Alexandra Private Geriatric Hospital Pty Ltd v The Commonwealth

The first, second, third and fourth plaintiffs are each involved, as proprietors, in the business of providing nursing home care in Victoria. The fifth plaintiff is a registered nurse employed by the fourth plaintiff. These proceedings require the determination of a demurrer entered by the defendants to the claim by the plaintiffs for a declaration that the provisions of the National Health Act 1953 Cth, as amended ("the Act") with respect to approved nursing homes are beyond the legislative power of the Commonwealth and invalid. The provisions in question are found in Pts V, VA and VC of the Act. The challenge extends also to the principles formulated respectively by the Minister in accordance with ss. 39A(6), 40AA(3C) and 40AA(7) of the Act.

The plaintiffs' attack is directed to the general conception and essential provisions of the legislative scheme rather than to any particular aspect of it. It is argued that the collective effect of the detailed regulation and control imposed on the management of a private nursing home stamps the law with the character of a law with respect to private nursing homes and that this is sufficient to place the law beyond power. Alternatively, it is pleaded in the statement of claim, although the argument was not pursued at the hearing, that the effect of the scheme is to impose a form of civil conscription on the management of a private nursing home and that this in itself is sufficient to bring down the law. On the other hand, the Commonwealth, in support of its demurrer, relies on the legislative power conferred by s. 51(xxiiiA) of the Constitution (supplemented, if necessary, by s. 51(xxxix)) to make laws for the peace, order and good government of the Commonwealth with respect to "the provision of sickness and hospital benefits".

Before 1972 the Commonwealth's involvement with nursing homes was comparatively slight. A moderate subsidy was paid to approved nursing homes and a degree of supervision instituted to monitor the payments. However, in that year the subsidy was increased substantially and major amendments were made to the Act. A new section, s. 40AA, provided for the approval of premises as a nursing home, for limiting the number of approved homes, for approving the number of beds in a home and the admission thereto of qualified nursing home patients and finally, for the determination by the Director-General of the maximum fees that could be charged in respect of the nursing home care of the patient. In determining the fees, the Director-General was required to have regard to costs necessarily incurred in providing nursing home care. The Director-General was also empowered to attach any other conditions to the approval of a nursing home for the purpose of ensuring that "the needs of qualified nursing home patients in the nursing home are satisfactorily provided for".

It will be seen that the amendment to the Act in 1972 brought into being the features of the scheme upon which the plaintiffs rely to establish their case. However, the picture is incomplete without a reference to later developments. The scheme came under scrutiny in one case in this Court and in a number of cases in the Federal Court: Re Hunt; Ex parte Sean Investments Pty. Ltd. [1] ; Nagrad Nominees Pty. Ltd. v. Howells [2] ; Sean Investments Pty. Ltd. v. MacKellar [3] ; Croft v. MacKellar [4] . Those cases were not, however, concerned with constitutional validity. Their present relevance is essentially historical in that some of them led to the further amendments that were made to the Act in 1983.

1. (1979) 53 A.L.J.R. 552; 25 A.L.R. 497. 2. (1981) 54 F.L.R. 170; 38 A.L.R. 145; on appeal (1982) 66 F.L.R. 169; 43 A.L.R. 283. 3. (1981) 38 A.L.R. 363; on appeal (1982) 42 A.L.R. 676. 4. (1983) 66 F.L.R. 196; 45 A.L.R. 449.

In the Parliament, when introducing the amendments to s. 40AA of the Act which became part of amending Act No. 35 of 1983, the Minister, after referring to two Federal Court judgments, said (House of Representatives, Parliamentary Debates, vol. 131, 11 May 1983, p. 403, at pp. 404-405):

The practical effect of the judgments is that the continued application of the policies and practices currently used in the determination of fees for nursing homes would result in many determinations being set aside, if challenged, as being made contrary to law. Costs which previously were not allowed for the purpose of setting fees now have to be given consideration possibly resulting in significant fee increases contrary to Government policy. This would lead to higher benefits and therefore increased Government expenditure.

Within the protected environment of the nursing home industry, there is very little incentive to constrain costs given the cost-based nature of fees determination and the high occupancy rates resulting from Government controls on new beds .

There are indications that the effect of the Federal Court judgments could be an eventual increase in government expenditure on benefits of the possible order of $50m per annum. In a program which is expected to cost more than $600m for benefits alone in 1983-84, it is imperative that consistent and effective controls be exercised on costs which may have an inflationary effect on approved fees.

The amending Act omitted the provision which had required the Permanent Head when determining a scale of fees to have regard to costs necessarily incurred in providing nursing home care in the home (s. 40AA(7)) and substituted a provision empowering the Minister to formulate principles in accordance with which scales of fees were to be determined. It was expressly provided that the principles might specify matters of a kind that were to be taken into account and matters of a kind that were to be disregarded in determining a scale of fees. The principles might also specify criteria for assessing, in relation to matters of a kind that might be taken into account, the amounts that were to be so taken. It was also provided that, in formulating any principles under the section, the Minister shall have regard to:

(a) the need to ensure that nursing homes are efficiently and economically operated;

(b) the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable; and

(c) any other matters the Minister considers to be relevant: s. 40AA(7B).

Any principles that were formulated in accordance with these provisions were to be tabled in the Parliament and be subject to disallowance in all respects as if they were regulations.

Later in 1983 further amendments were effected to the general scheme. By amending Act No. 139 of 1983 a new section - s. 39A - was enacted, prescribing a detailed procedure whereby a person could obtain approval in principle for a nursing home. Provision was made for the grant of a certificate of approval setting out any specifications with which the premises must comply and indicating the minimum number of beds that would be approved for the home. Section 39A(6) authorized the Minister to formulate principles to be complied with by him with respect to the exercise of any of his powers under the section. In formulating those principles the Minister must have regard to, inter alia, the suitability of an applicant, the need to control unnecessary growth in the number of approved nursing homes and the availability of forms of care other than nursing home care. The same amending Act inserted in s. 40AA similar provisions with respect to the formulation of principles and the criteria to be observed in the process relating to his powers under s. 40AA(3A) to refuse an application for approval of premises as an approved nursing home.

A number of other provisions go to complete the scheme. They include provisions that permit reviews by the Minister of decisions made in administering the scheme and the inspection of premises, and require the keeping of records and the submission of audited accounts. It is unnecessary, having regard to the general nature of the challenge made by the plaintiffs, to examine those provisions in detail. However, it may be helpful to allude briefly to the principles. As we have mentioned, the Minister has exercised the power to formulate principles under ss. 39A(6), 40AA(3C) and 40AA(7). Those formulated under the two sub-sections first mentioned each provide guidelines of a similar kind to be observed by the Minister in relation to the provisional approval or approval of a nursing home. The grant of approval is clearly intended to be dependent upon a demonstrated need for the additional services. For example, an application for approval shall be refused if:

(a) the nursing home care that would be provided in the nursing home if the approval were granted is not likely to satisfy the needs of the designated area in which the premises are situated as effectively as the provision of some other form of community care;

(b) there is adequate provision in the designated area in which the premises are situated for the nursing home care that would be provided in the nursing home if the approval were granted; or

(c) any perceived need for nursing home care in the designated area in which the premises are situated can be satisfied through a re-organization of the care or accommodation provided by existing nursing homes in the area: Principles Under Sub-Section 40aa(3c), par. 3, Commonwealth of Australia Gazette , No. S195, 30 May 1984.

Both sets of principles include a paragraph which states that in considering an application for the approval of premises as an approved nursing home, without limiting the generality of the matters that may be considered, the following matters shall be taken into consideration:

(a) the criteria to be applied in relation to the admission of patients to the nursing home;

(b) the proposals contained in the application in respect of -

(i) the provision of appropriate care and accommodation for patients with special needs; and

(ii) the provision of rehabilitation and assessment services for the benefit of patients of the nursing home;

(c) the necessity of encouraging the provision in nursing homes of advanced forms of care relevant to the needs of geriatric patients;

(d) [in the case of an application in relation to the approval of premises as a nursing home (Principles Under Sub-s. 39a(6))] the economic viability of the proposed undertaking: Principles Under Sub-Section 40aa(3c), par. 9 and Principles Under Sub-Section 39a(6), par. 11, Commonwealth of Australia Gazette , No. S195, 30 May 1984.

The principles that have been formulated in accordance with s. 40AA(7) provide a detailed and extensive prescription of the matters that are to guide the Secretary in determining the scales of fees for the purposes of s. 40AA(6)(c)(i) of the Act. It is clearly the purpose of the principles to impose strict limits on the charges made by management in conducting a nursing home, no doubt for the reasons spelt out by the Minister in his speech on the second reading of the Bill. Paragraph 2(4) provides a general guideline in the following terms:

The Secretary shall, in exercising any discretion permitted in these principles in determining a scale of fees, have regard to:

(a) the desirability of ensuring the financial viability of nursing homes generally;

(b) the need to ensure that nursing homes are efficiently and economically operated;

(c) the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable;

(d) the need to ensure that public moneys are being economically and properly expended; and

(e) the need for consistent and fair administration of Part V of the Act: Nursing Homes Fees Determination Principles 1984, as amended, Commonwealth of Australia Gazette , No. S166, 9 May 1984.

In the event that the application of the principles leads the Secretary to determine a scale of fees for a particular nursing home which threatens the economic viability of the home, the proprietor may resort to his right of appeal to the Minister. In dealing with an appeal, the Minister is not bound by the principles. Furthermore, his decision may be reviewed, albeit not on the merits, on application to the Federal Court in accordance with the provisions of the Administrative Decisions (Judicial Review) Act 1977 Cth, as amended.

The plaintiffs argue that this statutory scheme lies well outside the limits of any law which may properly be characterized as a law with respect to the provision of sickness or hospital benefits. It is said that as a matter of practical reality it confers on the Commonwealth power to assume control of the entire nursing home industry including the number of premises, the number of beds, the selection of patients, the number of nurses and the wages paid to them, the quality and nature of the services provided, the gross fees that may be charged and the book-keeping arrangements.

As a matter of practical reality, it may be true to say that the Commonwealth has this degree of control over the industry because there would be few proprietors who would find it profitable to conduct a nursing home without the benefit of the very substantial government subsidy. But as a matter of law, the point must be made that it is only if and when the proprietor of a nursing home obtains approval of his premises as such that he becomes subject to the provisions of the Act. True it is, his freedom from control must be purchased at the price of the benefit that would otherwise be payable in respect of each patient under his care, for the benefit is payable only in respect of qualified nursing home patients occupying a bed in an approved home. Nevertheless, his participation in the scheme is ultimately a matter of his own choice.

A further point that must be made with respect to the argument for the plaintiffs is that a conclusion that the law is properly characterized as a law with respect to nursing homes, a subject-matter upon which the Parliament is not empowered to legislate, does not necessarily determine the matter in their favour. A single law can possess more than one character and it suffices for constitutional validity if any one or more of those characters fairly falls within a head of Commonwealth legislative power: see generally, Murphyores Incorporated Pty. Ltd. v. The Commonwealth [5] ; Actors and Announcers Equity Association of Australia v. Fontana Films Pty. Ltd. [6] ; The Commonwealth v. Tasmania ("the Tasmanian Dam Case ") [7] . The fact that an obvious or even primary characterization of the provisions under challenge is that of a law or laws with respect to approved nursing homes is a factor to be taken into consideration in determining whether all or some of those provisions are within Commonwealth legislative power in that they can also properly be characterized as a law or laws with respect to the provision of hospital or sickness benefits. The former characterization, however, does not preclude the latter.

1. (1976) 136 C.L.R. 1, at p. 22. 2. (1982) 150 C.L.R. 169, at pp. 184, 193-194. 3. (1983) 158 C.L.R. 1, at pp. 151, 270.

A number of matters touching the meaning to be given to the words "the provision of sickness and hospital benefits" in their context in s. 51(xxiiiA) of the Constitution may be taken as settled. First, the reference to "the provision" of the relevant benefits is to be confined to the provision of benefits by the Commonwealth: British Medical Association v. The Commonwealth ("the B.M.A. Case ") [8] . Secondly, the prohibition contained in the words "but not so as to authorize any form of civil conscription" in s. 51(xxiiiA) applies only to the reference in the paragraph to the provision of "medical and dental services". The words of that prohibition, however, are not irrelevant to the scope of the other matters described in the paragraph at least to the extent that whenever medical or dental services are provided pursuant to a law with respect to the provision of some other benefit, e.g., sickness or hospital benefits, "the law must not authorize any form of civil conscription of such services": the B.M.A. Case [9] , per Williams J.; see also, General Practitioners Society v. The Commonwealth [10] , per Gibbs J. Thirdly, the concept intended by the use in the paragraph of the word "benefits" is not confined to a grant of money or some other commodity. It may encompass the provision of a service or services. There is a passage in the judgment of Dixon J. in the B.M.A. Case [11] which can be read as indicating that his Honour thought that the legislative power with respect to the provision of hospital and sickness benefits would not extend to the actual provision of services such as nursing services: but cf. the same judgment at p. 260. It may be that his Honour was influenced in his choice of language by the argument of counsel for the plaintiffs in the case [12] that, in its context in par. (xxiiia), the word "benefit" contemplated some special kind of grant, "either in money or in goods, i.e., a grant of some commodity". However, if that was the view of Dixon J., it was a view that was not shared by any other member of the Court. The meaning of the word "benefit" accepted by the majority of the Court was that expressed by McTiernan [13] :

The material aid given pursuant to a scheme to provide for human wants is commonly described by the word "benefit". When this word is applied to that subject matter it signifies a pecuniary aid, service, attendance or commodity made available for human beings under legislation designed to promote social welfare or security: the word is also applied to such aids made available through a benefit society to members or their dependants. The word "benefits" in par. (xxiiia.) has a corresponding or similar meaning. See per Latham C.J. [14] ; per Williams J. [15] ; and per Webb J. [16] . 1. (1949) 79 C.L.R. 201. 2. (1949) 79 C.L.R., at pp. 286-287. 3. (1980) 145 C.L.R. 532, at p. 549. 4. (1949) 79 C.L.R., at p. 261. 5. (1949) 79 C.L.R., at p. 207. 6. (1949) 79 C.L.R., at p. 279. 7. (1949) 79 C.L.R., at p. 246. 8. (1949) 79 C.L.R., at pp. 286-287. 9. (1949) 79 C.L.R., at p. 292.

This last-mentioned consideration is relevant to the present case, for it may well be asked, what is the "benefit" in this case? Section 47(1) of the Act provides that there is payable a Commonwealth benefit of a designated amount:

to the proprietor of an approved nursing home, in respect of each qualified nursing home patient, for each day on which the patient receives nursing home care in that nursing home . Under some circumstances (e.g. s. 48(1)), the benefit can be paid directly to the patient. In any case it is apparent that the intended ultimate beneficiary of any benefit paid is the patient in the nursing home to the proprietor of which the payment will ordinarily be made. While it is plain enough that the provisions of s. 47 providing for the payment of the designated amount are a law with respect to the provision of sickness and hospital benefits, there is room for difference of opinion about the precise identification of the "benefit" provided. On one approach, the benefit can be identified as the money paid to the proprietor of the nursing home. On another approach, the benefit can be identified as the accommodation, sustenance and care to the extent that it is provided by the proprietor to the patient as the quid pro quo for the money payment made by the Commonwealth. Ultimately, it matters not which of these alternative identifications of the "benefit" is preferred because no distinction relevant to the characterization of the overall legislative scheme can be drawn between them. If the scheme is capable of being supported as a law with respect to the provision of a money payment by the Commonwealth to the proprietor of a nursing home in consideration of nursing care provided to a patient it likewise will be capable of being supported as a law with respect to the provision of nursing care for that patient. In the former case, it will be seen as the means chosen by the Parliament of controlling the application and ensuring the effectiveness of the benefits paid; in the latter case, the scheme will be seen as the means adopted to provide those benefits.

We come now to the substantial question in the case. Is the legislative scheme incidental to the provision of sickness and hospital benefits? It is unnecessary and indeed inappropriate to consider the application of s. 51(xxxix): unnecessary because the power conferred by par. (xxiiia) includes within it everything which is incidental to the subject-matter; inappropriate because we are not here concerned "with some matter which arises in or attends the execution of the power of legislation over the subject-matter and so would itself be a subject of legislative power under s. 51(xxxix)": per Dixon J., in the B.M.A. Case [17] . In considering what is incidental to the subject-matter of a legislative power one is not confined to what is necessary to its effective exercise. To cite Dixon J. again, from the B.M.A. Case [17] :

It goes further than "necessary"; "things which are incidental to it, and which may reasonably and properly be done and against which no express prohibition is found, may and ought, prima facie, to follow from the authority for effectuating the main purpose by proper and general means" - per Lord Selborne: Small v. Smith [18] . 1. (1949) 79 C.L.R., at p. 274. 2. (1949) 79 C.L.R., at p. 274. 3. (1884) 10 App. Cas. 119, at p. 129.

The "principal vice" of the legislation, according to counsel for the plaintiffs, is that instead of making a payment to the person in need and then regulating the use that is made of it, it makes a payment to the person by whom nursing home care is provided to the person in need and attaches such far-reaching conditions to that payment as to create a nursing home industry which fits a mould prescribed by the Commonwealth. That has been achieved, so it is said, not by the Commonwealth itself entering into the business of operating nursing homes but by so regulating the management of private nursing homes as to secure to itself total control over their existence, their size, the selection of their patients and their gross income. Such a law moves far beyond the kind of law that could properly be characterized as a law with respect to the provision of the benefit.

We do not think that the argument advanced for the plaintiffs can be accepted. The Parliament having resolved to legislate with respect to the provision of sickness and hospital benefits to patients in nursing homes, some kind of scheme was essential to ensure both that the provision would be effective in meeting the needs of such patients and capable of being held within reasonable budgetary limits. If it be accepted, as the plaintiffs accept, that the Parliament could legislate for the establishment of Commonwealth hospitals to provide nursing home care directly to patients in need of such care, there can be no objection to it adopting what Smithers J. described as "a private enterprise approach to the problem" (Howells v. Nagrad Nominees Pty. Ltd. [19] ) by inviting proprietors of private nursing homes voluntarily to undertake to provide the necessary services in return for a government subsidy. In that approach to the problem it is to be expected that the Parliament should be concerned to see that the intended real beneficiary, the patient, receives care of a quality appropriate to the cost of the programme. A system of controlling the number and location of approved nursing homes and of the number of beds in each approved home is substantially connected with the power. So is an arrangement for selecting patients because it ensures that those who are to be the beneficiaries of the legislative provision are in need of the care to be provided in the nursing home. Again, if the fees charged to the patients were not subject to control some of the more needy might not be able to gain admission to the home and thereby take advantage of the benefit. Furthermore, as was evidenced in the second-reading speech of the Minister in 1983, the scheme had hitherto resulted in a highly protected industry in which it was essential to secure some form of cost control in order to preserve the effectiveness of the benefit. There is an obvious relation between the fees charged and the amount of the subsidy that is required. It may be that the degree and nature of the controls imposed on proprietors seriously affect their freedom to run their business as they wish. It might be argued that those controls are more stringent than are strictly necessary to achieve the objectives of the legislation and in some instances, even the economic viability of a home may be threatened. But it is not for the Court to determine that argument or to pass upon the wisdom or the suitability of the particular scheme that the legislature has chosen to institute, so long as the Court is unable to say that it lacks a sufficient connexion to the head of power.

1. (1982) 66 F.L.R. 169, at p. 177; 43 A.L.R. 283, at p. 291.

Some of the problems associated with the control of fees were alluded to by Smithers J. in the Federal Court in Schroeder Holdings Pty. Ltd. v. Grimes [20] . His Honour said:

It is consistent with the purposes to be discerned in the Act as amended in 1983 that there be a level of fees so determined as to tend to control the level of expenditure undertaken by proprietors, particularly expenditure which encourages the assessment of the value of goodwill at high levels. It has been a feature of the industry that the level of fees fixed in accordance with the requirements of sub-s. 40AA(7) of the Act as in force prior to Act No. 35 of 1983 created a situation in which commercially accepted levels of goodwill were higher and accelerated upwards more swiftly than was regarded as appropriate for a protected industry supported by government subsidy. Those levels of goodwill translated into capital costs when nursing homes changed hands provided a basis for claims for high levels of permitted fees. This situation was regarded as contrary to the public interest. Rental expenditure at levels arrived at by agreement between parties was also a significant factor .

It is certainly compatible with the purposes of the Act that appropriate action be taken to protect the revenue against inflation of the level of fees by expenditure in the conduct of a home that is incurred at a level higher than that which would obtain if strict scrutiny were applied to the relevant transactions on behalf of the taxpayer and patients. It is clear for instance that over award payments to staff are not compatible with a level of expenditure strictly scrutinized . But if principles which the Secretary must apply in assessing the level of fees under the Act are known, and they have restrictive provisions in them, the probability that appropriate voluntary discipline will operate is high.

It seems to us to be impossible to say that the control of fees charged to qualified nursing home patients in an approved nursing home is not a reasonable and perhaps a necessary ingredient of a scheme designed to render effective the provision of sickness and hospital benefits to nursing home patients. Similarly, the conditions touching the keeping and auditing of accounts and reasonable inspection of the home demonstrate a clear connexion to the power. 1. Unreported; 18 February 1986.

One may draw an analogy with respect to the provision of pharmaceutical benefits. The B.M.A. Case provides an illustration of the way in which a legislative power to provide for a pharmaceutical benefit will authorize the imposition of controls on both doctors and pharmacists in order that a scheme for the provision of such a benefit may be effectively administered with due regard to the interests both of the intended recipient and the revenue.

Three matters of lesser importance remain to be mentioned. First, the question of civil conscription, while pleaded in the statement of claim, was not pursued by counsel and does not call for consideration. Secondly, it was suggested by counsel for the plaintiffs that s. 51(xxxi) of the Constitution which prohibits the acquisition by the Commonwealth of property otherwise than on just terms, provided an alternative ground for invalidating the law. But clearly there is no acquisition of property from the plaintiffs by the Commonwealth and it is unnecessary to discuss the matter. Finally, it was argued that even if the main attack on the legislation failed the principles ought to be struck down as ultra vires the statute. But enough has been said in the description of the scheme to show that the amending Act No. 35 of 1983 provided ample warrant for the principles that were subsequently made. We note that Smithers J. dismissed a similar argument in Schroeder .

In the result the plaintiffs fail on all issues. Both the Act and the principles, in their general conception and in their essential provisions, are within power and valid. The demurrer should be upheld.