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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Administrative Law - judicial Review - decision fixing nursing home fees - considerations to be taken into account - staffing levels and profit - reliance on departmental policy - viability of nursing home - purpose of legislation - effect of amendment to legislation. STATUTES - Interpretation - use of extrinsic material to determine purpose
of amending legislation - Minister's Second Reading speech.
Administrative Decisions (Judicial Review) Act 1977 s.5
National Health Act 1953 ss.40AA, 40ADof fees chargeable - Matters for consideration - Reliance on departmental policy - Staffing levels and profits - Viability of nursing home - Retraction in profits - Guidelines applicable after 1983 amendments - Absence of Minister's guidelines - Whether determination unreasonable or unlawful - National Health Act 1953 (Cth), s. 40AA - Acts Interpretation Act 1901 (Cth), s. 9 - Administrative Decisions (Judicial Review) Act 1977 (Cth), s. 5.Social Services - National health legislation - Nursing home - Determination
Statutes - Operation and effect of statutes - Amendment coming into "operation" - Repeal of earlier provisions - Amendments not in effective operation till Minister formulates guidelines - Failure of Minister to formulate guidelines - National Health Act 1953 (Cth), s. 40AA - Acts Interpretation Act 1901 (Cth), s. 9 - Administrative Decisions (Judicial Review) Act 1977 (Cth), s. 5. Held: (1) The 1983 amendments to the National Health Act 1953 (Cth), s. 40 AA(7) (which are expressed to apply to the determination of the scale of fees for a nursing home by the permanent head of the Commonwealth Department of Health) received Royal Assent in June 1983 and came into "operation" within the Acts Interpretation Act 1901 (Cth), s. 9 and repealed the earlier provisions but did not come into effective operation as the Minister had not formulated principles for the subsection.
Usher v. Barlow (1952) 1 255 at 263 and Novacic v. Cooper (1973) 21 F.L.R. 436 at 446, applied.
(2) In the absence of specific principles a determination under s. 40AA(6)(c) (i) must accord with the general policy of the Act as it was after the 1983 amendments.
(3) The determination must have regard to: (a) Costs necessarily incurred in providing nursing home care as a fundamental consideration.
Re: Hunt; Ex parte Sean Investments Pty Ltd [1979] HCA 32; (1979) 53 A.L.J.R. 552, followed.
(b) Nursing homes ought to be commercially viable when efficiently run.
Nagrad Nominees Pty Ltd v. Howells (1981) 54 F.L.R. 170 (Northrop J.); Sean Investments Pty Ltd v. MacKellar (1981) 38 A.L.R. 363 (Bowen C.J. and Fox J.), followed.
(c) Commercial viability required a reasonable level of profit.
Howells v Nagrad Nominees Pty Ltd (1982) 66 F.L.R. 169 (Smithers J.), followed.
(d) The scale of fees must not be excessive or unreasonable for patients, including indigent patients.
Sean Investments Pty Ltd v. MacKellar (1981) 38 A.L.R. 363 (Bowen C.J. and Fox J.), followed.
(e) The fees finally determined must be appropriate for the particular nursing home and its patients.
Re: Hunt; Ex parte Sean Investments Pty Ltd [1979] HCA 32; (1979) 53 A.L.J.R. 552; (Murphy J.); and Sean Investments Pty Ltd v. MacKellar (1981) 38 A.L.R. 363 (Deane J. and Franki J.), followed.
(4) The determination of staff salaries by an acceptance of the Health Commission of Victoria's "approved" hours together with a departmental guideline figure of fourteen per cent for additional staff to cover leave even though the particular nursing home was reasonably and efficiently run and exceeded those figures did not result in the determination being unreasonable or improper within the Administrative Decisions (Judicial Review) Act 1977 (Cth), s. 5.
(5) Likewise the use of "historic costs" in fixing profits which amounted to a compression of profit for the applicant to a point just short of causing the enterprise to fail whilst unfair was not within the Administrative Decisions (Judicial Review) Act (Cth), s. 5 even though with the passage of time and rising inflation it may become so unreasonable as to fall within the section.
HEARING
Melbourne, 1984, March 30; April 2, 30; May 1-4, 7, 9-11, 15; August 7. 7:8:1984APPLICATION.Health fixing the scale of fees chargeable by a nursing home pursuant to the National Health Act 1953 (Cth) s. 40AA(6)(c)(i). The application was made under the Administrative Decisions (Judicial Review) Act 1977 (Cth) s. 5.Application to review a decision made by the Commonwealth Department of
W. E. Paterson Q.C. and R. Gillard, for the applicant.
R. McK. Robson, for the respondents.
Solicitors for the applicant: Lloyd & Lloyd.
Solicitor for the respondent: Australian Government Solicitor.
B.A.G.
ORDER
THE COURT ORDERS THAT:The application be dismissed with costs.
Application dismissed with costs.
DECISION
Summary of main issuesThis is an application by a nursing home to review anadministrative decision made within the Commonwealth Department of Health, ('the Department'), fixing the fees which the nursing home is allowed to charge its patients.
2. It is alleged by the nursing home that the Department's method of calculating the fee is open to challenge under the Administrative Decisions (Judicial Review) Act 1977 ('the ADJR Act').
3. Originally, a number of aspects of several distinct decisions were challenged by the applicant but, as events have developed and issues have been refined, two central issues have emerged.
4. The first is whether the Department can be successfully challenged under the ADJR Act for allowing the applicant only a modest amount by way of profit in calculating the fees which the applicant is allowed to charge.
5. The second is whether the Department can be similarly challenged over the
way in which it arrives at the staffing levels upon
which it calculates the
salary component of permitted fees.
History of legislative scheme
6. Before dealing with these and other subsidiary issues which have been raised, it is convenient to set out the relevant history of the Department's involvement with nursing homes and the legislative framework within which it operates and has operated.
7. Before 1972 the Department's involvement with nursing homes was slight. A moderate subsidy was paid by the Commonwealth to approved nursing homes, and the Department supervised these payments.
8. In the 1972 Budget, the subsidy to approved homes was substantially increased and, from 1 January 1973, the Commonwealth assumed powers to approve nursing homes and to control the numbers of approved homes, the admission of patients to those homes and the fees which they could charge. It was theoretically open to nursing homes to remain outside the scheme, charging patients what they wished and receiving no Commonwealth subsidies. Given a scheme which provided substantial subsidies (which at present cover about three-quarters of the fees), remaining outside such a scheme can have had little attraction to the great majority of nursing homes.
9. Section 40AA of the National Health Act 1953 ('the Act') was inserted in 1972 and it provided, among other things, for the approval of nursing homes and the fixing of the fees they would be permitted to charge from 1973 onwards. The observance of such maximum fees was a condition of the approval of nursing homes.
10. The Permanent Head of the relevant department (then the Department of Social Security, now the Department of Health) was given the power to fix a scale of fees for each nursing home and to vary it from time to time (ss.40AA and 40AD of the Act). He could delegate this power (s.6), and since the power is normally exercised by a delegate, and was so exercised in the present case, I shall generally refer in this judgment to the delegate rather than the Permanent Head.
11. It is not contested that the first fixation of nursing home fees, to apply from 1 January 1973, was based upon the fees charged by the particular nursing home at 30 June 1972. The intention was to provide the same gross return as the nursing home had set for itself six months earlier.
12. It was then intended that the fees would be adjusted from time to time as costs rose, salaries being adjusted in accordance with movements in award wages and other costs in accordance with rises and anticipated rises in the Consumer Price Index. Adjustments were to be made annually and the inevitable differences between predicted and actual rises would be further adjusted by a system of loadings - temporary variations in fees to apply for a period of some months - which would recoup the nursing home for underpayments, or the patients for overpayments.
13. It will be seen from this description that the original fees fixed would have contained some element of profit - whatever was being achieved by the nursing home in 1972 - along with the necessary allowance for costs. After 1973, it was Departmental policy that only the changes in costs would be provided for in fixing fee increases. The element of profit was not adverted to and so, provided costs were fully and accurately adjusted, it would remain the same in money terms, but decline in real value as a result of inflation.
14. For Victorian nursing homes, the wages component in the costs was based upon the minimum staffing requirements laid down by the Health Commission of Victoria ('HCV') under relevant State legislation. However the evidence establishes that these figures could be, and quite often were, varied upwards by the Department in particular cases. Because the Department's officers had little or no expertise in the running of nursing homes, they relied upon officers of the HCV to advise them when they thought an increase above minimum standards was required.
15. This, in broad outline for present purposes, was the scheme for nursing
homes which came into force in 1973.
Previous decisions concerning s.40AA of
the National Health Act 195316. The scheme was the subject of challenge and examination in several actions in this Court and the High Court in the years that followed. Most of these cases revolved around sub-section (7) of s.40AA of the Act, which gave the only direct guidance to the Permanent Head or his delegate as to how fees were to be fixed. It provided
"(7) The Permanent Head shall, in determining the17. The first case in which these words and their context were considered was R v Hunt, ex p. Sean Investments Pty. Ltd. [1979] HCA 32; (1979) 53 ALJR 552, 25 ALR 497. There Mason J., speaking for the majority of the High court, held that the costs to be considered included the costs of acquiring premises - which in that case was by payment of rent. The payment of rent was "necessarily incurred" if it was lawfully demanded by a landlord at arm's length from the nursing home proprietor, even if it was higher than the normal rent for similar premises. However the Permanent Head was only required to "have regard to" costs necessarily incurred. As Mason J. said, at ALJR p.554, ALR p.504,
scale of fees in relation to a nursing home .....
have regard to costs necessarily incurred in
providing nursing home care in the nursing home."
"There are two reasons for saying that the18. In October 1981, Northrop J. decided the case of Nagrad Nominees Pty. Ltd. v Howells, 38 ALR 145. His Honour there held, among other things:
costs are a fundamental element in the making of
the determination. First, they are the only matter
explicitly mentioned as a matter to be taken into
account. Secondly, the scheme of the provisions is
that, once the premises of the proprietor are
approved as a nursing home, he is bound by the
conditions of approval not to exceed the scale of
fees fixed by the Permanent Head in relation to the
nursing home. In many cases it is to be expected
that the scale of fees will be fixed by
ascertaining the costs necessarily incurred and
adding to them a profit factor. In the very nature
of things, the costs necessarily incurred by the
proprietor in providing nursing home care in the
nursing home are a fundamental matter for
consideration.
However, the sub-section does not direct the
Permanent Head to fix the scale of fees exclusively
by reference to costs necessarily incurred and
profit. The sub-section is so generally expressed
that it is not possible to say that he is confined
to these two considerations. The Permanent Head is
entitled to have regard to other considerations
which show or tend to show that a scale of fees
arrived at by reference to costs necessarily
incurred, with or without a profit factor, is
excessive or unreasonable. It may be that the rent
paid by the proprietor of a nursing home, though a
cost necessarily incurred, exceeds the prevailing
rental which is paid for comparable premises and
that the determination of a scale of fees by
reference to that rent would result in a scale of
fees which is unreasonably high. The Permanent
Head would be entitled to take this factor into
account in making his determination."
(a) The policy of the Act required that private nursinghomes should generally be viable. He said, at p.162,
"In my opinion, the relevant essential policy ofCourt decision in R v Hunt ex p. Sean Investments (above), requiring that increased costs resulting from changes in proprietorship should not be considered when fixing fees, were contrary to the Act.
the Act is to ensure that the proprietors of
private nursing homes do not make excessive profits
in providing nursing home care, particularly since
the Commonwealth to some extent does subsidize
patients admitted to those homes. The Act
presupposes the existence and the continuation of
private nursing homes. The number of approved
nursing homes can be restricted. The Commonwealth
does not provide all nursing home care, but because
it subsidizes patients in private nursing homes it
is concerned to ensure that the proprietors do not
make excessive profits."
(b) Departmental guidelines, prepared following the High
(c) In determining a profit factor (which the delegateshould normally do) the delegate was required to consider it in relation to the outlay of capital by the current proprietor, "and not give consideration to the profit factor applied to another person at another time" (p.167).
19. This decision of Northrop J. was the subject of an appeal to the Full Court. The judgment of that court is to be found, under the name of Howells v Nagrad Nominees Pty. Ltd., at (1981) 43 ALR 283.
20. In the course of his judgment, Smithers J. described the statutory
purpose of the relevant legislation in the following terms:
"The duty of the Permanent Head under s.40AA of the21. His Honour went on to say that the costs necessarily incurred in providing nursing care are not the only consideration to which regard must be had. His Honour found, following R v Hunt ex p. Sean Investments (above) that profit, which he specifically said was not a cost, is another matter to which regard should be had.
Act in relation to the determination of scale of
fees is to be ascertained from the statutory
framework set out above. It is manifest that
Parliament's intention is that there will be as
many nursing homes as are considered reasonably
desirable for providing the nursing home needs of
the qualified patients needing such care. People
have to be encouraged to provide the services. It
is an important objective and depends upon people
of the right kind being willing to undertake the
work and risk involved in providing that care. It
is a private enterprise approach to the problem.
Obviously, from every point of view the success of
the scheme is dependent upon there being available
to the proprietors of homes providing nursing care
financial returns which will constitute reasonable
financial income to them taking into account the
use of capital and the exertion involved in running
the home as manager and worker. It is manifest
that for the achievement of its objectives in
relation to nursing homes Parliament would intend
the Act to be implemented so that each home would
be a viability. To realize the importance to the
proprietor of an authorized nursing home having
access to the funds required to meet the costs of
giving the basic care in a nursing home it is only
necessary to visualize for a moment the lamentable
plight of old, sick and largely helpless inmates
should they not receive sufficient food and
physical attention. And of course it is not only
important to the proprietor of the home but basic
to the whole scheme visualized by Parliament."
(pp.290-291).
22. The other members of the Court, Fox and Franki JJ., in a joint judgment,
said at p.305
"The ascertainment of "costs necessarily incurred"23. Following this decision the Act was amended, and it will be necessary to consider the inter-relation between the Nagrad case and the Act so amended. Before doing so it will be convenient to conclude this review of authorities in which the scheme of the Act relating to nursing homes has been considered.
is an appropriate starting point in a determination.
We do not think we can usefully suggest an order in
which other relevant matters might be considered.
Whether an allowance should be made for profit, and
what fees are necessary to make the hospital
business economically viable are factors for
consideration, but a question can properly arise as
to whether, all these elements having been
calculated, the result is a scale of fees which is
excessive or unreasonable. In the end, necessary
and proper considerations being taken into account,
the Permanent Head has a wide discretion."
24. In Sean Investments Pty. Ltd. v Mackellar (1981) 38 ALR 363, Deane J.
dealt with the power of the Minister to determine fees for nursing homes under
the Act. There is provision in the Act
(s.40AE) for an appeal to the Minister
from a decision of the delegate. The constraints imposed by the Act were at
that time the
same in either case, although a later (1983) amendment gives the
Minister more latitude. At p.368, Deane J. adopted a passage from
the
judgment of Murphy J., who had dissented in R v Hunt ex p. Sean Investments
Pty. Ltd. (above), saying that he could detect no
conflict between it and the
majority judgment delivered by Mason J. The passage read,
"The Minister may adopt a general policy in regard25. Applying this approach to the matter before him, Deane J. held that there had been no failure by the Minister to have regard to relevant matters, nor any other defect in his decision which could be challenged under the ADJR Act.
to scales of fees, and deal with a review of fees
for a nursing home in the light of that policy, but
his determination or review must be in order to
arrive at an appropriate scale of fees for the
particular nursing home. If the costs necessarily
incurred are excessive for any reason whether
inside or outside the control of the proprietor, it
may be that the scale of fees the Minister
determines is such that if those costs continue,
the home can be conducted only at little profit or
at a loss. If that result follows it is because
the Minister is not engaged in determining a scale
of fees according to a cost plus system; he is
carrying out a statutory duty to determine what, in
his opinion, is an appropriate scale of fees in
relation to the approved nursing home."
26. His Honour's decision was upheld by the Full Court of this Court in Sean
Investments Pty. Ltd. v MacKellar (1982) 42 ALR 676. Referring to the purpose
of the legislature, as determined from the language used in the legislation,
Bowen C.J. and Fox J. (with
whom Franki J. agreed) said, at p.681,
"When considering the purposes of the Act, it is27. In his separate judgment, Franki J. said, at pp.683-4,
almost always easier to decide, negatively, and in
relation to concrete cases what is inconsistent
with those purposes than to propound them
positively. While wise administration would
probably suggest that each nursing home be kept
viable, we are unable to construct a purpose of the
Act to the effect that adequate profit must be
allowed in every case. This is evident from what
we have already said. Also, we are unable to
conclude that the ability of patients, that is to
say, uninsured patients, to pay cannot be a
relevant factor. This view is unaffected by the
consideration that in the case of pensioner
patients their income is largely, and in some cases
wholly, what the government decides to provide out
of its funds. A major purpose of the whole scheme
must be to provide nursing home care for indigent
patients, and one would expect that fees, and
subsidies, will be determined with this in mind."
"In my opinion five fundamental points arise from28. The final case to be considered at this point is Croft v Minister for Health [1983] FCA 12; (1983) 45 ALR 449. There Smithers J. held that the Minister had failed to take into account the rent which the proprietor of the nursing home business was required to pay pursuant to an agreement and had therefore not considered an important element of the "costs necessarily incurred" which s.40AA(7) of the Act obliged him to consider, though not necessarily to act upon.
the judgments of the majority in Re Hunt; Ex parte
Sean Investments Pty Ltd [1979] HCA 32; (1979) 25 ALR 497; 53
ALJR 552. They are that:-
(1) The maximum fees must be determined in
relation to the provision of nursing care in the
particular nursing home under consideration.
(2) All costs necessarily incurred by the
proprietor in providing nursing home care in the
nursing home must be taken into account and weight
given to them as a fundamental element in the
determination.
(3) An allowance for profit may be made.
(4) Account may be taken of other
considerations which tend to show that a scale of
fees arrived at by reference to costs necessarily
incurred, with or without a profit factor, is
excessive or unreasonable.
(5) Within the scope of (1) to (4) the
Minister has a wide discretion.
A difficulty arises in considering from whose
point of view the reasonableness of the fees may be
examined. Must the fees be looked at in relation
only to the costs of the particular nursing home?
Murphy J, in the minority judgment, said at 556
that "The purpose of providing a government subsidy
is to lower costs to the public".
I think there is much to be said for the view
that, although some account may be taken of factors
relating to the position of occupants, the income
of pensioners, who were not specifically referred
to in the sections of the National Health Act 1953
dealing with nursing homes, should not be the
determining factor in fixing maximum fees which,
after due regard is paid to costs necessarily
incurred in providing nursing care in the nursing
home under consideration, are not otherwise thought
to be unreasonable."
29. His Honour said, at pp.465-6,
"It is manifest that the success of the scheme1983 amendments to s.40AA
depends upon there being available to the
proprietors of nursing homes financial returns
which will constitute reasonable income taking into
account all genuine items of cost. The provisions
in s.40AA(7) serve the objective that the essential
interest of the old and largely helpless inmates of
nursing homes that care is honestly provided and is
reasonably adequate. Hence the command in
s.40AA(7) requires attention in every case to be
the reasonableness and propriety of necessary costs
said to be involved in providing nursing care in
the particular home concerned. That the level of
fees be adequate to encourage honesty and service
at an acceptable level is obvious. In these
circumstances it is important that costs especially
those which are said to be necessarily incurred,
should be considered on their merits as possibly
reasonably incurred and proper to be taken into
account in relation to the proper and reasonable
financial circumstances of the home. To exclude
such consideration of such costs on the ground that
they have been incurred in association with the
purchase of the home offends this requirement.
Attempts by nursing home proprietors, including
purchasers, to exploit the system by increasing
costs by contrived legal arrangements or otherwise
may be dealt with appropriately by applying the
tests of reasonableness, fairness and propriety."
30. It is against this background of legislation, judicially construed, that I must consider the amendments to s.40AA of the Act which received Royal Assent on 19 June 1983.
31. In doing so I have been invited by the respondents to make use of the Minister's Second Reading Speech to assist me in determining the effect of the amendments on the general scheme and purpose of the Act. It was argued that, whether or not the amendments to the Acts Interpretation Act 1901, concerning the use of extrinsic material in the interpretation of an Act, are in force by the time this judgment is delivered (as in fact they are), there is recent authority entitling me to do so, see TCN Channel Nine v AMP Society [1982] FCA 169; (1982) 42 ALR 496 at 507-8, and cases there cited.
32. I prefer to rely on that authority rather than on the amending legislation, because the new s.15AB of the Acts Interpretation Act 1901 relates to "the interpretation of a provision of an Act". What I am concerned with here is not exactly a question of interpreting a provision. It is rather the determination of the policy underlying the part of an Act which includes particular provisions granting powers, in order to determine what restrictions are to be implied on the exercise of those powers.
33. Although the decisions of this Court could not be categorized as "the mischief to which a statute is directed" (which the TCN case was concerned with) I believe the analogy is close, and when it appears likely or possible that Parliament has enacted or amended legislation in order to override or reduce the impact of certain judicial decisions, it is convenient and proper to consider Hansard reports (along with any other relevant material) as an aid in determining the true intent of the legislature.
34. The Minister (who is of course the first-named respondent to these
proceedings) had this to say in introducing relevant amendments
on 11 May
1983:
"The Government intends to develop a Community35. The amendments to which the Minister was referring took the form, for present purposes, of an addition to sub-section 6(c)(i) of s.40AA - which gives the Permanent Head (and his delegate) the power to determine nursing home fees - and the substitution of a new sub-section 7 and additional sub-sections (7A) to (7F).
Care Program to provide support for the elderly who
wish to remain in their own homes. Under this
program there will be a comprehensive range of
domiciliary and community services provided across
Australia.
On the residential side our task will be to
moderate growth in the nursing home sector, while
continuing to pursue more equitable geographic
distribution of nursing home beds, and to increase
the availability of hostel accommodation. It is
our view that neither per capita nursing home
benefits funding nor deficit funding are ideal
methods for securing the proper national
development of nursing homes in the context of a
total care policy for the aged.
Existing nursing home benefits and deficit
funding arrangements will be replaced by program
grants paid to nursing homes. These program grants
will be based on standard costs for the services
delivered less the income received by the homes
through standard patient contributions. The
program grant system will take some time to
develop. In the meantime the existing funding
arrangements for nursing homes, will be maintained.
The principal purpose of clause 3 of the Bill
is to ensure protection for patients against
excessive fee increases and at the same time to
ensure appropriate control of expenditure on
benefits under the current nursing home benefits
arrangements pending the introduction of the
Government's Residential Care Program. Expenditure
on the Nursing Homes Benefits Program is determined
by the number of approved beds and the level of
benefit. The benefit level in each State is
related to the levels of nursing home fees in that
State which in turn are determined by my Department
having regard to costs necessarily incurred by
nursing home proprietors.
The existing legislation on the control of
fees simply provides that in determining fees the
permanent head shall 'have regard to costs
necessarily incurred in providing nursing home care
in the nursing home'. Two recent Federal Court
Judgments have shown that this legislation is not
able to support the policies and practices followed
over many years in the administration of fees
control - policies and practices which have been
followed by both Labor and Liberal-national Party
governments. These judgments have serious
implications for the overall cost of the Nursing
Homes Benefits Program.
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. Limited costs
validations undertaken by my Department have
revealed cases where costs have been artificially
increased as a means of increasing profits. A
recent consultancy survey undertaken with the
co-operation of the industry revealed considerable
variations in costs and profits between like homes.
Legal opinion has been given to the effect
that, in the light of the recent Federal Court
judgments, the legislation greatly circumscribes
the use of policy guidelines. Consequently, very
great burdens will be placed upon delegates of the
permanent head whose task it is to determine fees.
The judgments interpret the legislation as
requiring the permanent head and his delegates to
regard all costs necessarily incurred as
fundamental matters for consideration, with each
fee being determined on the basis of the merits of
each individual case. The considerable
difficulties involved in maintaining consistent
administration Australia-wide will be much
exacerbated. Successive governments have acted on
the basis that Parliament, in passing the fees
control legislation, did not intend to limit
significantly central control and accountability,
particularly given that the legislation makes
detailed provision for appeals against, and reviews
of, delegates' determinations.
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 effect of clause 3 will be to allow the
effective continuation of established policies and
practices pending the introduction of the
Government's residential care program. The Bill
provides that the Minister for Health may formulate
principles in accordance with which the permanent
head or his delegate is required to determine a
scale of fees. It is intended that the principles
will reflect established policy. The Bill provides
for scrutiny of the principles by Parliament. In
formulating these principles, regard is to be had
to the factors set down in the proposed sub-section
40AA(7B). These factors will permit delegates to
take account of the lack of normal market
constraints on the nursing home industry.
Clause 4 of the Bill is designed to ensure
that the Minister is not, of necessity, constrained
by principles authorised by clause 3 which are
intended to limit the discretion of a large number
of delegates of the permanent head throughout the
country. Thus, on appeal, the Minister may, in
considering the merits of a case, decide that rigid
application of the principle is inappropriate.
This change puts beyond legal doubt a practice
which has been followed by successive Ministers of
governments of all complexions.
In summary, the proposed changes will ensure
that the Government is able to continue the
application of policies and practices in nursing
homes fees control, established and supported by
successive governments, pending the introduction of
the present Government's residential care program."
36. Sub-section 6(c)(i) now reads,
"(6) The approval of premises as an approved37. The relevant new sub-sections replacing sub-section (7) are as follows:
nursing home is, except in the case of a Government
nursing home, subject to the following conditions:
............
(c) a condition that -
(i) the fees charged in respect of the
nursing home care of a qualified
nursing home patient in the nursing
home will not exceed such fees as
are from time to time applicable in
respect of the nursing home care of
the patient in accordance with such
scale of fees as is determined,
subject to any principles that have
been formulated under sub-section
(7) and that are in force, by the
Permanent Head in relation to the
nursing home;"
The words added by recent amendment are underlined.
"(7)The Minister may, by writing under his hand,38. The other new sub-sections give the envisaged principles the status of regulations or statutory rules for certain purposes.
formulate principles in accordance with which
scales of fees are to be determined for the
purposes of sub-paragraph (i) of paragraph (c) of
sub-section (6) in relation to nursing homes
generally or in relation to nursing homes included
in specified classes of nursing homes.
(7A)Without limiting the generality of sub-section
(7), principles formulated under that sub-section
may -
(a) specify matters of a kind that are, in the
case of each nursing home or of each nursing
home included in a class of nursing homes, to
be taken into account in determining a scale
of fees for the purposes of sub-paragraph (i)
of paragraph (c) of sub-section (6);
(b) specify matters of a kind that are, in the
case of each nursing home or of each nursing
home included in a class of nursing homes, to
be disregarded in determining a scale of fees
for the purposes of sub-paragraph (i) of
paragraph (c) of sub-section 6; and
(c) specify criteria for assessing, in relation to
matters of a kind that are required, in
accordance with principles of a kind referred
to in paragraph (a) of this sub-section, to be
taken into account in determining a scale of
fees, the amounts that are to be so taken into
account in relation to matters of that kind.
(7B)In formulating principles under sub-section
(7), 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."
39. At the time the hearing in this matter began, no principles had been formulated by the Minister in accordance with sub-section (7), although a set of draft principles had been in existence for some time and were regarded by delegates as representing general departmental policy. Towards the end of the hearing I was informed that these draft principles had now been formulated in accordance with the Act. In accordance with the provisions of sub-section (7C) they must be tabled in the Parliament and are subject to the possibility of disallowance. Thus, as counsel for the respondents conceded in reply, "... perhaps that matter is in limbo at the moment".
40. The principles which are most relevant for present purposes are as
follows:
"3.(4)The Permanent Head shall, in exercising anyProvisions of s.40AA at time of relevant decision
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."
"4.(1) The Permanent Head shall, subject to
principles 5 to 13 inclusive and to
sub-principles (2) to (5) inclusive herein,
in determining a scale of fees, take into
account the operating expenditure of a
proprietor referred to in Part II
necessarily incurred in providing nursing
home care in the nursing home to the extent
and in the circumstances specified in Part
II and shall disregard all other
expenditure.
(2) The Permanent Head shall, in determining a
scale of fees, take into account a return to
the proprietor on the investment in the
nursing home and the business or undertaking
carried on at the nursing home which the
Permanent Head determines in accordance with
principle 10.
(3) The Permanent Head shall, in determining a
scale of fees, determine a separate scale of
fees for extensive care patients.
(4) The Permanent Head may, in determining a
scale of fees, take into account the scales
of fees determined in respect of and the
level of costs incurred in other comparable
nursing homes.
(5) Notwithstanding anything contained in these
principles, the Permanent Head shall
determine a scale of fees which is not
excessive or unreasonable."
"10.(1) The Permanent Head shall, subject to
sub-principles (3) to (7) inclusive herein,
in determining a scale of fees, take into
account a return on the land and buildings
used as the nursing home being the fair
market rental when the nursing home was
approved as an approved nursing home for the
purposes of the Act as determined by the
Taxation Valuation Branch of the Australian
Taxation Office.
(2) Subject to sub-principles (3) to (7)
inclusive herein, the Permanent Head shall,
in determining a scale of fees, take into
account:
(a) a return on the cost of fittings,
furniture, plant, equipment, and other
chattels used in providing nursing home
care in the nursing home whether owned
by the proprietor or not;
(b) a return on the investment in working
capital which shall be valued at the
equivalent of two weeks salaries and
wages expense when the nursing home was
approved as an approved nursing home
for the purposes of the Act; and
(c) a return on the establishment costs
which shall be valued at the operating
expenditure which was reasonably
incurred prior to the commencement of
the provision of nursing home care in
the nursing home and the reasonable
legal and accounting costs relating to
the establishment of the nursing home,
being the rate of return on Australian
Savings Bonds when the nursing home was
approved as an approved nursing home for the
purposes of the Act.
(3) Where a nursing home was approved as an
approved nursing home for the purposes of
the Act before these principles come into
effect, the Permanent Head shall take into
account as the return on investment for the
purposes of sub-principles 5(2) the return
on investment reflected in the scale of fees
as at the date these principles come into
effect.
(4) The Permanent Head shall, in determining a
scale of fees, disregard any increase in the
value of any of the items constituting the
investment in a nursing home or the business
or undertaking carried on at the nursing
home as provided in sub-principles (1) and
(2) herein and save as set out in
sub-principles (5) and (6) herein shall not
increase at any time the return taken into
account in determining a scale of fees.
(5) The Permanent Head shall, in determining a
scale of fees, take into account further
investment expenditure by the proprietor in
a nursing home or the business or
undertaking carried on at the nursing home
provided such expenditure relates to the
provision of increased bed capacity in the
nursing home.
(6) Notwithstanding anything contained in
sub-principles (1) to (5) inclusive herein,
where the Minister has made a decision under
sub-section 40AE(3) of the Act varying the
decision of the Permanent Head with respect
to the return on investment to be taken into
account in the scale of fees, the Permanent
Head shall take into account as the return
on investment for the purposes of
sub-principle 5(2), the return on investment
taken into account by the Minister.
(7) Where the investment in any of the matters
referred to in sub-principle (1) herein is
provided in part or whole by way of any
grant or subsidy by the Federal or a State
or Territory Government, the Permanent Head
shall disregard that portion of the
investment representing the grant or subsidy
in taking into account a return on
investment for the purposes of sub-principle
10(1)."
"13. The Permanent Head shall, in determining a
scale of fees, take into account all
benefits, income and advantages received,
earned or enjoyed by the proprietor in
respect of the business or undertaking
carried on at the nursing home over and
above the determined scale of fees in
respect of the provision of nursing home
care in the nursing home from any source
whatsoever."
41. The first question which I have to determine is the effective state of
the legislation at the time the delegate made his determination
of fees on 15
March 1984. It was argued for the applicant that the old sub-section (7) of
s.40AA of the Act was still in force because
of the operation of s.9 of the
Acts Interpretation Act 1901. That section reads
"Where an Act repeals in the whole or in part a42. It was argued that "the substituted provisions" of the new sub-section (7) had not "come into operation" because the principles for which they provided had not been formulated by the Minister.
former Act and substitutes provisions in lieu
thereof, the repealed provisions shall remain in
force until the substituted provisions come into
operation."
43. The validity of this argument depends upon the meaning to be given to the phrase "come into operation" in s.9 of the Acts Interpretation Act 1901. Is the reference to formal operation or to effective operation?
44. The National Health Amendment Act, No. 35 of 1983, provided that the amendments to s.40AA should "come into operation" on the day on which the Act received the Royal Assent, which was 19 June 1983. Taken at face value this means that from that day s.40AA was amended "by omitting sub-section (7) and substituting" the new sub-sections (7) to (7F).
45. If, however, s.9 of the Acts Interpretation Act 1901 is to be taken as applying to the coming into effective operation of the new sub-sections (7) to (7F), then that could only occur when the principles, to which those sub-sections exclusively related, were formulated by the Minister. Although the formulation of those principles is referred to in permissive rather than mandatory terms, it is clear from the Minister's Second Reading Speech that they form an integral part of the new legislative scheme.
46. In the events which have occurred - namely the failure of the Minister, for almost a year, to formulate such principles - the applicant's argument has a logical attraction; but I do not think it can succeed. I believe the reference in s.9 of the Acts Interpretation Act 1901 is to the formal coming into operation or commencement of amending legislation. Some such provision would be appropriate to put beyond doubt any possibility of a hiatus between Royal Assent and proclamation of a particular amending provision. That is sufficient to explain the existence of the provision.
47. It is true that, concerning related provisions of comparable legislation in the United Kingdom and the Australian Capital Territory, courts have held that "operation" can mean "effective operation". In those cases the provision in question enabled rules to be made or other appropriate steps to be taken "so far as may be necessary or expedient for the purpose of bringing the Act into operation" (Usher v Barlow 1952 1 Ch. 255 @ 263), or "for the purpose of bringing the ordinance into operation at its commencement" (Novacic v Cooper (1973) 21 FLR 436 @ 446). In these cases the Court of Appeal and the Full Court of the Australian Capital Territory, respectively, found, in effect, that in order to make sense of these provisions "operation" had to be read as meaning "effective operation". It is interesting to note that in 1976 the parallel provision in s.4 of the Acts Interpretation Act 1901 was amended in a way which avoided the difficulty caused by the word "operation" having two different meanings in the one section. It would appear that the word now has the consistent meaning of "formal operation", so that "coming into operation" is synonymous with "commencement" wherever the phrase is used in the Act.
48. I therefore hold that the old sub-section (7) was not in force at the
time the delegate made his determination of fees in this
case. Since the new
sub-sections were not in effective operation, the Act was silent for eleven
months as to specific guidelines
for the delegate to follow. Any limitations
on his discretion had to be derived from the general policy of the Act.
Policy of the Act at time of relevant decision
49. What then was the policy of the Act after the 1983 amendments? Had they
effected any change in the policy found by the several
decisions in the Sean
Investments, Nagrad and Croft cases referred to above? In my view they made
little, if any, difference to
the underlying policy of the Act. The following
principles, in my view, still applied:
1. The costs necessarily incurred by the proprietor of anursing home in providing nursing home care remained "a fundamental matter for consideration" by the delegate (to quote Mason J. in R v Hunt ex p. Sean Investments).
2. Fees should have been fixed in accordance withprinciples which presupposed "the existence and continuation of private nursing homes" (Northrop J. in Nagrad). In other words, nursing homes generally, though not necessarily a particular nursing home (Bowen C.J. and Fox J. in Sean Investments), should be commercially viable when efficiently run.
3. Commercial viability requires some reasonable returnon investments - a reasonable level of profit. "People have to be encouraged to provide the services", (Smithers J. in Howells v Nagrad).
4. The scale of fees suggested by principles 1-3 abovemust not be excessive or unreasonable for patients, including indigent patients (Bowen C.J. and Fox J. in Sean Investments).
5. The fees finally determined must be appropriate forthe particular nursing home and its patients (Murphy J. in R v Hunt, adopted by Deane J. in Sean Investments; Franki J. in Sean Investments.)
Events leading up to the relevant decision
50. Although it may be necessary to refer in general terms to events concerning the applicant which occurred before 15 October 1982, that marks a convenient starting point for the detailed narrative of the events preceding this application for review.
51. On that date, Sister Margaret Goode, on behalf of the applicant, signed an 'Application for variation in approved fees', commonly known as an NH 19. This form called for detailed information as to the number of beds, the numbers of patients occupying those beds from day to day (very close to a 100% occupancy rate in this and most other nursing homes), the gross income received from or on behalf of patients, and the total expenditure of the nursing home on some 35 separate items of expenditure there listed.
52. Among other things, the nursing home was also expected to provide details of its staff rosters for particular weeks and copies of its audited balance sheet and profit and loss statement for the previous year. In this case the balance sheet showed the value of land at cost as $46,102 and of buildings, before allowance for depreciation, at $67,027. Furniture and equipment, before depreciation, was shown at $35,342.
53. Armed with this information, the delegate made a determination which was conveyed to the applicant by a letter dated 8 March 1983.
54. The relevant parts of this determination, for present purposes, were
(a) an "adjustment to salaries and wages" representing areduction of $111.66 per day, being "the difference between the cost included in the fee structure at 20 June 1982 and the amount actually being incurred at that time as determined from the recent validation of wage records conducted at your nursing home". This meant that the amount allowed for wages when the fees were last fixed had, in the delegate's view, proved excessive when checked against the rosters actually worked in particular weeks.
(b) The delegate said, "It should be noted that salariesand wages expenditure is now based on a 14% replacement loading for permanent staff and casual rates where applicable". This "replacement loading", which had previously been 21%, was to cover the cost of extra staff to replace those on leave for any reason, whose salaries would in most cases continue. This change from 21% to 14% seems to have been largely responsible for the adjustment noted in (a) above.
(c) The total amount allowed by the delegate for salariesand wages in the coming year - $858,852 - was based on approved staffing levels of 468 hours per week for registered nurses (including the matron), 383 hours for enrolled nurses and 395 hours for nursing assistants, a total of 1246 hours. These were the hours in fact worked by the nursing home in the week ended 9 June 1983, but they were less than the 1297 hours rostered for the following week or the 1265 hours which the Department had "validated" or checked as the average for the eight weeks up to that time. The applicant was "advised that any application for an increase in the approved staff hours should be supported, in writing, by the Health Commission of Victoria".
(d) No allowance for profit was shown in thedetermination, but in fact the delegate, following the Nagrad decision, allowed 10% on the value of land and buildings shown in the balance sheet ($113,129); and 12>% was allowed on other assets shown there, namely furniture and equipment at $35,342 and current assets (almost entirely trade debtors) at $59,569. The resulting allowance for profit was $23,177.
(e) A "loading" of $78.47 per day was included in the feestructure, to run from 15 March 1983 to 21 September 1983. As explained earlier, this was intended to compensate the nursing home proprietor for the difference between anticipated and actual expenses in the previous accounting period.
55. On 22 March 1983 the applicant made a further application for an increase in the scale of fees. This claim was based on particular items of expenditure which had not been resolved earlier. The claim resulted in an increase of fees, including provision for a "loading" of $211.95 per day, to expire on 14 December 1983. No question arises from this determination.
56. This applicant then made three further applications for fee increases.
57. A claim was sent on 4 August 1983, seeking a review of the "replacement factor" of 14% referred to above. The applicant claimed it had "consistently been unable to meet this limit". A further claim was made at the same time which is not relevant for present purposes.
58. Then by letter dated 13 September 1983 an increase was sought based on extensions to the nursing home building which provided an additional 4-bed ward. The claim was for $5499 per year, being 13.5% of the construction cost of $40,734.
59. On 13 October 1983 the attention of the Department was drawn to certain requirements of the Health Commission of Victoria ('HCV') which the nursing home had been asked to meet, involving expenditure on fittings and furnishings.
60. These matters were dealt with together in a determination dated 15 December 1983, which, after representations from the applicant, was replaced by another, effective from the same date.
61. This determination was conveyed in a letter dated December 1983, no day being indicated.
62. It refused any adjustment to fees arising from the numbers of nursing staff employed, reiterating that increases in the approved level of nursing hours would only be considered if supported in writing by the Health Commission of Victoria.
63. An adjustment was, however, made to "the approved Excess of Permanent Fee Income over Approved Expenditure" (that is, the allowance for profit). The adjustment represented "a return on the additional capital that was invested in order to obtain approval for the increase in bed capacity from 50 to 54 beds". It was shown in evidence that the adjustment was calculated as 10% on new building works and 12.5% on new fittings and equipment. This increased the allowance for profit from $23,177 to $27,280.
64. No variation was made to the 14% replacement loading referred to earlier, but it was indicated that a "reconciliation" would be made when the actual wages paid for the 1982/83 year were processed.
65. Meanwhile another claim, central to these proceedings, had been made, by letter dated 20 October 1983 on behalf of the applicant, by a firm called Nasah Management Services.
66. The letter of 20 October foreshadowed an application to the Fees Review Committee of Inquiry, which had been established by the Act (s.40AE) to advise the Minister when appeals were made to him concerning fees.
67. The main argument of the letter, which was addressed to the delegate then
handling matters relating to the applicant, a Mr. Nugent,
was in the following
terms:
"The major problem we seek to overcome is the68. A prompt reply to this claim was received, dated 25 October 1983. It read,
totally inadequate return to the Proprietor of this
Nursing Home who has recently been advised by your
Department that she is entitled to make $23,177.00
per annum return for the Nursing Home freehold and
business. This figure relates to approx. $8.00 per
patient per week. To support our claim that the
amount currently recognised is grossly inadequate
and restricts the Proprietor from selling her
Nursing Home at a fair market value, we have
enclosed for your attention a copy of a Valuation
undertaken by K.L. Dowling & Co., Estate Agents &
Registered Valuers of 424 St. Kilda Road, Melbourne
on August 16, 1983. The report clearly indicates
that a reasonable rental for the property, on
current market value, would be in the vicinity of
$27.70 per patient per week or $77,781.60 per
annum.
In addition to the above, any responsible
Proprietor who undertakes to operate the Nursing
Home business would require in addition to the
above rental a minimum of $67,500 per annum or
$1,250.00 per patient per annum (including working
capital) to provide a service and facility
commensurate with current acceptable standards.
It can therefore be seen that the current return in
inadequate and would require a minumum adjustment
of $122,104.60 per annum to allow this Nursing Home
to operate in a manner consistent with reasonable
business practise, i.e.
Rental Year 1 $ 77,781.60 p.a.
Business Return $ 67,500.00 p.a.
$145,281.00
Less Current Return $ 23,177.00
$122,104.60
As it currently stands the Proprietor has difficulty
operating the Nursing Home because of financial
limitations and, indeed, cannot sell the Nursing
Home at a current market price because the current
administrative structure and policies refuse to
adequately address this problem.
As this situation is iniquitous in its treatment of
the current Proprietor we would appreciate your
earliest adjustment to the fees to incorporate the
short fall in return previously mentioned."
"DETERMINATION OF APPROVED FEES69. The letter went on to refer to the applicant's right of appeal under the Act. No appeal was in fact taken to the Minister.
As a result of an application submitted on your
behalf by NASAH Management Services a determination
has now been made and you are advised that there
has been no variation to the approved scale of
fees.
The excess of permanent fee income over approved
expenditure currently included in the fee structure
provides for a reasonable return on the historical
investment in Alexandra Nursing Home and no further
adjustment is considered necessary at this stage."
70. The next determination of fees for the applicant was in response to a claim for adjustment to cover national wage increases which had come into force in December 1983, backdated to 6 October 1983. This claim was granted in the ordinary course of events but, because of the expiry of certain "loadings" previously granted, the net result was no change in the fee scale.
71. The delegate's letter of 14 February 1984 containing this determination also said "You are advised that your application for a review of staff hours will be processed as soon as possible". This application, dated 19 January 1984, was not tendered in evidence.
72. It was against this background that the determination which is ultimately challenged in these proceedings was made. It was primarily in response to the basic annual claim on the NH 19 Form which set out the costs of the applicant for the financial year 1982/83. The form was dated 7 October 1983 and received in the Department on 10 October 1983. The determination was conveyed in a letter from the delegate dated 13 March 1984, to take effect from 15 March.
73. The balance sheet attached to the NH 19 showed fixed assets of $46,102 (land), $92,766 (buildings) and $36,385 (furniture and equipment). Current assets (consisting again almost entirely of trade debtors, and excluding refundable income tax) were shown at $94,543. The profit and loss statement showed a net loss for the year of $52,247 which, after adjusting for abnormal items, came down to $22,516.
74. The determination of 13 March 1984 included the following statements:
"With regard to nursing hours, no increase in the75. The effect of this was that the total hours allowed were unchanged, but more hours were allowed to registered and enrolled nurses and fewer to nursing assistants.
total approved hours has been granted however the
costings have been adjusted to reflect the rostered
hours for SRN's and SEN's. This increase in the
costed hours for these classifications has resulted
in a compensatory decrease in NA hours.
As advised in previous correspondence from this
Department, any increase in the approved levels of
hours will require written authorization from the
Health Commission of Victoria stating that the
additional hours are necessary for the provision of
nursing care at Alexandra Nursing Home."
"Excess of Permanent Fee Income Over ApprovedThe issues generally
Expenditure $27,280".
77. In order to identify the issues which have to be determined in this matter, it is necessary to decide first where they are to be found.
78. Because the issues were considerably refined between the time the application was filed and the date of the hearing, counsel for the applicants produced, on 10 May 1984, "Applicant's Statement of Issues" for purposes of their final address. It is convenient to use that as the basic statement of the matters I am asked by the applicant to determine.
79. However it cannot be the sole point of reference, because it contains some matters which were not raised in the amended application, nor by way of further particulars, nor yet in the document headed "Issues" handed up by counsel for the applicant on 2 April 1984, in the course of interlocutory argument. The most obvious additional matter consists of several allegations of denial of natural justice.
80. I shall accordingly treat the "Applicant's Statement of Issues" as representing the outer limits of its claims, to be read down where it contains matter of which the respondents had no notice before the commencement of final addresses. Counsel for the applicant understandably did not seek formal amendments to their application, raising fresh issues, at that late stage.
81. I shall not, however, attempt to deal separately with each way in which
the applicant's case is put. In their "Applicant's Statement
of Issues",
counsel have purported to identify 25 separate (though overlapping) ways in
which the delegate fell into error, and an
average of four different ways in
which each error can be challenged under the ADJR Act, making a potential
total of over 100 separate
issues. I shall deal only with the alleged errors
which in my view have some substance and, in each of those cases, with the
most
obvious ground or grounds of challenge under the Act.
Loadings
82. Before dealing with the two substantial matters which were finally relied on by the applicant, namely allowance for nursing staff salaries and allowance for profits, it is convenient to mention the one other matter which was still faintly relied upon. This related to "loadings".
83. The method of the delegate in fixing fee scales has always been to determine costs other than salaries in the previous financial year and add a factor for anticipated Consumer Price Index changes. For salaries, current award rates have been determined, plus an element for additional staff to cover leave, determined at an assessed rate of 14% (previously 21%).
84. When the costs actually incurred are known, after the next form NH 19 is submitted, the shortfall or excess is calculated and is added to or subtracted from the basic scale of fees for a number of weeks until the difference has been accounted for.
85. It was submitted by counsel for the applicant that this approach was inappropriate and should be replaced by one which made a budget estimate of all costs for the coming year and then fixed fees in accordance with that budget, probably without any later adjustment.
86. The argument was summarized in the following words:
"We say that state of affairs for a business run on87. I need only say that, whether or not the Department's method is the best available, it is certainly not "so unreasonable that no reasonable person could have so exercised" his discretionary power in adopting it - which is the test of reasonableness prescribed by s.5 of the ADJR Act. Nor was it suggested that the method runs contrary to any express provision of the National Health Act 1953. I cannot see that its use is in any way forbidden by the underlying policy of the Act. This argument of the applicant is accordingly rejected.
a private enterprise basis is just unacceptable and
that basically the permanent head ought to address
his mind in consultation with the applicant to find
some other suitable way of determining the scale of
fees without having to rely upon loadings. We say
that by adopting this system of loadings the
permanent head in effect has acted contrary to the
Act and unreasonably."
Nursing Staff Salaries
88. Although there were three aspects of the March 1984 determination concerning staff salaries which were challenged by the applicant, by far the most important matter was the way nursing staff numbers were arrived at by the delegate for purposes of his calculations.
89. As was made clear on this occasion, as in earlier determinations, the delegate based his salary calculations on the "approved" numbers of staff, saying that these would only be increased if the Health Commission of Victoria ('HCV') was prepared to support the variation, in writing.
90. It was explained in evidence that the reason for this is that the Department has no officer in Melbourne with experience of nursing homes, or indeed with any nursing experience. It accordingly relies on appropriate officers of the HCV to make recommendations about nursing staff numbers.
91. The starting figure is that provided by Victorian law as the minimum permissible number to provide adequate nursing care. This is based on a simple ratio of hours per patient and, in the case of the applicant, provided a figure of 1039.5 hours per week.
92. However it was recognized that some nursing homes had particular requirements, or particular difficulties due, for example, to their layout. In the case of the applicant it had been claimed, and confirmed by an officer of the HCV, that the hospital had an unusual amount of heavy lifting - largely due to the 12 male patients included in the total of 54. This consideration, taken together with the actual hours rostered in the week ended 9 January 1983, led to the fixing in March 1983 of a total of 1246 hours per week for the applicant.
93. The applicant maintains that this provision is quite unreasonably low, is always exceeded by the applicant in the interests of proper nursing care, and so regularly results in financial loss to the applicant.
94. Having heard the evidence of Sister Goode, who is a director of the applicant, which is a family company, and matron of the nursing home, I am satisfied that the applicant takes care with its rostering of nursing staff and, so far as possible, determines a proper level of staff after taking account of the individual needs of each patient. I have no reason to think that the numbers arrived at by this method are extravagent or that there is any inefficiency in the use of staff. No such suggestion was put to Sister Goode by counsel for the respondents. Since Sister Goode well knows that any use of staff above the approved numbers is likely to be paid for by the applicant without recompense, she would not lightly engage extra staff. It is interesting to note that most nursing homes employ fewer staff in practice than are approved by the Department.
95. In spite of this, Sister Goode's latest roster of which I have evidence showed 1286.5 hours being worked in September 1983, and she had indicated to the Department that to give care at the level she considers necessary she would like to work 1340 nursing hours per week. The difference between these hours sought and those presently approved (1246) is made up of 94 hours of nursing assistants' time.
96. Although I am satisfied that Sister Goode's approach to the question of nursing hours is entirely reasonable, it does not necessarily follow that the differing view of the Department, as expressed by the delegate in the decision of 13 March, is unreasonable. The hours actually worked by the applicant in September 1983, and the hours sought by Sister Goode in January 1984, only exceed the hours approved by the Department by 3.25% and 7.5% respectively. On the present basis of a 38 hour week, the respective differences in notional staff are approximately 32.8 nurses approved, 33.9 nurses working in September 1983 and 35.3 nurses sought in January 1984.
97. It is, in my view, impossible to categorize the Department's allowance, on its face, as so unreasonable that no reasonable person could have arrived at it.
98. Nor, in my view, can the Department's method of arriving at its figures be impugned. It began with the hours actually rostered by the applicant in a particular week in January 1983. It is true that an average figure over 8 weeks would have yielded an extra 19 hours, and this would seem to have been a fairer figure to take. But the Department chose to take the lower figure and I have to decide not whether that was fair, but whether it was lawful. I believe it was.
99. The Department then required the applicant to obtain support from the HCV if it wanted more hours approved. This approach was challenged by counsel for the applicant on the basis that the HCV is only required by relevant Victorian legislation to fix minimum staffing levels. While that is true, it is clear from the evidence that officers of the HCV are prepared to adjudicate, on request, on questions as to the staffing levels which ought to be approved by the Commonwealth Department.
100. The arrangement may not be a very satisfactory one, given the limited time which HCV staff can be expected to spend on these matters and their lack of personal experience in the running of nursing homes. It can hardly, however, be said to be an unreasonable arrangement from the Department's point of view.
101. In addition to relying on the HCV, the delegate also had available to him some comparisons taken out in May 1983 with other nursing homes of comparable size. These tended to confirm the Departmental view that the nursing hours which had been approved for the applicant were adequate.
102. It was argued for the applicant that the delegate should not have relied on the determination of approved hours made by another delegate twelve months earlier, but should have reconsidered the matter for himself. In the absence of any substantial fresh material before the delegate, I do not believe this criticism can be sustained. It has to be remembered that there are some 240 nursing homes in Victoria and that this was the fifth request for a review by the applicant in twelve months. Further, the Department had made it clear to Sister Goode that it would only consider any further increase in approved nursing hours if those hours were supported in writing by the HCV. This, as I have said, was not an unreasonable stand for the Department to take, given its own lack of expertise; and it had the affect of putting this particular ball into the applicant's court. The applicant could no doubt have returned to the attack without such support, if it had other persuasive material to use; but the delegate was entitled to assume that the Department's position had been accepted by the applicant at the time he made his decision.
103. In my view the delegate's reliance on a previous approval of nursing hours did not, in all the circumstances I have mentioned, amount to the following of "a rule or policy without regard to the merits of the case" (ADJR Act s.5(1)(e) and (2)(f)). This was the strongest way the particular challenge could be put.
104. It was next argued that the delegate failed to have regard to the views of the matron, Sister Goode, about the nursing hours required by her patients and, for this purpose, failed to seek further information from her. It was pointed out that she and the applicant had statutory obligations, under Victorian legislation, to provide proper standards of care.
105. In my view the strongest way this could be put for the applicant was that the delegate failed to take these relevant considerations into account (ADJR Act s.5(1)(e) and (2)(b)). However I do not believe that this challenge can be sustained. The delegate was aware of Sister Goode's views on this matter, and of the fact that her staffing levels were somewhat higher than those approved. I do not believe he was under any obligation to seek further material, in addition to that which she had provided in her application, and the weight to be given to her views on the subject was a matter for him.
106. Next it was said that the delegate acted unreasonably in not getting "a suitably qualified expert on nursing homes" to visit the nursing home and assess its requirements for nursing staff.
107. Although the word "unreasonably" was used in formulating the claim, the explicit particulars of challenge under the ADJR Act were that the delegate failed to take a relevant consideration into account, or alternatively acted "in accordance with a rule or policy without regard to the merits of the particular case".
108. In my view there was no obligation on the delegate to go beyond reliance on the HCV. As I have said, that may not have been a very satisfactory solution to the problem of approving appropriate nursing hours, but it is not for the Court to prescribe precisely what enquiries the delegate must make before fixing fees. He had enough material before him to enable him to perform his task, and the weight to be given to the recent approval of hours by another delegate was entirely a matter for him.
109. Finally, on the subject of salaries, it was argued that the delegate failed to deal properly with an issue referred to as "the replacement factor" and, in doing so, failed to correct a previous delegate's disallowance of a sum of $38,136.20, part of which should have been allowed.
110. The main point at issue here is how much should be allowed for the fact that, while staff are absent on annual leave or sick leave, and still being paid, other staff have to be employed in their places. Until recently the Department was prepared to allow a 21% loading on the salary bill to cover such cases. It then decided that this was excessive, and the allowance was reduced to 14%. It must be understood that this is merely a preliminary estimate for purposes of forward fee calculations. At the end of the financial year, the actual approved cost of such replacements is calculated, and any shortfall or excess allowance is adjusted over succeeding weeks until the amount has been absorbed.
111. In the case of the applicant, the sudden change in the allowance from 21% to 14% was, it seems, very largely responsible for the disallowance of the sum of $38,136 as excess wages. This was not made clear to the applicant, as the Department now concedes it should have been, in order to give the applicant a proper opportunity to challenge the figure. Now that this has come to light there should be a further review of this matter in due course. In any event the complaint only has an indirect bearing on the determination under review.
112. The applicant's chief complaint on this score is that the 14% allowed is unrealistic, bearing in mind that replacement staff are usually casuals who have to be paid at a higher hourly rate than permanent staff. It is said that the ultimate adjustment in accordance with actual experience does not solve the problem because, in the meantime, the nursing home is out of pocket, has to use a bank overdraft to pay salaries, and is never re-imbursed for the lost interest on that overdraft.
113. The Department's reply is that the overall experience of nursing homes shows that 14% is the appropriate level of allowance, requiring no great adjustment either way when the actual figures are known. I have no reason to reject that evidence; it does not seem unreasonable for the Department to use an arbitrary figure, fairly calculated, in its advance estimates of costs for all nursing homes; and accordingly this particular challenge to the delegate's decision must fail.
114. By way of summary on the question of allowance for salaries in the fee structure, I find that the staffing levels of the applicant's nursing home are carefully and properly arrived at by the matron. They are not excessive and, in the experienced judgment of the matron, they are necessary to provide what she considers to be a reasonable standard of care for her patients. I would not accept the suggestion, which was put only faintly on behalf of the Department, that the difference between approved hours and hours actually worked represents inefficiency on the part of the nursing home.
115. On the other hand, I am unable to say that the conduct of the
Department, through the delegate, in having regard to approved
hours, and in
refusing to increase the number of approved hours without the imprimatur of
the HCV, is unreasonable or otherwise improper
or unlawful within the meaning
of the ADJR Act. Nor has the applicant satisfied me that the Department's
approach to the "replacement
factor" is wrong in law.
Allowance for Profit
116. I have already described the earlier history of the allowance which the Department has been prepared to make for a profit element in fixing fees. Until the Nagrad decision the effect of the Departmental approach was that the nursing home was allowed the same money sum by way of profit that it had earned in 1972. This was implicit rather than explicit in the successive calculations of delegates.
117. After Nagrad, in the determination here reviewed, the delegate took the valuation of land and buildings appearing in the applicant's balance sheet for 1972 and allowed, by way of profit, 10% on that book value of the land and buildings, 12>% on the book value of furniture and equipment and on the value of current assets, and 10% on the value of any later improvements to buildings, provided they increased the bed capacity of the nursing home. This "historic cost" approach was attacked by the applicant on a number of grounds.
118. In the first place it was said that the delegate applied policy derived from ministerial statements either incorrectly or slavishly - without regard to the merits of the particular case.
119. The ministerial statements referred to were put in evidence. The first was dated 17 May 1973 and was contained in a letter from the then Minister, the Hon. William Hayden, to the then Chairman of the NSW Nursing Homes Fees Review Committee established to deal with appeals under the Act. Copies of this and the later letters I shall refer to were distributed through the Department and placed on file for the guidance of delegates.
120. Dealing with the question of allowing for profits in fixing fees, Mr.
Hayden said,
"It is my view that fees determined by my121. It is to be noted that this statement did not give any guidance as to how "capital" was to be calculated; but it did provide that each nursing home earning less than 12>% on that capital, should be able to maintain its individual rate. It seems that this directive was not followed by the Department, because no year-by-year calculation of return on capital was made. On any view as to the way in which fixed assets were to be valued, fluctuations in shareholders funds should have been taken into account but, until the Nagrad decisions, they were not considered by delegates, although it seems from the following exchange of letters that Review Committees may have considered them on appeal if attention was drawn to them.
Department, in the first place, or by me acting on
a recommendation of a Committee, should not be such
as to put a home in an improved financial position
to that which it held previous to the introduction
of the fee control measures. This means, for
example, that if a home was earning a return on
capital at a particular rate then, provided that
rate was not excessive - say less than 12 1/2 % - it
could be permitted fee increases to maintain that
rate but it should not be permitted fee increases
to improve that rate. At the same time, I am
prepared to give consideration to fee increases
where a particular home was operating at a loss
before 30 June 1972, so as to enable it to achieve
a break-even financial experience. However, I
would be reluctant as a general rule, to approve of
fee increases so as to enable such a home to return
a profit margin and, further, in considering such a
case I would also wish to have regard to any
particular circumstances that resulted in a home
operating in deficit."
122. The next relevant Ministerial statement was that of the Hon. Ralph Hunt,
dated 2 January 1977, in reply to a letter from the
Chairman of the Victorian
Fees Review Committee. The Chairman had quoted Mr. Hayden's statement and
gone on to say,
"Funds used or employed are considered by my123. To this the Minister replied,
Committee to comprise Proprietors Capital, borrowed
funds e.g. bank overdrafts, loans etc.
undistributed profits, current accounts and
Reserves less goodwill.
Under the current economic conditions it is
considered that the 12>% return has become too low
to be acceptable as a sound business concept. In
support of this the following points are listed.
(a) As long ago as 1940 the late Professor
Copeland as Commissioner of Prices
allowed 15% on funds employed as a
guideline for a working proprietor.
(b) Related to this 1940 figure interest on
secured bank overdraft is now
approximately 12% as against 5% to 6% in
1940.
(c) Proprietors of Nursing Homes who have to
borrow money for purchase and capital
improvement are paying on the average 15%
interest on such loans (usually not fully
secured). When the fee fixing scheme was
introduced in January 1973 the Committee
found that Proprietors or investors in
Nursing Homes were able to borrow from
financial institutions at 9>% interest.
The margin between this rate and the 12>%
return was allowed to compensate the
Proprietor for his entreprenurial
ability. This margin has now been
eroded. It is now possible to invest in
debentures and receive a comparable rate
allowed to nursing home Proprietors, e.g.
Chrysler 4 + 5 year Debenture Stock 12 1/2 %
3 year 12<%; Australian Guarantee
Corporation 4 + 5 year Debenture Stock
12>%; 2 year unsecured notes 12%;
General Motors Acceptance Corporation 5
years 12<%; 3 years 12%.
(d) Solicitors first mortgage rates are
currently about 14%.
Consequently it is considered that a more
equitable rate of return on invested funds where
there is some (albeit small) element of risk and
personal work involvement is in the range of 17>% -
20%.
The matter is referred for your consideration
and guidance and the Committee would appreciate
your guidance in the matter."
"Having given full consideration to the points124. However, I do not consider that the principle
in your letter I have decided that a return of up
to 17>% on invested funds may be allowed in those
cases where your Committee considers a fee increase
is justified by increases in the costs incurred by
a nursing home proprietor.
As with the previous guidelines I believe that
the principle that a fee increase should not be
such as would put a home in an improved financial
position should be retained. This means, for
example, that if a home was earning a return on
invested funds at a particular rate then, provided
that rate was not in excess of 17>% it could be
permitted a fee increase to maintain that rate but
it should not be permitted a fee increase which
would enable it to improve that rate.
I agree that in the above context the term
"invested funds" could generally be interpreted as
having the meaning defined in your letter of
19 October 1976.
should be applied in all cases. The financial125. This appears to mean that, "as a broad guideline", the nursing home proprietor could be allowed up to 17>% profit on its invested funds, provided it was earning that rate before 1973. This letter would seem to have made no difference to departmental practice, since delegates continued to make no calculation of a profit element. They merely adjusted the costs, leaving invested funds to earn the same money sum as they had in 1972.
structure and borrowing practices vary from one
nursing home to another and universal application
of the principle could seriously advantage or
disadvantage some proprietors. Therefore, the
principle you have propounded should only be used
as a broad guideline and each case should be
considered having regard to the particular
circumstances that apply."
126. Finally, on 20 May 1982, the then Minister, the Hon. James Carlton,
wrote to the Acting Chairman of the Victorian Committee,
referring to letters
he had sent to nursing home proprietors, and saying,
"... you will note that I have indicated that the127. This is the first Ministerial statement to refer directly to historic costs. Mr. Hayden would hardly have been concerned with them in 1973 and in Mr. Hunt's case the principle would have to be implied from his use of the expression "invested funds".
principle endorsed by Mr. Hunt in 1977, namely the
use of historical costs in measuring profit levels,
should continue to apply. ...
You will note that essentially the position is
that in considering profitability appeals the
principle to be applied is that a fee increase
should not be such as would put a home in an
improved financial position. However, if a home
was earning a return on invested funds at a
particular rate then, provided that rate was not in
excess of 17> per cent, an increase in fees could
be recommended to maintain, but not increase, that
rate of return on invested funds.
However I have also indicated in my reply to
the proprietor in New South Wales the importance of
Fees Review Committees of Inquiry having regard to
the merits of particular cases. I am of course
required to have regard to the merits of a case in
considering fees appeals and, in this regard also,
I depend to a large extent on the advice of the
Fees Review Committees of Inquiry.
As I have indicated, the appeal process is an
appropriate means of carefully examining the
profitability levels of particular nursing homes.
In cases where an increase in profitability is
considered justified on the merits by the
Committee, I would like to be confident of the
validity of the costs incurred and other financial
data used in calculating the current profitability,
and to have some appreciation of the quality of
care provided by the nursing home. I have asked my
Department to provide any assistance Committees may
seek in these matters."
128. Although these Ministerial statements were not properly followed by delegates before the Nagrad decision, as I have explained, the delegate in the present case did make a calculation of a profit element in fixing the applicant's fee scales. He took the historic costs and calculated 10% for land and buildings and 12.5% for current assets, furniture and equipment. These figures represented Departmental policy, apparently derived from experience related to rents of leased nursing homes, in the case of the 10% figure, and Aussie Bond rates over a period in the case of the 12.5% figure. In 1972, according to calculations made in the Department, the applicant earned profit at a rate of $20,312 on total assets of $108,108 - a return of 18.8%. Given the very loose way in which the latest statement was expressed, it could not be established, in my opinion, that the delegate was in breach of any ministerial instructions. In any event, I cannot accept the applicant's submission that the delegate's decision was contrary to law or uncertain by reason of any such alleged departure. These were the two grounds on which this particular challenge was based. The Ministerial letter had no legal force even if it could be shown to have been contravened.
129. The applicant's alternative, and somewhat contradictory, argument that the delegate followed the Ministers' policy statements slavishly and without regard to the merits of the particular case, does raise a more difficult issue. It is clear from the evidence that there was, in the post-Nagrad era, a departmental policy said to derive from the Ministers' letters, to the effect that any profit element allowed by delegates had to be based on historic costs. If there was to be any departure from this approach (now formulated as principle 10 above), it would only be allowed on appeal to the Minister who, under the 1983 amendment to s.40AE of the Act, is now specifically empowered to depart from his own principles where he "is satisfied, in all the circumstances of the case, that the application of the principle in relation to that nursing home is not appropriate".
130. This policy, applied even before the principles were formulated, has troubled me because it seems to have removed an important consideration from review by the delegate. However, on reflection, I am satisfied that if the historic costs approach can be justified at all, it was not unlawful or unreasonable to provide, in effect, that exceptions to it had to be decided by the Minister after a hearing by a Review Committee.
131. In an area as important as the calculation of profits for nursing homes there must necessarily be a substantial degree of uniformity of approach to questions of principle, or injustice as between nursing homes could become rife. It would create obvious difficulties if different delegates were to adopt different criteria in deciding when to depart from historic costs in order to allow much larger profits based on current valuations. There is much to be said for the view that exceptions to such a general rule should be made in a consistent and co-ordinated way by the Minister who is responsible to Parliament for both the economical and equitable administration of the legislation.
132. The only requirement of the delegate in this connexion is that, if he is urged to depart from such a policy, he is prepared to listen to that argument; see Browning v Water Conservation and Irrigation Commn (NSW) [1947] HCA 21; (1947) 74 CLR 492 at 506; British Oxygen Co. Ltd. v Minister of Technology [1970] UKHL 4; 1971 AC 610 @ 624-5. There is no evidence that the delegate refused to 'listen', in this sense.
133. In my opinion, if the applicant is to succeed in its challenge to the way in which a profit element is presently allowed in its fee structures, it must be on the basis that the Departmental or Ministerial policy is wrong and unlawful, not that the delegate failed to depart from that policy in the particular case.
134. I come now to the cluster of arguments which the applicant has advanced
in order to establish the impropriety of the Department's
reliance on historic
costs. To paraphrase those arguments, it is said that the Department is wrong
because,
(a) the profit presently allowed is unreasonable by comparison with that
earned in 1972,
(b) it has failed to recognize that the nursing home is a private
enterprise venture which must make reasonable profits to survive,
(c) the profit allowed is too low to maintain the viability of the
nursing home,
(d) a reasonable return on the present value of capital employed would
require something like a three-fold increase in the profit
allowed, and
(e) if the applicant were paying rental for comparable premises, a much larger amount would have to be allowed.
135. In reply to such arguments it was maintained for the respondents that there was no obligation on the delegate even to consider questions of profit. In one sense, that question does not arise for decision in this case, because profits were considered. However it arises indirectly because of the challenge to the way in which profits were dealt with. It would be difficult to mount such a challenge if there was no obligation to consider profits at all. Given the scheme of the Act, and the intention evinced even in the amended s.40AA (7B) that nursing homes should be efficiently operated, it is my view that the delegate in this case was obliged to consider the question of profits, because he could not expect any nursing home to be efficiently operated, or even to remain viable over a period of time, if no profit at all was allowed.
136. Putting this extreme argument to one side, it is necessary now to consider the five heads of challenge, listed above, to the delegate's actual determination of a profit element.
137. These related arguments were put under a number of different sub-paragraphs of the ADJR Act. It was said firstly that the use of historical costs was contrary to the National Health Act 1953, secondly that it involved leaving out of account a relevant consideration - namely the present value of the applicant's land and buildings and thus of the capital employed, and thirdly that it was so unreasonable that no reasonable person could have reached such a decision.
138. The first of these arguments relied heavily upon the success of the applicant's preliminary submission that the amendments to s.40AA(7) of the Act were not in force at the relevant time. I have already rejected that argument and set out what I believe to have been the policy of the Act which the delegate was required to observe at the time of his decision. This policy still leaves the applicant with an arguable case, because it requires a level of profit for nursing homes generally which will maintain their viability. It is arguable that the profit allowed by the delegate - $27,280 - is so much less than its 1972 profit, adjusted for changes in the value of money (estimated as $70,900), or than the economic rental of the premises (said to be about $78,500), that it shows no concern for the viability of such enterprises.
139. I agree that it is, from the applicant's point of view, quite unfair that it should have to accept a profit in 1984 that is little different from that which it was receiving in 1972. But can it be said that this enforced reduction of profit margins in real terms is so contrary to the policy of the Act as to be unlawful? An expert accountant, called for the applicant, described the use of historic costs, allied to a 10% profit rate, as "patently absurd" and "just a fantasy". He said that in his opinion the applicant company was not financially viable; it was significantly undercapitalized and could only continue in business with an injection of capital and a significant and sustained improvement in profitability. He made the very reasonable suggestion that the profit element in fees, so far as it related to lands and buildings, should be calculated by reference to the economic rent of the premises, thus putting all nursing homes, whether new or old, owned or leased, on the same footing.
140. The Department's attitude, as explained by its chief witness, Mr. Tratt, is that in the case of nursing homes established before 1973 it continues to allow a profit element based on 10% of the historic costs of land and buildings and 12.5% of other assets. If the business is sold along with the premises, the same figure will be allowed - on the basis that a change of ownership should not affect patients' fees. If it is leased, the same allowance will be made irrespective of the rent actually paid, on the basis that a change of method of occupation should not affect those fees.
141. In the light of this evidence, there can be little doubt that the Department is taking a hard line with the proprietors of established nursing homes.
142. A new nursing home, by way of contrast, would have its fees fixed to include a profit element based on the notional fair rent of the premises, to be determined by the Department after valuation, together with a 12.5% allowance for other assets. Such a nursing home would, of course, be much better off than the applicant, because the valuation would have to be at current prices. But its profits would in its turn be eroded with the passage of time, and with inflation, in the same way as the applicant's. In the meantime the contrast only serves to highlight the unfortunate position in which the applicant has been placed - through no fault of its own, unless a determination to give a good standard of nursing care can be described as a fault. The applicant's basic difficulty is that the poor level of profit it is allowed is not sufficient to cushion it against the losses sustained by its use of more staff than the Department will recognize. It is in this sense that the applicant's business is not viable or barely viable. It is certainly not making a profitable use of valuable assets.
143. On the other hand, it was pointed out for the Department that lack of competition, very high nursing home occupancy rates, negligable bad debts, and a high level of cost recoveries are virtually guaranteed and, at the profit levels allowed, many people are still trying to get into the industry. Indeed the ruling figures for sale of goodwill would enable the applicant to sell its business for some $400,000 in addition to the value of the fixed assets. In the face of this surprising but uncontradicted evidence, I cannot be satisfied that the Department's approach to profits is so contrary to the policy of the Act as to make it unlawful.
144. Nor do I believe that the delegate left the current values of the applicant's lands and buildings out of account in exercising his discretion. I believe that he was fully aware of this consideration, but regarded himself as bound by a departmental policy to base his calculations on historic costs. There is nothing to suggest that he disagreed with this policy.
145. For similar reasons, I do not believe that the use of historic costs by the delegate is "so unreasonable that no reasonable person could have so exercised the power" to fix fees in such a way. With the passage of time, and depending on levels of inflation, the situation may eventually be reached where such a decision could be so described; but the wording of the ADJR Act on this point, which I have just quoted, is very restrictive. I have already said that I think the applicant is entitled to regard the decision as quite unfair. Others, looking at the overall costs of health care, may take a different view and say that all incomes and profits in this area have to be closely watched, and perhaps in real money terms curtailed; but those are not matters for this Court. I have carefully considered the helpful and persuasive evidence of Professor Officer concerning the role of profit in maintaining the long-term viability of an enterprise. The approach he advocated - of basing the profit element in fees on opportunity costs of funds invested - was entirely reasonable, provided an answer could be found to the potential spiralling of costs if nursing homes were made more lucrative and became progressively more valuable as a result. This approach is, of course, a far cry from that of the Department which, in the present case, seems to involve a compression of profit to a point just short of causing the enterprise to fail. But it is not for this Court to say that Professor Officer's approach, or some compromise between it and the Department's approach, would be more appropriate or fairer than the course the delegate took. My task is to say whether the use of historic costs in fixing profits is so unreasonable as to be unlawful, or otherwise contrary to the relevant legislation, and of that I am not persuaded. For these reasons the challenge to the way in which profits were included in the fee structure also fails.
146. There were two minor errors alleged by the applicant against the delegate in the area of profit calculation. The first was that working capital was excluded from calculation and the second was that an alleged arithmetic error of some $3000 had been made in calculating current assets. Neither matter was pressed in final address and in my opinion neither claim was made out. On a proper analysis, there was no working capital in the business at the relevant time and the delegate making the determination under review only left unvaried the previous delegate's allowance for current assets because he did not want to decrease the profit factor. He did not feel obliged to bring a further $3000 into account when the allowance had no validity anyway. These considerations have no significance beside the Department's reliance on historic costs as a basis for profit allowance.
147. Before concluding these reasons I should say that since the hearing of this matter finished I have received short written submissions on behalf of the applicant, dated 28 May and 12 June, and on behalf of the respondents, dated 28 May and 6 July. I have considered the matters raised in these memoranda, but do not find it necessary to deal with them expressly.
148. The application to review will be dismissed with costs.
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