changes of various kinds in contractual arrangements were quite common. Mr Amodeo expected that and was relaxed about it.
Despite the unlikelihood of AMI and, behind it, Elscint wishing to enforce legal rights it might have acquired in September 1997, it is probable that they wanted the bargaining advantages of obtaining a legally binding commitment from Sydney X-Ray and the associated greater degree of security that, while they might be forced, or find it commercially desirable, to concede variations to agreed terms, a concluded deal, even in revised form, would occur.
The respondent, among other things, pointed to the failure by Sydney X-Ray to call Dr Kitchener, who played at least as important a role as Dr Glasson in the negotiations, or Mr Mitchell, some of whose language in his internal memoranda might have tended to suggest that there was no final agreement in relation to the Esteem before 10 February 1998. Certainly no reason was given by the applicant for the failure to call these witnesses and there is some reason to think that they might have been called. However, there is a reason why their evidence might not have been helpful to the applicant that falls short of its being contrary to the applicant’s position. That reason is that the events occurred a long time ago and the absent witnesses may have been in no better position than Dr Glasson to reconstruct events, based on such documents as have been able, years later, to be turned up. There is in the end no inadequately explained contradiction of the central propositions of Dr Glasson’s and Mr Amodeo’s evidence.
I consider those two men to have been truthful witnesses. Dr Glasson would have, as far as I can see, no reason for any unconscious bias in relation to the matter and, if Mr Amodeo has some unconscious tendency to support customers and private operators in the medical imaging industry, in which in a quite different capacity he is still a participant, in my opinion it did not materially affect the substance of his evidence.
The main attack on the credibility of the two witnesses mounted by the respondent, very understandably, was that, despite the applicant’s solicitors having been aware for months that the respondent took the view that the A$200,000 odd paid as a deposit in November 1997 was only for the CT scanner, it was only in the witness box that each of the two men advanced as his memory that by process of negotiation the details of which are now forgotten it was accepted that that A$200,000 would be all that would be required by way of deposit in relation to the CT scanner and the MRI machine. Nobody has turned up any evidence that any money separately was paid by way of deposit in relation to the Prima. Neither, in the events that transpired, was any actual order to produce an actual Esteem machine on or about a given date ever placed. To my mind it is likely that, as part of the negotiations in relation to the Prima, Dr Glasson and/or Dr Kitchener and, at their behest, Mr Amodeo managed to persuade Elscint that the standing and manifest good faith of Sydney X-Ray and the commercial advantages for Elscint of the deal justified the latter in dispensing with their normal requirement of a tangible, substantial deposit.
None of this bears directly, except by inference, on what was the nature of the original agreement.
The respondent also points to the language used by Mr Mitchell in his internal memoranda and the Minutes dated 21 April 1998 as suggesting there was no formal agreement prior to 10 February 1998 (see [53] above). While giving ‘tentative’, as used in the 21 April 1998 document, its precise meaning would point to the absence of a final order, it is, in my view, to accord too much weight to a single indicator to reach that conclusion. Further, in ordinary speech, it seems to me that an administrator such as Mr Mitchell, faced with a situation in which an article had been finally purchased for later delivery upon order and in which the vendor was suggesting the substitution of another product, might well naturally, if strictly imprecisely, refer to the existing final arrangement as a ‘tentative’ one. It is clear that Mr Mitchell was not seeking to be precise in his characterisation of past events: he referred to the ‘tentative order’ placed for the Esteem, although the transaction contemplated an order, subsequent to the making of the transaction, to provoke delivery of the machine.
The nature of the September 1997 arrangements
It appears to me that, on their face, the AMI letters of 18 August and 4 September 1997 and the acceptance thereof by the negotiating agents of Sydney X-Ray constituted an enforceable contract. On their face they are classically in the form of an offer and acceptance. The subject matter of the agreement is made clear. The price is made clear. The terms of payment are made clear.
It is true that there is a reference to a ‘formal contract’ to come but in that respect the case seems to me to be analogous with the situation of the class of contracts described by McHugh JA (as he then was) in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634:
‘Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may be sufficiently clear that ‘the parties were content to be bound immediately and exclusively by the terms which they have agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.’
Whether a contract was entered into may be tested by considering not only whether AMI could, had it wished, have sued on the subject documents but whether Sydney X-Ray could have sued AMI if the latter had, for example, sought to exact a higher price for the Esteem or had indicated a firm intention to repudiate the arrangements made. I agree with counsel for the respondent that, in judging from an objective standpoint, divorced from a contest between parties, the strictures as to courts striving to uphold commercial bargains should be set to one side. However, it is not irrelevant that it appears plain to me that, in the circumstances posited, AMI would not have been able to assert that either party lacked the intention to enter into binding legal relations. Likewise, if Sydney X-Ray had behaved dishonourably, turned its back on AMI and gone elsewhere for a machine perceived to be better than the Esteem, in my opinion any court would give such an argument short shrift. Similarly, that consideration is not irrelevant here, either.
The only thing that was not clear from the relevant documentation by 4 September 1997 is when payment was to be made. I accept the submission of counsel for the applicant that, in relation to such a matter, the law would imply a term that the order accompanied by the contemplated deposit would be placed within a reasonable time: in Hick v Raymond & Reid [1892] AC 22, Lord Watson said at 32:
‘When the language of a contract does not expressly, or by necessary implication, fix any time for the performance of a contractual obligation, the law implies that it shall be performed within a reasonable time. The rule is of general application, and is not confined to contracts for the carriage of goods by sea.’
The contract was, as counsel for the applicant submitted, a contract for the supply and sale of an Esteem MRI machine to be dispatched on order accompanied by deposit within a reasonable time.
I do not accept that there were intrinsically so many uncertainties that such an agreement should or could not be implied by operation of law. AMI were very experienced in the industry and with MRI machines. They were supplying expert advice to Sydney X‑Ray. They were closely informed about Sydney X‑Ray’s progress and concerns. Mr Amodeo was frequently at Sydney X‑Ray’s premises and in discussion with representatives of the applicant. It would not have been so difficult to say, at a given time, what was a reasonable time for placement of the order as to put answering that question beyond the capacities either of experienced persons in the medical imaging industry or of a court. Courts frequently have to engage in far more speculative exercises, for example as to assessing damages for the loss of a commercial opportunity.
The contract was not, to my mind, the less in writing because one of its terms was to be implied by operation of law.
So much still leaves for consideration the respondent’s argument that this was, at best, an agreement to purchase in the future, whereas the text of the regulation puts its primary emphasis on the equipment in question having been purchased or leased by the cut-off date and, parenthetically only, such purchase or lease being evidenced by a written contract. The ordinary meaning of ‘purchase’, the respondent says, is ‘to acquire by the payment of money or its equivalent’, so that the regulation contemplates that the MRI machine must have been acquired. It could not be said that, before order and payment of deposit, a machine had been so acquired.
That dictionary definition is not however the only dictionary definition. The Macquarie Dictionary (3rd Ed) gives, for the first meaning of ‘purchase’, as an alternative to what I have quoted, simply the word ‘buy’. I agree that the matter should be approached by looking at the meaning of the word ‘purchased’ in its ordinary sense, and I think that ‘bought’, in its ordinary way, would be a complete synonym for it, as used in the subject regulation. Had Dr Glasson mentioned the matter to a colleague at a radiological conference or to a doctor who might refer patients to the Randwick practice, he might well have said on the evening of 4 September 1997, ‘We bought a new MRI (or an Esteem) today’. If he were speaking more formally than is now usual, he might well have said ‘We purchased an Esteem MRI today’.
Counsel for the respondent relied on the stated policy imperatives, reflective of perceived mischiefs, underlying the regulations. In an explanatory statement for Statutory Rules 1999 No 255, the Minister indicated:
‘The amendment is proposed following a recently completed review by the Health Insurance Commission into the numbers of MRI machines (both installed and contracted for purchase) that are eligible for Medicare benefits. While the Australian Health Technology Advisory Committee’'s 1997 report into MRI indicated that the use of this technology has increasing application, the quantity of MRI machines has exceeded the number which was predicted through modelling undertaken at the time MRI was introduced onto the MBS. In addition to this, the Health Insurance Commission is investigating possible fraudulent activity in relation to the acquisition of some MRI machines.’
The broader political background was also, it is hardly controversial, explained by Dr Wooldridge, the Minister, in a statement in the House of Representatives on 18.10.99. Relevant extracts therefore are set out in Appendix C.
It appears that concerns as to probity issues and dubious, deliberate ‘non-binding contracts’ designed to hedge bets as to the Government’s 1998 Budget intentions underlay the legislative provisions retroactively made manifest. The facts here quite decidedly, as the respondent fairly acknowledged, bespeak no sharp or dubious or extra-ordinary practice at all. Nevertheless, the respondent says that, against that background, a strict interpretation of the regulation should be favoured so as to reflect an implicit concern that the public should be satisfied that manifestly everything was ‘above board’ in relation to eligible machines.
There is force in this but, as against that, where honest dealing and a long-standing intention and desire on the part of Sydney X-Ray to acquire a suitable MRI machine has been shown, it is reasonable to balance against the considerations mentioned, fairness towards honest medical practitioners.
In the end, in my view, applying the plain meaning of Rule 31 will reflect underlying purposive considerations.
More faintly, reliance was placed on the Minister’s use of the terms ‘an order’ and ‘orders’. To take particular phrases, rather than broad purposes, from a ministerial speech is probably to go too far. In any case, Dr Glasson may, in ordinary speech, well have said after 4 September 1997 ‘We’ve ordered a new MRI machine’, even though he had, under the contract (unless it were later varied) to place an order so as to prompt fitting out of the bare carcass of the machine and its delivery.
The statutory declaration issue
Towards the end of 1998, those doctors associated with the applicant who performed services on the Prima provided the respondent with statutory declarations for the purposes of satisfying the relevant regulatory requirements. Between February and October 1999, the respondents received, processed and paid claims for procedures carried out on the Prima. During that period, the doctors performed 934 MRI examinations located at the Randwick site, for which Medicare rebates were paid.
One of the practitioners performing services on the MRI machine, Dr Schmaman (the provider of the 2003 test services), provided a statutory declaration in May 1999 and a second declaration in June 1999, for the purposes of satisfying the legislative requirements. However, as indicated, the respondent determined that these declarations did not satisfy the statutory requirements.
On 25 October 1999, the respondent notified the practitioners performing services on the Prima that the MRI no longer qualified as eligible equipment and that accordingly, it would not pay Medicare benefits for MRI services rendered from the Randwick practice.
It emerged late in preparation for the resumed hearing of this case that, although what Dr Schmaman had attached to his statutory declaration of 25 June 1999 was the practice’s Bank’s December 1992 approval of financial facilities for the purchase of the Esteem and the new CT scanner, rather than the contract for the Esteem, his statutory declaration was nevertheless ‘processed’ in 1999 by the relevant officers of the Commission as if a complying one, and he was then treated as having, so far as Rule 30 was concerned, achieved eligible provider status. Further, various of the other doctors in the Randwick practice had in 1998 lodged statutory declarations annexing copies of the quotation of 20 March 1998 for the Prima and they too were likewise, for the purposes of Rule 30, treated as eligible providers. Relevant Commission officers were aware of which doctors were associated with the Randwick premises.
It is to be recalled that Rule 31 is headed ‘MRI … services – eligible equipment’ and provides:
‘31. MRI and MRA services - eligible equipment
(1)For rule 27, equipment that complies with this rule is eligible equipment.
(2)The equipment must be located in Australia in a medical practice, or the radiology department of a hospital, that offers a comprehensive range of diagnostic imaging procedures
...
(4)For a medical practice or hospital located in a metropolitan area the equipment must:
(a)have been installed in a medical practice, or hospital, in Australia before 7:30pm on 12 May 1998, Eastern Standard Time; or
(b)if uninstalled at that time on that day, have been purchased or leased (under a contract, in writing, that did not contain an option to cancel) before 10 February 1998; or
(c)be replacement equipment for equipment mentioned in paragraph (a) or (b).
(5)Equipment mentioned in paragraph (3)(a) or (b) or (4)(a) or (b) ceases to be eligible equipment when replaced by other equipment.
(6)The Commission must have been given, before 11 October 1999:
(a)the statutory declaration under subrule 30(2), in relation to the equipment; and
(b)if paragraph … 4(b) applies, the copy contract mentioned in subrule 30(3).
(7)...’ (emphasis added)
Rule 30 of the relevant 2000 Regulations provides, so far as relevant:
‘(2) If the equipment the eligible provider proposes to use is eligible equipment in accordance with rule 31, the Commission must have been given a statutory declaration:
(a)stating the matters mentioned in paragraphs (1)(a) and (b); and
(b)specifying the location of the proposed equipment; and
(c)specifying the kinds of diagnostic imaging procedures offered at that location; and
(d) if the proposed equipment has not been installed at that location and is equipment to which subrule 31(3) or (4) applies, stating the date that it was installed (the installation date); and
(e)if paragraph (d) applies, and the installation date was 12 May 1998 - stating the time at which the equipment was installed.
(3)If paragraph (2)(d) applies, and the equipment was not installed before 7:30pm on 12 May 1998, Eastern Standard Time, the specialist must have given the Commission, with the statutory declaration, a copy of the contract for the purchase or lease of the equipment.
(4)The Commission may request a specialist to:
(a)give the Commission documents to support the statements made in the statutory declaration; and
(b)answer questions put to the specialist by the Commission about those statements.’
The mischief addressed by Regulation 30 was explained in an Explanatory Statement issued by the Minister to accompany the promulgation of Statutory Rules 1999 No 219, which introduced Rule 30 in its relevant form. The Minister explained:
‘REGULATION IMPACT STATEMENT
Background
New arrangements for the Commonwealth funding of Magnetic Resonance Imaging (MRI) services were introduced on 1 September 1998 when Medicare benefits were extended to include a range of MRI services. The new arrangements significantly expanded the provision of publicly funded MRI services in Australia.To provide Medicare eligible services, MRI providers must comply with the Health Insurance (1998-99 Diagnostic Services Table) Regulations 1998 (the Regulations).
These Regulations provide, in part, that in order for Medicare benefits to be payable for AM services, the equipment must:
*have been installed in a medical practice or hospital before 7.30pm on 12 May 1998 (EST); or
*although uninstalled, have been purchased or leased before that time on that day under a contract, in writing, that did not contain an option to cancel the contract; or
*be replacement equipment for equipment that has been installed or has been purchased or leased under a written contract as specified.
MRI providers wishing to be eligible for Medicare Benefit purposes must satisfy the Health Insurance Commission (HIC) of eligibility and lodge a statutory declaration.
Problem
Almost 12 months after the new arrangements for MRI were introduced, the Health Insurance Commission is continuing to receive applications from MRI providers seeking eligibility for MRI equipment under the Medicare Benefit arrangements. This is occurring despite the fact that applications seeking eligibility must be for equipment that was installed or under written contract to purchase or lease prior to 12 May 1998.
The Government has announced that a review of the MRI arrangements is to be conducted at the end of 1999. The aim of this review is to examine how the market has adjusted to the expansion of MRI funding and to inform subsequent decisions about Commonwealth funding for MRI services.
The introduction of a cut off date for MRI equipment eligibility will enable the Health Insurance Commission to finalise applications for MRI equipment eligibility. The amendment will also clarify the number, type and location of MRI equipment in receipt of Medicare Benefits in advance of the MRI review.
Objective
To introduce a cut off date (of 11 October 1999) for MRI equipment eligibility under the Medicare Benefit arrangements.
The cut off date will enable the Health Insurance Commission to finalise outstanding applications for MRI equipment eligibility. It will also provide necessary information about eligible MRI equipment in advance of the MRI review.
Alternatives
Two options were considered:
Option 1 - maintain the current MRI equipment eligibility requirements;
Option 2 - introduce a requirement that to be able to provide Medicare eligible MRI services, all Medicare eligible MRI equipment must be notified to the HIC, by statutory declaration, by 2.00pm 11 October 1999.Impact Analysis
Option 1 would allow MRI providers to continue to submit applications to the HIC seeking eligibility for MRI equipment under the Medicare Benefit arrangements indefinitely.
Option 2 would require MRI providers to lodge a statutory declaration identifying MRI equipment to be considered for eligibility under the Medicare benefit arrangements by 2.00pm on 11 October 1999.
The proposed closing date for statutory declarations will provide a reasonable period of time for any further MRI providers to seek eligibility for MRI equipment. MRI providers have been able to seek eligibility for MRI equipment since 1 September 1 998.
Impact on providers of MRI services
The proposal would require MRI providers to lodge a statutory declaration with the Health Insurance Commission by 2.00pm on 11 October 1999 identifying MRI equipment to be considered for eligibility under the Medicare benefit arrangements.
This proposed measure specifically focuses on the eligibility of MRI equipment and will not impact on the eligibility of new MRI providers.’
It is clear that the purpose of Rule 30 was to attempt to force allegedly eligible existing providers of MRI services to finalise their claims to eligibility by 11 October 1999 (‘the documentation cut-off date’), on pain of being denied eligibility for late application. Equally clearly, the Government wanted promptly to know where it stood in relation to the number of eligible machines for the formulation of future policy, having regard to its financial implications.
In my opinion, by 2004 the power in the Commission adversely to reconsider the adequacy of pre-documentation cut-off date statutory declarations and their attachments was, on a proper construction of the Regulation, spent. The Commission should be held to its implicitly favourable 1999 decision on the purely evidentiary aspects of the claim constituted by Dr Schmaman’s statutory declaration. The regulation enabled the Commission to seek supplementation of the information if it had any concerns. It did not do so. There was nothing, after the documentation cut-off date that an applicant doctor could unilaterally do to cure what might be, as here, an entirely innocent and obvious oversight.
In Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193, Gummow J analysed the doctrine of estoppel and related issues in connection with administrative law. His Honour’s analysis generally, in my respectful opinion, is compelling. At 211-2 his Honour said:
‘There was “an inconvenient common law doctrine of somewhat uncertain extent to the effect that a power conferred by statute was exhausted by its first exercise”: Halsbury's Laws of England, 1st Ed., Vol. 27, p 131. However, sub-s. 33 (1) of the Acts Interpretation Act 1901 (which was modelled upon sub-s. 32 (1) of the Interpretation Act 1889 (U.K.)) provides that where an Act confers a power or imposes a duty, then unless the contrary intention appears, the power may be exercised and the duty shall be performed “from time to time as occasion requires”. But in any given case, a discretionary power reposed by statute in the decision maker may, upon a proper construction, be of such a character that it is not exercisable from time to time and it will be spent by the taking of the steps or the making of the statements or representations in question, treating them as a substantive exercise of the power. The result is that when the decision maker attempts to resile from his earlier position, he is prevented from doing so not from any doctrine of estoppel, but because his power to do so is spent and the proposed second decision would be ultra vires. The matter is one of interpretation of the statute conferring the particular power in issue.’
A contrary construction would be productive of injustice and go beyond what was the purpose of the regulation.
Conclusion
As requested by the respondent, I refrain from making orders at this stage and will hear the parties as to the form of such orders and costs.
I certify that the preceding ninety-four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick.
Associate:
Dated: 1 October 2004
Counsel for the Applicant:
Mr D J Hammerschlag SC / Mr R Bellamy
Solicitor for the Applicant:
Robinson Legal
Counsel for the Respondent:
Mr J Griffiths SC / Mr F Kunc
Solicitor for the Respondent:
Phillips Fox
Date of Hearing:
18 February 2004
Date of Judgment:
1 October 2004
[ON AMI LETTERHEAD]
18th August, 1997
Dr. Ross Glasson
Sydney X-Ray
66 High Street
RANDWICK NSW 2031QUOTATION
ESTEEM Whole body 1.5 Tesla Magnetic Resonance Imaging system including:
·1.5 Tesla, helium only, superconducting magnet
·2 Stage cryo-refrigerator system
·Patient table
·10 mT/m actively shielded gradient system
·Operator's console with Sun SPARCStation computer system
·Head, body, cervical spine, lumbar spine, knee, pelvis and shoulder RF coils
·1.05 Gbyte hard disk for image storage
·1.0 Gbyte read/write optical disk
·Esteem system software license - includes all pulse sequences and features such as 2D and 3D Fast Spin Echo, 2D and 3D angiography, multishot EPI, FSE dual contrast, FSE extended ETLs, advanced MR Angiography (MOTSA), water fat separation, turbo short, 3D FSE IR, support for phased array and ultra fast breath hold imaging.
The system is delivered with software version 4.0 and upgrades will be provided at no additional charge, but the functionality of the software depends upon the hardware configuration of the machine, i.e. which hardware options are installed.
TOTAL SYSTEM PRICE: US$660,000.00
WARRANTY
One full year warranty including parts, service and travel costs shall apply. Further details of terms and conditions are part of the formal contract.
SERVICE CONTRACT
Upon completion of the one (1) year warranty a service contract is entered into for the following four years at a cost of $100,000.00 per year linked to the C.P.I. (Consumer Price Index) effective at each anniversary. This service contract includes cryogens; for the first year cryogens are free.
The service contract is to be paid quarterly in equal payments and includes any defects in material and workmanship including parts, labour and travel costs.
SITE PREPARATION
Elscint provides the buyer with installation instructions and assists in site planning including system layout, power requirements, environmental conditions and other information required for the proper operation of Elscint equipment.
Elscint’s recommendations and drawings are subject to the accuracy of information provided by the buyer.
The Buyer’s site plans should comply with the specifications provided by Elscint and be approved in writing before construction commences.
The installation of the equipment at the site will commence only after its inspection and approval by Elscint’s authorised technical person.
IMPORTANT: PRIOR TO INSTALLATION, ELSCINT REQUIRES AN ENGINEER'S CERTIFICATION THAT THE FLOOR WILL ACCOMMODATE THE WEIGHT OF THE SYSTEM, INCLUDING ALL NECESSARY RF AND MAGNETIC SHIELDING.
TRAINING
A U.S. based Elscint Applications Specialist will train the users in system operation and clinical applications for ten (10) working days following completion of the installation. This training period is included in the price of the system. In addition, training for one or more service engineers from the distributor will be provided at our Fort Collins, Colorado, facility. This training is included in the price of the system also, although travel and living costs are the responsibility of the distributor.
DELIVERY
Delivery will be 90 - 180 days from Acceptance of Order.
TERMS
Payment terms are an irrevocable Letter of Credit 12 months at sight.
F.O.B.
Fort Collins, Colorado, U.S.A.
In the event that this equipment is subsequently purchased through a third party lease agent, all the terms and conditions of the Elscint contract shall prevail.
[signed by Mr Amodeo]
Elscint
CT Twin
Premium, Dual-Slice
Slip-Ring CT ScannerProforma Invoice/Quotation
[the specifications of the CT Scanner are then set out]
CONDITIONS OF SALE
PAYMENT TERMS
The payment terms are by irrevocable Letter of Credit, ninety days at sight.
WARRANTY
The equipment supplied would be warranteed against manufacturing defects for twelve months from the date of commissioning/first patient to be scanned. Australian Medical Imaging Pty. Ltd. reserves the right to repair or replace faulty parts at it’s discretion. The warranty covers all parts and labour, excluding the x-ray tube which carries it’s own manufacturer’s pro-rata warranty.
DELIVERY
Based on current factory loadings, we anticipate delivery to be ninety days from the receipt of your order.
VALIDITY
This offer is valid for seven days from the date of issue.
Offered By: Australian Medical Imaging Pty. Limited
On Behalf Of: Australian Medical Imaging Pty. Limited
No. 2The Esplanade
ASHFIELDNSW 2131
ACN No:003 784 674
Signed: ______________________
Date: 18th August, 1997
MINISTERIAL STATEMENTS
Medicare: MRI RebatesDr WOOLDRIDGE (Casey—Minister for Health and Aged Care) (4.01 p.m.)—by leave—As members would be aware, the government decided in the context of the negotiations around the agreement of the Royal Australian and New Zealand College of Radiologists covering the three years from 1998-99 to 2001-02 to introduce Medicare benefits funding for magnetic resonance imaging machines. This decision was announced on 12 May 1998 as part of the 1998 budget. It was announced at that time that eligibility for benefits was to be limited to machines that were in place or on order on that day. Subsequently, the government decided to require operators of machines to notify the Health Insurance Commission of any machines they considered to be eligible by no later than 11 October 1999.
Last Friday I received a minute from the Managing Director of the Health Insurance Commission advising me that 111 machines have now been notified to the commission. Of these, 59 were in place on 12 May 1998, the date of the 1998 budget, and 52 were claimed to be on order on that day. No fewer than 13 of the machines claimed to be on order last May were advised to the Health Insurance Commission in the fortnight before the cut-off on 11 October this year—that is, in the last week or so, 13 radiologists have just remembered that they spent $3 million 18 months ago on an MRI machine. Of the 52 on order, 48 were ordered between 10 February, when negotiations with the royal college commenced, and the budget on 12 May 1998. I table a minute from the Health Insurance Commission.
While the Health Insurance Commission is continuing to investigate the bona fides of orders, their investigations so far indicate ‘that a significant number of the applications have question marks around both the accuracy of the date itself claimed for the contract and the conditional nature of the contract’. Given that an additional 13 machines have just turned up and given the comments from the Health Insurance Commission, I have decided to recommend to the Executive Council meeting this Wednesday a regulation to limit access to Medicare benefits to those machines that were on order on 10 February 1998 when formal negotiations with the Royal College of Radiologists got under way.
This is an interim measure that will ensure that an advantage does not accrue to any person who may have taken advantage of backdating of a contract, a non-binding contract or any form of inside knowledge as a result of the negotiation process to order a machine before 12 May 1998. The regulation will take effect from 1 November to ensure that people who have MRI scans booked are in no way disadvantaged. Where a machine is located outside a capital city, is operating as of today and where no other machine is readily available, that MRI will be able to continue to operate, thus not in any way disadvantaging people in rural and regional Australia.
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I do not know whether or how members of the profession may have gained inside knowledge or if indeed any inside knowledge existed. In the weeks before the budget, MRI suppliers were openly and aggressively offering non-binding contracts to radiologists. The apparent rush of orders may be explained by this, combined with some backdating. If one has had to sign a non-binding order or backdate an order, by definition you could not have had advance knowledge of the measure. Whatever the cause, the larger number of orders than I ever contemplated and the advice that a significant number have question marks around them require more resolute action than to await possible legal action by the Health Insurance Commission.In view of concerns that have been raised about the integrity of the process of negotiating the diagnostic imaging agreement, I am today writing to the Auditor-General, Mr Barrett, asking him to conduct a probity audit of the process and to report to parliament as soon as possible. When I have written to Mr Barrett, I will table a copy of the letter.
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