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Cases Cited: Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Palmanova Pty Ltd v Commonwealth of Australia (2025) 424 ALR 768
Re Alcan Australia Ltd; Ex parte Federation of Industrial, Manufacturing and Engineering Employees (1994) 181 CLR 96
Rehabilitation Medicine Australia Pty Ltd v N I B Health Funds Ltd (No 2) [2020] FCA 1761
Wingecarribee Shire Council v De Angelis [2016] NSWCA 189

Texts Cited: D Pearce, Statutory Interpretation in Australia (LexisNexis, 10th ed, 2024)
P Herzfeld and T Prince, Interpretation (Thomson Reuters, 3rd ed, 2024)

Category: Principal judgment

Parties: Macquarie Hospital Services Pty Limited (First Plaintiff)
Eastern Suburbs Private Hospital Pty Limited (Second Plaintiff)
Delmar Private Hospital Pty Limited (Third Plaintiff)
Minchinbury Community Hospital Pty Limited (Fourth Plaintiff)
President Private Hospital Pty Limited (Fifth Plaintiff)
Kaizen Hospitals (Mount District) Pty Limited (Sixth Plaintiff)
Kaizen Hospitals (Holroyd) Pty Limited (Seventh Plaintiff)
IPHOA Management (Malvern) Pty Ltd (Eighth Plaintiff)
Kaizen Hospitals (Essendon) Pty Limited (Ninth Plaintiff)
Kaizen Hospitals (Malvern) Pty Limited (Tenth Plaintif)
IPHOA Management Limited (Eleventh Plaintiff)
CBHS Health Fund Limited (Defendant)

Representation: Counsel:
M Hodge KC with J Brezniak (Plaintiffs)
C McMeniman (Defendant)
Solicitors:
Gadens (Plaintiffs)
MinterEllison (Defendant)

File Number(s): 2026/00190111

Publication restriction: Nil

JUDGMENT

1. This is a dispute about the proper construction of sch 5 cl 3(6) of the Private Health Insurance (Benefit Requirements) Rules 2011 (Cth) (Rules), which are made under item 3A of the table in s 333-20 of the Private Health Insurance Act 2007 (Cth) (Act). The parties agreed that the Rules as at 1 March 2025 ought be considered to determine this dispute. That version is referred to as “the Rules”. Where a private health insurer and a hospital have not agreed on benefit rates, the Rules set default minimum benefits payable by the insurer to the hospital providing hospital treatments to insured patients.

2. CBHS Health Fund Limited is a private health insurer regulated under the Act and an insurer within the meaning of the Rules. This means CBHS must pay benefits to private hospitals for the benefit of insured patients in accordance with the Rules. CBHS is a not-for-profit health fund, and is an Australian public company limited by guarantee. CBHS is a member of the Australian Health Service Alliance Limited (AHSA), which is a member-owned, not-for-profit service organisation. CBHS engaged AHSA to negotiate benefit agreements with hospitals and also to prepare default benefit schedules under sch 5 of the Rules.

3. The plaintiffs operate private hospitals that have been classified by the Department of Health, Disability and Ageing as “Category B second tier private hospitals”, because they provide rehabilitation care for at least 50% of the episodes of hospital treatment: sch 5 cl 1A(7) of the Rules. Schedule 5 of the Rules applies where treatment is provided to a patient who is not a nursing-home type patient at a second-tier eligible hospital: cl 2. The plaintiff hospitals also provide services beyond rehabilitation care, including theatre and surgical accommodation for which they charge fees.

4. This dispute arose after the plaintiffs terminated their business partnership agreements (BPA) with CBHS on 17 March 2026, under which CBHS had paid agreed benefits. The plaintiffs submitted that in the absence of a BPA with CBHS, they are entitled to benefits calculated under sch 5, which provides a formula for a minimum benefit amount per “episode of hospital treatment” provided by the plaintiffs to CBHS-insured consumers.

5. CBHS resisted that claim, arguing that the plaintiffs could not satisfy sch 5 cl 3(6), and therefore were not entitled to any minimum benefit for “theatre fees” and “surgical accommodation” using the sch 5 formula, but instead were limited to the “fallback” amounts provided for in schs 1-3. For whatever reason, the Rules do not provide for any minimum fallback benefit for “theatre fees” for situations where a private hospital does not have an agreement with an insurer. Under the Rules, the plaintiffs are entitled to a minimum amount for “surgical accommodation”, but not at the rate the plaintiffs say applies under sch 5.

6. The Rules specify that for an insurance policy that covers certain types of hospital treatments, “the minimum benefit for that treatment is the amount set out, or worked out using the method for working out the minimum benefit, for that treatment in schs 1, 2, 3, 4 or 5 where the treatment is provided in the circumstances specified in the particular schedule relevant to that treatment”: r 5(1).

7. Each of the schedules contains a clause specifying the circumstances to which the schedule applies: see sch 1 cl 1, sch 2 cl 1, sch 3 cl 1, sch 4 cl 1, sch 5 cl 2. Schedule 4 is not relevant here. Relevantly:

8. Schedule 1 concerns overnight accommodation.

9. Schedule 2 concerns overnight shared ward accommodation for private patients at public hospitals.

10. Schedule 3 concerns same day accommodation.

11. The schedule applicable here is sch 5, which provides that the “circumstances for hospital treatment to which [sch 5] applies are that the treatment is provided to a patient who is not a nursing‑home type patient and the treatment is provided at a second‑tier eligible hospital”: sch 5 cl 2. As noted above, the plaintiffs operate second-tier eligible hospitals.

12. Schedule 5 is attached as Annexure A to these reasons. By way of summary, it provides that the minimum benefit for hospital treatment at a relevant private hospital is worked out in accordance with cl 3:

13. Clause 3(4) provides that subject to sub-cls (2) and (8), the minimum benefit is no less than 85% of the average charge for the equivalent episode of hospital treatment under the insurer’s BPAs in force on 1 August of the first year with all private hospitals that were comparable in NSW.

14. Clause 3(5) provides a formula required for the cl 3(4) calculation.

15. Clause 3(6) is the subclause in dispute and reads:

In subclause (4) [which determines the amount payable by reference to a formula in subclause (5)], each episode of hospital treatment must be identified using the patient classification system and payment structure in the majority of the relevant insurer’s negotiated agreements in force on 1 August … with all comparable private hospitals in [NSW] …

4. If an insurer has less than 5 BPAs with a particular category of private hospitals in NSW, all of that insurer’s BPAs with all classes of private hospitals in NSW are to be used to calculate the minimum benefit: cl 3(8).

5. If the determined minimum benefit is less than the schs 1-3 rates, or the benefit cannot be worked out in accordance with cl 3, then schs 1-3 provide the minimum fallback benefit: cl 3(2).

6. CBHS submitted that because of cl 3(6), the plaintiffs would need to demonstrate that “theatre fees” and “surgical accommodation” were provided for in the majority of CBHS’s BPAs with all category B hospitals in NSW. It submitted that, because only the minority of CBHS’s BPAs provide for theatre fees and surgical accommodation, neither episode can be identified under cl 3(6), and the plaintiffs are only entitled to whatever is provided as a minimum benefit in sch 1-3. Theatre fees are not provided for in sch 1-3 and therefore no benefit is payable; however, a minimum benefit is provided for surgical accommodation.

7. To the contrary, the plaintiffs submitted cl 3(6) is designed to identify the relevant episode and the way a particular insurer classifies the benefit for that episode, not to act as a bar to a minimum benefit. They submitted the subclause requires the episode of theatre fees and surgical accommodation to be identified through the patient classification system and payment structure used in the majority of CBHS’s agreements, and then, when calculating the benefit, reference is made to the subset of agreements that include the equivalent of “theatre fees” and “surgical accommodation”.

8. As detailed below, after I had reserved my decision, I sought further submissions from the parties about the use of the word “relevant” in cl 3(6). The plaintiffs submitted that their alternative argument was that in determining what was contained in the majority of CBHS’s BPAs, only those BPAs that included an equivalent of the particular episode were “relevant” and ought to be considered. CBHS disagreed.

9. For the reasons that follow, I consider the plaintiffs are entitled to the declarations they seek.

Principles of interpretation of the Rules

13. The Rules are a Commonwealth legislative instrument (see s 8 of the Legislation Act 2003 (Cth) (Legislation Act)) and are therefore to be interpreted in accordance with the Acts Interpretation Act 1901 (Cth) (Acts Interpretation Act) (see s 13(1) of the Legislation Act) and the ordinary principles of statutory interpretation: Rehabilitation Medicine Australia Pty Ltd v N I B Health Funds Ltd (No 2) [2020] FCA 1761 at [15]-[17] (Derrington J) (Rehabilitation Medicine). Justice Derrington’s decision has been of great assistance, being the only other reported decision concerning a part of sch 5.

14. The basic approach to statutory interpretation was summarised in Palmanova Pty Ltd v Commonwealth of Australia (2025) 99 ALJR 1362 at [4]-[5] (Gageler CJ, Gordon, Jagot and Beech-Jones JJ), and without intending to depart from what their Honours said, I note:

15. The construction of a statutory provision begins and ends with the statutory text, as understood in context. However, the modern approach insists that this context be considered in “its widest sense” and in the first instance, regardless of whether any issue of ambiguity arises: see also CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).

16. The statutory purpose should also be considered in the process of construction, insofar as that purpose is discernible from the statutory text and context.

17. In relation to Commonwealth statutes, the meaning which would best achieve that purpose is preferred to each alternative meaning. The Acts Interpretation Act also provides a non-exhaustive list of extrinsic material which may illuminate the statutory context.

18. Further, as explained by Derrington J in Rehabilitation Medicine at [16] by reference to various authorities, “subordinate legislation that prescribes technical matters, such as the Benefit Rules, is to be interpreted in light of practical considerations to achieve the most reasonably practicable result”. However, his Honour also noted at [17], quoting Basten JA in Wingecarribee Shire Council v De Angelis [2016] NSWCA 189 at [20], that this approach “does not … permit the Court ‘to embark on a wholescale rewriting of the instrument’ … Regard must still be given to the text itself”.

19. His Honour further noted at [28] (citations omitted):

In general, a legislative instrument should be read “in the ordinary way in which a document is read, that is, from the beginning onwards” … That is not to say that each clause should be read as divorced from its surrounding statutory context, however for present purposes a “step by step” approach is appropriate given the instrument in question purports to be a methodological guide for the purposes of calculating a price, rate, or other like outcome.

17. His Honour explained the purpose of the Rules at [45]:

… the structure of the scheme, as well as the secondary material associated with the Benefit Rules, indicates an intention that the amount paid to “second-tier” hospitals … should be higher, wherever possible and on account of the additional accreditation they require, than the amount that would otherwise be paid. …

18. The secondary material, to which his Honour was referring, and both parties referred to in their submissions, was the Explanatory Statement to the 2007 version of the Rules (specifically, sch 5), which relevantly provides:

The purpose of second-tier default benefits is to protect quality private facilities and to provide an incentive for private facilities to become accredited and meet other administrative criteria, hence increasing the level of quality hospital care available to customers.

Schedule 5 sets the minimum benefits for most episodes of hospital treatment (excluding treatment provided to nursing‑home type patients) provided at private hospitals specified in Schedule 5 payable by insurers. However, if the hospital has a negotiated agreement with an insurer, the terms of that negotiated agreement may require the hospital to accept an amount of payment that is different to the minimum benefit for a particular episode of hospital treatment.

The Schedule 5 minimum benefit will generally be higher than the basic minimum benefit set by Schedules 1, 2, or 3 of the Rules. However, if in a particular case the level of benefit set by Schedule 5 should be less than the level of benefit set by Schedules 1, 2, or 3 then the level of benefit set by Schedules 1, 2, or 3 (as applicable) applies.

19. That Explanatory Statement indicates that the purpose of the Rules is to incentivise the accreditation of private hospital facilities, including negotiating and entering into their own agreements with insurers about benefits, in circumstances where the Rules will otherwise provide minimum benefits for most episodes.

20. This purpose appears to have been consistent even when there were Ministerial “determinations” rather than rules, made under sch 1, para (bj) of the National Health Act 1953 (Cth) (National Health Act) (as it was then, noting that sch 1 was repealed in 2007). For example, an Explanatory Statement to Determination PHS 10/2003 concerning default benefits for rural and regional hospital services, provided a similar indication that the particular schedule was intended to:

… protect quality small private facilities in hard to service areas, which may find it difficult to negotiate [agreements with private insurers, who] are likely to have only a small number of members in the area.

It will assist in ensuring that consumers have access to private services in these areas. It will also provide an incentive for small rural and regional private facilities to become accredited, increasing the level of quality hospital care available to consumers.

21. The current Rules do not distinguish between rural and regional and metropolitan hospitals, nor do they refer to “rural” or “regional” hospitals. However, the common purpose behind the various iterations of the Rules has been to incentivise the accreditation of private hospitals to increase the quality of care afforded to patients by guaranteeing minimum benefits for most episodes, even where there is no negotiated agreement with an insurer.

22. Nevertheless, the parties differed on the purpose of cl 3(6):

23. On CBHS’s view, it provides a “hurdle” for any benefit being paid, which was also said to have been evidenced by the use of the phrase “most episodes” in the Explanatory Statement; the submission was that benefits, such as those sought by the plaintiffs, were not guaranteed under the Rules.

24. On the plaintiffs’ view, no hurdle was intended and the clause was designed to provide the mechanics of identifying the relevant episode and the appropriate basis for comparison.

25. As outlined above and below, I accept that cl 3(6) is not a hurdle but a mechanism for identification.

What is the proper construction of cl 3(6)?

24. As identified above, the dispute between the parties is how the word “majority” is construed in cl 3(6), and whether it requires the majority of CBHS’s negotiated agreements to contain an agreed rate for “theatre fees” or surgical accommodation to trigger a minimum benefit payable under the Rules.

25. The purpose of cl 3(6) is to identify the particular “episode” to be fed into the prescribed method in cl 3(4) to determine the minimum benefit for that episode. As Derrington J noted in Rehabilitation Medicine at [33], cl 3(4)’s purpose is:

… to benchmark the amount payable to the recipient hospital against the average amount charged for the equivalent episode of hospital treatment provided at comparable hospitals with which the insurer has negotiated agreements. Although the rate is to be 85% of that average, it is apparent that the clause seeks to ascertain a commercial, or near commercial, rate for the service provided. This is achieved by relying upon the prices paid under commercially negotiated agreements as a reliable indication of the actual commercial cost of providing such services.

How to identify an “episode” under cl 3(6)?

26. “Episodes of hospital treatment” are not defined in the Rules. Clause 3(6) specifies that “each episode … must be identified” by “using the patient classification system and payment structure” in the “majority of the relevant insurer’s agreements [as further defined]”.

27. It is useful here to briefly distinguish between the two types of payment structure which, on the evidence, are used in the industry:

28. Per diem (per day), which involves fees based on the amount of time a patient receives a relevant service, and the type of service involved. For example, theatre fees are divided into “bands” depending on the procedure involved. The parties appear to agree that where this payment system is involved, patients were classified in CBHS’s agreements in accordance with sch 1 of the Rules (however, the plaintiffs’ evidence also referred to the bands in sch 3 of the Rules).

29. Episodic, which involves a single fee covering all services provided by bundling accommodation, theatre and other services that are provided to the patient; it is not based on time.

30. In Rehabilitation Medicine, Derrington J explained at [35] and [39] that:

[35] The next step is to identify the relevant “episode of hospital treatment”. It is important to keep in mind that the import of this step is to identify a specific medical service in respect of which the minimum benefit is payable. This process is a qualitative one and, as subclause 3(6) reveals, involves consideration of the patient classification system and payment structure in the majority of the insurer’s negotiated agreements with all comparable hospitals in the State. It would also seem apparent that the intention is to identify a comparable form of treatment which is provided by comparable hospitals so as to give content to the particular service provided. This, no doubt, is necessary for the following steps which seek to ascertain the amounts which are paid by other hospitals for that service. …

[39] … the qualitative act of identifying the relevant “episode of hospital treatment” can be accurately performed using a small dataset.

29. The use of the word “identify” means “ascertain”: see eg Rehabilitation Medicine at [38]. Clause 3 is premised on the idea that the episode of hospital treatment has already been provided; it is merely a matter of identifying it and how to calculate the appropriate minimum benefit for that episode for the benefit of the patient consumer.

Use of the word “relevant”

30. I sought further submissions from the parties as to the importance of the phrase “relevant insurer’s negotiated agreements” in determining the proper construction of the word “majority”.

31. The phrase “insurer’s negotiated agreements” is used repeatedly in the Rules. However, the only place where the word “relevant” is added before “insurer’s negotiated agreements” is in cl 3(6). I consider that the word “relevant” qualifies the “insurer’s negotiated agreements”, not the “insurer”, because nowhere else in the Rules has “relevant” been used to identify a particular insurer (as in “relevant insurer”); instead, the language used is “an insurer”, “the insurer” or “that insurer”.

32. I reject CBHS’s alternative submission that “relevant” is intended to identify the particular insurer and not the relevant agreements of an insurer. To support its submission, CBHS relied on earlier Ministerial “determinations” of minimum levels of benefits payable by insurers, before the Rules were introduced, namely, Determination PHI 18/2001, Determination PHS 10/2003 and Determination PHB 6/2004. In those determinations, there were repeated uses of “relevant RHBO”, where RHBO meant insurer.

33. Determination PHI 18/2001 used the phrase “relevant RHBO”, which was defined as insurers “with which the facility does not have [an agreement defined as ‘HPPA’] or similar arrangements”. The phrase “relevant RHBO” was used again in Determinations PHS 10/2003 and PHB 6/2004, although it was not defined as it was in Determination PHI 18/2001 (ie that “relevant RHBOs” were RHBOs with “similar agreements”, but not HPPAs).

34. In Determination PHS10/2003 and Determination PHB 6/2004, the subclauses identifying each “episode of hospital treatment” required reference to the “majority of the relevant RHBO HPPAs (or similar arrangements)”, where HPPAs were defined to mean insurer’s negotiated agreements.

35. CBHS further submitted that by the 2004 Determination, the only use of “relevant RHBO” was in the context of the precursor of cl 3(6); that is, there was no longer repeated use of “relevant RHBO” wherever an insurer was referred to. CBHS submitted that “relevant” in the 2004 Determination qualified the insurer, not the agreements, and the same approach ought to be adopted for current cl 3(6).

36. I reject that construction for the following reasons.

37. First, I do not accept that “relevant” before “insurer’s negotiated agreement” is used to identify the insurer, synonymously with “an”, “the” or “that”, where that has not been expressly stated in the Rules; the Minister could have used “an” or “the” instead of “relevant” had that been intended, but did not: see D Pearce, Statutory Interpretation in Australia (LexisNexis, 10th ed, 2024) at [4.6]. Courts recognise that when ascertaining the meaning of a word or phrase, attention ought to be paid to its context (ie the words which accompany it): see Pearce at [4.47]; see also Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, 105 (Gibbs J). Here, “relevant” appears before the repeatedly used phrase “insurer’s negotiated agreement”; to read “relevant” as only qualifying the word “insurer” would appear to take “insurer” out of the context of the phrase and give a restricted reading of the phrase (which would also appear contrary to the contextually derived statutory purpose of cl 3(6), as discussed above).

38. While subordinate legislation (including the Rules) may be construed more liberally insofar as it is understood that subordinate legislation will often not have been drafted with the same care as an Act of Parliament, I do not consider the inclusion of “relevant” here to be an obvious drafting oversight which was meant to be read as qualifying the insurer (and not the insurer’s “negotiated agreements”), or which otherwise makes the inclusion of “relevant” redundant: see P Herzfeld and T Prince, Interpretation (Thomson Reuters, 3rd ed, 2024) at [14.40].

39. Further, the determinations CBHS relied on were not made by Parliament; they were made by a delegate of the Minister under the National Health Act. Section 73BA of that Act provided that such determinations were “disallowable instruments” (and therefore could be treated as if they were regulations under s 46A of the Acts Interpretation Act (that section now repealed under that Act)). This meant senators and members of the House of Representatives could seek “disallowance” of such instruments to “ensure that Parliament retains effective oversight of delegated legislation”: see eg in a different context, Parliament of Australia, Report on the W**ork of the C**ommittee in 2011-12 (Report No. 117, June 2013) at [2.16] (emphasis added). It would therefore give too much weight to the determinations to conclude that the Rules evidenced an intention to adopt the language of the determinations.

40. Secondly, while courts can look at the statute’s legislative history (including prior statutory provisions which deal with the same subject matter), that is done to enable a court to work out the legislation’s purpose in relation to that subject matter; previous iterations of statutory provisions are not authoritative on the meaning of an equivalent provision: see Pearce at [3.41]-[3.42]; see also Plaintiff S297/2013 v Minister for Immigration and Border Protection (2014) 255 CLR 179 at [25] (Crennan, Bell, Gageler and Keane JJ).

41. In any event, the previous phrases “relevant RHBO HPPAs (or similar arrangements)” and “relevant RHBO” have not been used in the Rules; instead, “relevant insurer’s negotiated agreements” has been used. I do not consider that previous iterations meaningfully assist the interpretation of the current text. Further, the previous phrases do not clarify, nor confirm, the use and meaning of “relevant”, particularly in circumstances where “relevant RBHO” and “similar agreements” had different definitions in the 2003 and 2004 determinations. The question of the use of “relevant” in cl 3(6) must be determined on the text and available material, as identified above.

42. Therefore, I consider the proper construction is that only the “relevant” negotiated agreements are to be used to form the “majority” of negotiated agreements, for the purposes of identifying the “episode”. “Relevant” negotiated agreements are those that contain an equivalent type of episode. Reference might be made to Rehabilitation Medicine at [43]-[44], where Derrington J noted that cl 3(8) provides that the average charge for the equivalent episode of hospital treatment is to be calculated using “all” of the insurer’s negotiated agreements, “not merely those which provide for an equivalent episode of hospital treatment” (ie “relevant” negotiated agreements), so that there is a greater data set to use in calculating the minimum benefit.

43. The focus then is on how the majority of those “relevant” negotiated agreements use the patient classification system and payment structure to identify the particular episode.

Meaning of “majority”

44. I consider the use of the word “majority” was to avoid requiring absolutely the same approach in all agreements an insurer had with comparable hospitals. I therefore reject CBHS’s submission that to reach this conclusion requires reading in additional words at the end of cl 3(6); instead, this construction gives work to the word “relevant”.

45. This particular issue of the meaning of “majority” did not arise in Rehabilitation Medicine, because all of the comparable agreements used the same patient classification system and per diem payment structure, as Derrington J explained at [40]:

… the “episode of hospital treatment” is, therefore, to be determined by reference to the three hospitals, comparable to the Spendelove Private Hospital, with which NIB has negotiated agreements. The patient classification system used by all three is the DRG system, and the payment structure is on a per diem basis. On this basis, the equivalent episode of hospital treatment is capable of being identified (but not yet calculated) as the “medical private room” rate provided by each of these comparable private hospitals.

46. However, as his Honour made plain, the process is to consider the patient classification and payment structure in all the relevant agreements. Because there were only three agreements and, in each, the patient classification system and payment structure for “medical private room” was the same, there was obviously a majority of agreements, and it was easy to determine the episode and the “rate”.

Use of a Department “consultation workshop” note?

47. To support its construction, CBHS sought to reIy on a document created for a Department “consultation workshop” on 1 June 2023 to discuss the regulatory framework for second-tier benefits, which AHSA staff attended. The reason CBHS sought to rely upon that document was that it referenced certain paragraphs in Rehabilitation Medicine and then provided a worked “example”, said to be equivalent to the present dispute; that example read as follows:

A psychiatric hospital (second-tier category A) also provides rehabilitation services and seeks to claim second-tier benefits from the patient’s insurer. The insurer has contracts with a number of hospitals categorised as category A. It then must then [sic] consider whether those contracts also include payment of benefits for rehabilitation services in accordance with their ‘patient classification system and payment structure’ and ‘majority of the relevant insurer’s negotiated agreements’ (Step 1 – Schedule 5, Rule 3(6)). If rehabilitation services are included in less than a majority of contracts with category A hospitals in the jurisdiction (i.e. Rehabilitation services included in only 9 or 20 of contracts with category A hospitals in Victoria) then the episode of hospital treatment cannot be identified and minimum benefits are paid for the rehabilitation services in accordance with the amounts in Schedule 1 ... or Schedule 2… or … Schedule 3 …

48. CBHS submitted that while that consultation note was not “determinative”, it was relevant because the words in the Rules were not changed after Derrington J’s decision in Rehabilitation Medicine or the consultation note was produced, and therefore it ought to be concluded that where the Rules had been judicially construed and were not changed in later iterations, it is taken to demonstrate an intention that the words are to bear the meaning already “judicially attributed to them”: Re Alcan Australia Ltd; Ex parte Federation of Industrial, Manufacturing and Engineering Employees (1994) 181 CLR 96 at 106 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron, McHugh JJ) (and citations footnoted there) (Re Alcan).

49. In Re Alcan at 107, the High Court found the fact that Parliament did not adopt a committee’s recommended amendments to the legislation reinforced a presumption that Parliament did not intend to overturn the previous High Court decision.

50. However, Derrington J in Rehabilitation Medicine did not determine the proper construction of cl 3(6). I do not accept that a Department view of the proper construction of “majority” in the consultation note and the fact that the subsequent version of the Rules did not change the language of cl 3(6) amounted to the legislature intending the words to bear the meaning already “judicially attributed to them”.

51. Further, and critically, it is the Minister, not the Department nor the legislature, who makes the Rules: Act s 333-20(1) item 3A. There is no evidence that the Minister ever saw the note, nor was it ever made publicly available; it is an internal Department note for “discussion purposes” and there is no evidence of what was discussed. The note itself includes a disclaimer that it was “prepared to support a discussion and should not be interpreted as providing definitive advice regarding the provisions of [the Act] and/or [the Rules]”.

52. For those reasons, even if admissible, the note was, at most, a submission of a possible construction of cl 3(6), and therefore lacks any weight.

Rejection of CBHS’s other submissions

53. CBHS focused on the fact that cl 3(2)(b) contemplated that it may not be possible to work out an amount for an episode of hospital treatment, and therefore the Minister was not concerned with always guaranteeing a minimum benefit. It was said for this reason, the Explanatory Statement to the Rules said sch 5 “sets the minimum benefits for most episodes”, and not “all”. CBHS therefore submitted that sch 5 was designed to “provide legislated protection for certain types of episodes that are common to the category of hospitals covered by the Rules, while maintaining the option or incentive to negotiate BPAs”.

54. I do not accept that submission. While category B private hospitals are so designated because they provide rehabilitation care for at least 50% of the episodes of hospital treatment, that means many other services could be provided to patients. It cannot easily be accepted that the Rules were designed to leave uncertainty for private hospitals and insured persons, where services are provided in addition to rehabilitation. Further, after the use of the word “most” in the 2007 Explanatory Statement is “(excluding treatment provided to nursing home-type patients provided at private hospitals specified in Schedule 5)”. I consider that exclusion explains the use of the word “most”. To that extent, both the 2007 and 2011 version of the Rules contained sch 4, which concerned nursing home-type patients. It appears therefore apparent that the word “most” in both iterations was used to the exclusion of this category of patients which is separately provided for under the Rules.

55. Further, the preferred construction does not mean that an insurer would always have to provide a benefit for a particular episode. For example, it is possible that an insurer would not pay any benefit where a private hospital offered surgery and charged a theatre fee, where the insurer had no agreement with any comparable hospital and therefore it could not be determined how that insurer classified the patient or structured payment for that particular episode in any of the “relevant insurer’s negotiated agreements”.

56. CBHS also submitted:

The process of identification involves the simultaneous consideration of the treatment type, classification system and payment structure. Where the majority of comparable hospitals do not provide for a particular charge for a treatment type, no episode can be identified …

57. It may be accepted that there is a simultaneous process involved. However, as noted above, the requirement of “majority” of agreements appears designed to ensure that one identification is arrived at so that there are not multiple ways of calculating the minimum benefit for the particular episode; in determining the majority approach, only “relevant … negotiated agreements” are considered.

58. Had CBHS’s construction been intended, then it would have been a simple matter to state that where the majority of an insurer’s BPAs contain provision for a particular episode, then a formula would be applied, but not otherwise. As the plaintiffs submitted, there would have been no need to include any reference to patient classification systems and payment structure in that case.

59. Further, on CBHS’s construction there would be asymmetry in the benefits passed through to consumers through no fault of their own. If an insurer had 100 BPAs, yet only 49 contained provision for theatre fees, any other private hospital that provided theatre services to an insured consumer would not be eligible for any minimum benefit without an agreement. Where a hospital treatment has been provided, then a minimum benefit ought to be payable; it is merely a question of how that benefit is quantified.

60. I do not accept CBHS’s construction is consistent with the Rules’ purpose or gives the best effect to the language used.

Conclusion

61. The issue is how to “identify” an “episode of hospital treatment” under cl 3(6). I consider that requires use of the patient classification system and payment structure in the majority of CBHS’s agreements that include an equivalent “episode”, and then a determination of how the majority of agreements use patient classification systems and payment structures, in order to then have a basis for the calculation of the minimum benefit for the particular episode.

62. The purpose of the Rules is to determine the “minimum” benefit payable. Therefore, including for the reasons above, I do not consider cl 3(6) ought to be read as a bar (or limit) to any benefit, which is the effect of CBHS’s construction. I do not consider CBHS’s construction is the better one.

63. Instead, the purpose of the Rules is to provide incentives for private hospitals to offer services to consumers and ensure private health insurance benefits are passed on to patient consumers. The purpose of sch 5 was to determine the minimum benefit where an insurer did not have an agreement with a private hospital. Clause 3(6) identifies the episode of hospital treatment given to a consumer; it does not set up barriers to benefits being paid nor restrict the payment of minimum benefits. An ordinary reading of cl 3(6) supports the construction that an episode is to be identified using the patient classification systems and payment structure in the majority of the “relevant” BPAs that include an equivalent episode.

Application of the proper construction

64. There was no dispute that in relation to theatre fees and surgical accommodation, where it has a BPA, CBHS almost always used a per diem payment structure based on the usual patient classification. CBHS’s evidence was that the “episode type” is “surgical treatment”, which “under the per diem model … is classified as either ‘general surgery’ or ‘advanced surgery’”, which was said to be by reference to the sch 1 classification of “surgical patient” or “advanced surgical patient”. CBHS’s BPAs pay a benefit for “theatre fees” and “surgical accommodation”. However, it was not suggested that it was not possible for there to be an episodic payment structure for an equivalent episode of hospital treatment, and in fact, CBHS has one BPA using an episodic payment model.

65. As at 1 August 2025, CBHS’s 20 negotiated agreements with category B hospitals in NSW (including with the plaintiff hospitals) can be analysed:

66. The per diem payment structure and the patient classification system derived from sch 1 of the Rules was in place in relation to all of CBHS’s negotiated agreements, except for one.

67. While all negotiated agreements provided for benefits for some kind of accommodation, whether surgical or another kind, 8 of 20 provided benefits for overnight surgical accommodation.

68. 8 of 20 provided benefits for theatre fees.

69. It is therefore possible to determine the methodology used in the majority of the 8 CBHS BPAs that provide benefits for surgical accommodation (or a subset of that type of accommodation) and theatre fees in order to carry out the calculation of the minimum benefit payable for those episodes as provided for in cls 3(4) and 3(5). CBHS must do so.

70. CBHS did not suggest that the plaintiffs’ form of declarations would not be appropriate, should they be successful.

Appropriate orders

68. I therefore make the following orders:

69. I declare that, from 17 March 2026, the Defendant is obliged to pay a separate minimum benefit for theatre fees, being in respect of the provision of an operating theatre and related goods and services (including the supply of consumables and hospital staff) to a patient insured by the Defendants at an MHC Surgical Private Hospital (as defined in the Amended Commercial List Statement filed on 19 June 2026), that is higher than $0 calculated in accordance with Sch 5 cl 3 of the Private Health Insurance (Benefit Requirement) Rules 2011 (Cth) (Rules), rather than included as part of another benefit identified in the Purported Tier 2 Schedules delivered by AHSA on behalf of the Defendant on 13 March 2026.

70. I declare that, from 17 March 2026, the Defendant is obliged to pay a minimum benefit in respect of surgical accommodation provided to a patient insured by the Defendant at an MHC Surgical Private Hospital, that is calculated in accordance with Sch 5 cl 3 of the Rules, rather than as set out in the AHSA letter of 16 March 2026 which specified minimum benefits by reference to Sch 1 and Sch 3 of the Rules.

71. Defendant to pay the plaintiffs’ costs as agreed or assessed.

72. Should any party seek an alternative costs order to order 3:

(a) That application to be made to the Chambers of Peden J by 2 September 2026 with evidence and up to 3 pages of submissions; (b) The responding party to provide evidence and up to 3 pages of submissions by 7 September 2026; and (c) The application to be determined on the papers, if appropriate.

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Macquarie Hospital Services Pty Ltd v CBHS Health Fund Limited - Annexure A (80.3 KB, docx)

Amendments

28 August 2026

Added 17 March 2026 to catchwords and paragraph [68(1) and (2)].