FEDERAL COURT OF AUSTRALIA

Bupa HI Pty Ltd v Chang [2019] FCAFC 180

ORDERS

THE COURT ORDERS THAT:

1.    The appellant’s application for leave to appeal dated 22 January 2019 be granted.

2.    The appeal be dismissed.

3.    The appellant pay the respondents’ costs of the appeal, the notice of contention, the application for leave to appeal and the cross-appeal.

4.    The first respondent’s cross-claim against the appellant dated 20 November 2017 be remitted to the primary judge for a hearing on the question of damages.

THE COURT DECLARES THAT:

5.    The appellant’s deregistration of the first respondent from the Bupa Medical Gap Scheme with effect from 15 August 2016 was invalid.

6.    The first respondent remains a “Registered Medical Gap Scheme Practitioner” within the meaning of the Bupa Medical Gap Scheme and has been continuously since before and after 15 August 2016.

THE COURT FURTHER ORDERS THAT:

7.    The appellant take all steps necessary to reinstate the first respondent to the register of Registered Medical Gap Scheme Practitioners maintained by the appellant for the purpose of the Bupa Medical Gap Scheme.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

introduction

1    The appellant (Bupa) appeals from the dismissal by the primary judge of its originating application by which it made claims against the respondents for misleading or deceptive conduct, and for mistaken payment, in relation to Medicare claims submitted by the second respondent, Andrew Chang Services Pty Ltd (ACS). That appeal concerns the proper interpretation and application of Medicare Benefits Schedule (MBS) items (the MBS appeal).

2    The first respondent, Dr Chang, also brought a cross-claim against Bupa, by which he sought declarations and damages for breach of contract arising from Bupa’s deregistration of him from the Bupa Medical Gap Scheme (the Gap Scheme). His Honour found in favour of Dr Chang on the question of liability (having separated the question of damages) and made a declaration that Bupa had breached the Gap Scheme contract in these terms:

Bupa Hi Pty Ltd breached the contract between it and Dr Chang being the “BUPA Medical Gap Scheme Terms and Conditions dated March 2016” (Contract) by purporting to deregister Dr Chang from the “Bupa Medical Gap Scheme” with effect from 15 August 2016 when it failed to comply with the express term of the Contract being the term providing for the “Bupa’s Medical Gap Scheme deregistration procedure”.

3    Bupa seeks to appeal the making of that declaration (the Gap Scheme appeal). Because the question of damages was separated from that of liability, the determination on the question of liability is interlocutory, so leave to appeal is necessary. See s 24(1A) of the Federal Court of Australia Act 1976 (Cth). The grant of leave was not opposed.

4    At the commencement of his oral submissions on appeal, Mr Hutley SC, who appeared with Ms Cochrane and Mr Harris for Bupa, indicated that if the Gap Scheme appeal failed, Bupa accepted that Dr Chang should be reinstated to the register of Registered Medical Gap Scheme Practitioners, and that the orders and declarations that Dr Chang sought in his amended notice of cross-appeal dated 2 August 2019 in that regard should be made.

5    We will deal first with the MBS appeal.

The MBS appeal

6    Dr Chang is an ophthalmologist. He practises at the Sydney Retina Clinic and Day Surgery (the Clinic), which is owned and operated by ACS. Dr Chang is the sole director and secretary of ACS.

7    This case concerns the amount payable by Bupa, as a private health insurer, to ACS for intravitreal injections performed by Dr Chang at the Clinic. Bupa is required to pay “second tier default benefits”, the amount of which is dependent on the applicable MBS item of the procedure performed.

8    MBS items 42738 and 42739 describe the procedure for intravitreal injections in identical terms, save that item 42739 contains the additional part underlined below:

PARACENTESIS OF ANTERIOR CHAMBER OR VITREOUS CAVITY, or both, for the injection of therapeutic substances, or the removal of aqueous or vitreous humours for diagnostic or therapeutic purposes, one or more of, as an independent procedure, for a patient requiring anaesthetic services (Anaes.)

9    Item 42739 entailed payment of a 60-70% higher second tier default benefit than item 42738.

10    The dispute concerns 4,101 claims made by ACS between 13 September 2012 and 10 August 2015 under item 42739 where the “anaesthetic service” said to be required by patients was a 0.25mg tablet of Xanax (active ingredient alprazolam) taken orally 15-30 minutes before the procedure.

11    Bupa contended, and contends on appeal, that the claims should have been made under item 42738, and seeks to recover the difference between what it paid under item 42739 and what it would have paid under item 42738, being $521,703.

12    After opening submissions, the primary judge sought to clarify the issues of law and fact necessary to be decided. Following what his Honour described as “extended discussion and debate”, the parties agreed on the terms of a document called “agreed issues of fact and law for determination”, which relevantly included these issues:

…

4.    What were the circumstances in which Dr Chang came to administer alprazolam to patients on a regular basis during the Relevant Period?

5.    In submitting the … claims to BUPA (Claims), did ACS represent to BUPA in trade and commerce that Dr Chang:

a.    had performed a procedure identified by [the Higher Item] (Representations)?; or

b.    genuinely considered, on reasonable grounds, as an ophthalmologist, that he had performed a procedure falling within [the Higher Item]? (see RS [7])

  6.    Is BUPA entitled to advance the alternative claim identified at 7(b) below?

7.    If the answer to 5(a) is yes, did the conduct in making the Representations amount to contravening conduct (in all cases where the Representations were made) because:

   a.    administering alprazolam is not an anaesthetic service; or

b.    [if] the answer to 6 is yes, in the alternative, even if administering alprazolam (in the form of 0.25 mg dose of Xanax) is an anaesthetic service, it was not for a patient requiring an anaesthetic service because, at best, it was desirable to reduce anxiety and the dosage was so low that its clinical effect is likely to be negligible? (see T 264.19 – 265.23).

13    Bupa’s main pleaded case was brought under the Australian Consumer Law (ACL). The essence of it was the contention that the administration by Dr Chang of alprazolam (Xanax), in the absence of an anaesthetist (the Oral Sedation Procedure), was not an “anaesthetic service” which could attract MBS item 42739. The primary judge summarised the pleaded ACL case against the respondents as follows (J at [13]):

(a)    each time the Company [ACS] submitted a claim for payment of the “second tier default benefit” in respect of the medical procedure identified by the Higher Item in circumstances where: (i) Dr Chang had performed a procedure at the Clinic constituting paracentesis of anterior chamber or vitreous cavity; (ii) the patient undergoing the procedure received sedation in the form of oral sedation involving Xanax in a titrated dose; (iii) no invoice was rendered by an anaesthetist in respect of the procedure (Oral Sedation Procedure); the Company expressly represented to Bupa, by the invoice and claim form, that Dr Chang had performed a procedure identified by the Higher Item (Representations): SOC [17], [24];

(b)    Dr Chang aided, abetted, counselled or procured the making of the Representations: SOC [25];

(c)    the Representations were misleading or deceptive, or likely to mislead or deceive, because Dr Chang had in fact performed a procedure identified by the Lower Item and not the Higher Item: SOC [21], [27]; and

(d)    the Oral Sedation Procedure is not a medical procedure identified by the Higher Item because it does not meet the relevant definition (SOC [11], [20]) and by reason of the fact that in “June 2016, Bupa obtained advice from an external consultant, Dr Tony Webber, that the Oral [Sedation] Procedure is not a medical procedure identified by [the Higher Item]”: SOC [23].

14    Bupa does not now pursue that case, and does not challenge the primary judge’s finding “that the administration of low dose Xanax by the Oral Sedation Procedure can constitute an anaesthetic service and can attract [item 42739] when it is required or, in other words, when it is medically necessary in an individual case” (J at [81]).

15    Bupa contends, however, that the primary judge erred in rejecting its alternative un-pleaded case posed by question 7(b) in the agreed issues of fact and law for determination (set out at [12] above).

16    Bupa accepts that its alternative case required the primary judge to ask whether Bupa had established that the Xanax was not required, in that it was not medically necessary, in any of the 4,101 procedures the subject of Bupa’s claims.

17    The respondents agreed that “[t]he critical issue in relation to Bupa’s alternative claim was whether Bupa had satisfied its onus of establishing that the alprazolam was not medically necessary in any of the 4,101 cases in which it was administered by Dr Chang for the two reasons it had raised”, namely, “because the dosage was too low to have a clinical effect, or any clinical effect was likely to be negligible and … because the use of alprazolam could, at best, reduce anxiety”.

18    The primary judge described Bupa’s alternative claim as an “all or nothing case” – that is, Bupa had to establish that the Oral Sedation Procedure was not required in any of the 4,101 cases the subject of its claim.

19    Bupa therefore accepts that it must lose if, on the evidence, it was established that the Oral Sedation Procedure was required, or medically necessary, in even one of the 4,101 cases.

20    Bupa contends, however, that the MBS appeal should be allowed, and that judgment should be entered against Dr Chang and ACS in the amount of $521,703 plus interest, because the primary judge did not ask himself the correct question – but instead asked a different question, viz “whether Bupa had proved that the oral sedation procedure could never be medically necessary” and that, as a result “regardless of the evidence before the Court, Bupa was also required to disapprove an hypothesis: that Xanax could be medically necessary as an anaesthetic service in some circumstances”.

21    In his oral submissions, Mr Hutley put Bupa’s case that the primary judge asked the wrong question as follows:

We say the problem with his Honour’s formulation is that [he] asked a hypothetical and abstracted question divorced from the evidence as to the relevant medical procedures in this case. Logically, we are faced with an indeterminacy of reference. To prove that Xanax could never be medically necessary, we first need to know the circumstances in which it was asserted that Xanax could be medically necessary.

The universe of possible circumstances to which any conceivable dosage of Xanax could be applied was never investigated, nor sensibly could it or should it have been … It was logically guaranteed failure because one is dealing with an unknown unknown, and the theoretical possibility that something could be medically necessary in unknown circumstances. What his Honour, we submit, ought to have done was to consider the evidence pertaining to the relevant 4101 procedures, and ask the proper question being whether that evidence established, on the balance of probabilities, that the Xanax was or was not required in those procedures or, perhaps, that we hadn’t established, on the balance of probabilities, that it was not required.

22    In our view, the primary judge was under no misapprehension as to the relevant question that he was required to address. Further, there was ample uncontradicted evidence to support his Honour’s conclusion that the answer to the question identified by Bupa at [16] above was “No”.

23    The primary judge correctly characterised the issue to be determined in light of Bupa’s concession as follows (J at [22]):

… Bupa expressly accepted the contention advanced by the respondents that this was an “all or nothing” case. Accordingly, [Bupa] was content for the case to be determined on the basis that the “anaesthetic services” alleged were not required in any case by reason of the nature of the Oral Sedation Procedure and the failure of the procedure to attract the Higher Item description when the description was properly construed (T263-265).

(Emphasis in original).

24    In our view, his Honour’s reference to “any case” in that passage from his reasons was obviously a reference to the cohort of the 4,101 procedures the subject of Bupa’s claim.

25    Further, the primary judge elsewhere squarely and correctly posed the issues to be addressed arising from agreed questions 6 and 7(b), set out at [12] above, as “… whether Bupa is entitled to advance the alternative claim that even if administering a 0.25 mg dose of Xanax by the Oral Sedation Procedure is an ‘anaesthetic service’, it does not attract the Higher Item because the dosage was so low it was, at best, a service which was merely desirable to reduce anxiety, and it was not clinically necessary” (J at [26]).

26    Having correctly identified the issue before him on Bupa’s alternative case, his Honour gave the following reasons for rejecting it:

69.    The central problem for Bupa’s “all or nothing” case (that is, that the Oral Sedation Procedure could never attract the Higher Item because it involved Xanax being administered) is that I do not accept that 0.25 mg of Xanax or a larger titrated dose could never be medically necessary. The evidence of Dr Chang, which I accept, was that an intravitreal injection involves the entry of a small needle into the interior of the eye and in order for the intravitreal injection to be performed effectively and safely it is necessary for the patient’s head and eye to remain still. If the patient moves unexpectedly, haemorrhaging may occur within the layers of the interior of the eye damaging the lens or retina due to incorrect placement of the needle. Perhaps not surprisingly, some patients are stressed in confronting the prospect of an eye injection and this vexation may cause them to move their eye or head unexpectedly, while other patients have ocular movement disorders or tremors or conditions such as dementia where movement is involuntary.

70.    In the light of this evidence, I do not understand how I could conclude that the Oral Sedation Procedure (be it a dosage of 0.25 mg or some bespoke titrated dosage), must never have been medically necessary for such persons. For all I know, this may have been a small number of patients. Indeed, it may amount to a percentage which roughly coincides with the 15% of the patient cohort who continue to receive the Oral Sedation Procedure. Alternatively, it may be a percentage consistent with the very small number of Higher Item charges made without an accompanying anaesthetist’s bill charged by the four other private hospitals referred to in the evidence of Mr Anfinsen. I simply do not know, and this is not enough to make out Bupa’s “all or nothing” case.

71.    Moreover, the conclusion that the Oral Sedation Procedure was an anaesthetic service and could attract the Higher Item provided it was medically necessary for it to be administered is one that is not unreasonable and accords with the opinion evidence.

…

94.    The difficulty for Bupa is that, as explained above, there is no factual basis for a finding that the only anaesthetic administered in all cases was 0.25 mg of Xanax; the evidence was that, at least in exceptional cases, a titrated dose was administered. Additionally, there is no evidence supporting a finding that in every case the patient did not require an anaesthetic service; Dr Chang gave unchallenged evidence, which I accept, that at least some patients required an anaesthetic service to address underlying movement disorders such as Parkinson’s disease: T127.22-28; and see also [69] above. Any evidence as to necessity from Associate Professor Forrest (based on a review of only 12 patient files) does not address the fact that in some, even if only in a small number of cases, it cannot be said it has been proven that it was not necessary for the Oral Sedation Procedure, which I accept was an anaesthetic service, to be administered (in a 0.25 mg or greater dosage).

95.    Bupa’s closing written submissions suggested that Dr Chang’s evidence did not affirmatively establish that patients “required” low-dose oral Xanax, but this is not to the point. Bupa had the evidentiary and persuasive burden of proving its misleading and deceptive conduct case, which was presented on an “all or nothing” basis as explained above. It follows, it cannot succeed as framed.

(Emphases in original).

27    It seems to us that the primary judge made it clear in those reasons that he rejected Bupa’s case that it had established that the administration of low-dose Xanax by the Oral Sedation Procedure was not medically necessary in any of the 4,101 procedures the subject of the claim. And it also seems to us plain that the primary judge had in mind, and could only have had in mind, the cohort of cases the subject of Bupa’s claim, not some “universe of possible circumstances” or “unknown unknown” realm referred to by Mr Hutley in his oral submissions.

28    In any event, as Mr Jackman SC, who appeared with Mr Klineberg and Mr Langshaw for the respondents, submitted, Dr Chang gave detailed, and unchallenged, evidence about the circumstances in which he administered the Oral Sedation Procedure, including in his affidavit sworn 13 April 2018 as follows:

120.    The introduction of low-dose Alprazolam to the treatment of intravitreal injections, where appropriate, is something which I considered in 2012, and I still consider now, was best for patient care. The re-banding of MBS item 42739 had nothing to do with the introduction of low-dose Alprazolam to the Clinic and Day Surgery. I would have introduced the new procedure and Alprazolam Regime even if MBS item 42739 had not been re-banded in September 2012 and irrespective of whatever banding MBS Item 42739 had at any point in time.

Alprazolam Regime - its introduction in September 2012 and subsequent changes

121.    The use of low-dose Alprazolam started to increase steadily from September 2012 as patients (and medical and nursing staff) started to see the benefit of the use of Alprazolam including reduced patient anxiety and improved comfort and tolerance to the intravitreal injection.

122.    However, I manage my patients with individualised care depending on appropriate clinical decision-making. This means patients were provided with an anaesthetic service only when necessary. When no anaesthetic service was provided, the intravitreal injections were billed under MBS item 42738. For some patients the decision to use Alprazolam would change from treatment to treatment depending on the then current medical assessment and preferences of the patient. For example, the choice of sedation may be informed by the level of anxiety and therefore tolerance the patient was experiencing on the day of treatment or for other reasons such as the patient needing to drive home from the treatment that day.

…

132.    As part of my continuous refinement of my treatment practice, I continually investigate other clinical strategies to fine tune and improve the quality, safety and tolerability of intravitreal injections.

133.    These changes I have introduced since the commencing to use (sic) Alprazolam include:

(a)    introducing the use of Chlorhexidine as an antiseptic to prepare the front of the eye as it was less irritant (sic) than Betadine, which I had used previously;

   (b)    less extensively applied antiseptic on patients during the procedures;

(c)    applying topical anaesthesia in a more localized and intensive manner; and

   (d)    applying a lubricant medication to soothe the eye after the injection.

134.    I invited patients who had since September 2012 received intravitreal injections with Alprazolam to try the injections without it but with the above changes.

135.    Through the introduction of those new changes, many patients became sufficiently comfortable with the intravitreal injection process itself that they no longer felt that they required Alprazolam. For some patients, however, the medical decision was to continue to use Alprazolam when receiving intravitreal injections.

29    It is true that some of the evidence there referred to was not specifically referred to by the primary judge. But in circumstances where his Honour clearly accepted other unchallenged evidence given by Dr Chang about the circumstances in which the administration of low-dose Xanax might be medically necessary, the mere failure to refer to all of the evidence is of no moment.

30    It is also true, as Mr Jackman conceded, that the judge’s reference to page 127 of the transcript at [94] of his reasons is wrong because that passage of transcript does not address the question of the medical necessity of low doses of Xanax. In our view, however, that error is inconsequential, and might be equated with a typographical mistake, because the use of alprazolam as a matter of medical necessity in intravitreal injections was the subject of Dr Chang’s unchallenged evidence, as well as the unchallenged evidence of other medical practitioners, to which the primary judge referred in his reasons.

31    For those reasons, the MBS appeal must fail.

Dr Chang’s notice of contention

32    Dr Chang relied on a notice of contention to the effect that in submitting the relevant claim forms he was expressing an opinion that he genuinely believed on reasonable grounds that each claim fell within item 42739, not a representation as a matter of objective fact that he had performed a procedure falling within that item, as the primary judge found. It is unnecessary to consider that issue, because for the reasons set out above, we are of the view that the MBS appeal should be dismissed.

The Gap Scheme Appeal

33    Bupa has a Gap Scheme to cover its members for the “gap” charged by certain medical practitioners above the MBS-specified rebate. Practitioners who are part of the Gap Scheme agree to be bound by its terms (the Contract). Those practitioners are effectively held out by Bupa to its members as being Bupa’s trusted and preferred providers (see J at [108]). Dr Chang was a “Registered Medical Gap Scheme practitioner” participating in the Gap Scheme from about November 2011.

34    Bupa may deregister a practitioner from the Gap Scheme where, “in Bupa’s reasonable opinion, the practitioner’s conduct may adversely impact the goodwill, reputation or business of Bupa at any time”. The clauses concerning deregistration in the Contract are as follows:

Bupa’s Medical Gap Scheme deregistration procedure

Bupa may deregister a Registered Medical Gap Scheme practitioner from the Bupa Medical Gap Scheme by giving the practitioner written notice of deregistration if:

1.    The practitioner breaches any provision of these Terms and Conditions on three separate occasions as notified in writing;

2.    If in Bupa’s reasonable opinion, the practitioner’s conduct may adversely impact the goodwill, reputation or business of Bupa at any time; or

3.    The practitioner is convicted of a criminal offence relating to their practice including, without limitation, a fraud offence.

Before Bupa exercises its rights under Bupa’s deregistration procedures in relation to particular conduct, Bupa will:

1.    Give the Registered Medical Gap Scheme practitioner a written notice setting out reasons for deregistration; and

2.    Except where, in Bupa’s opinion, deregistration is urgently required to protect the interest of Bupa or Bupa members, provide the Registered Medical Gap Scheme practitioner with an opportunity to make submissions in relation to the matters set out in the notice referred to in 1.

Deregistration is for a minimum period of 6 months but Bupa may, in its absolute discretion, elect to re-register a practitioner prior to the expiry of 6 months.

35    Bupa deregistered Dr Chang from its Gap Scheme with effect from 15 August 2016.

36    It did so after exchanges of correspondence between Ms Margaret Street, the Manager of Bupa’s Hospital and Medical Utilisation Review team, on behalf of Bupa, and Dr Chang’s lawyers. Bupa submitted that it is important to go to the correspondence because it shows that Dr Chang understood the case that was being put against him, and that he was given adequate notice and opportunity to make submissions, as contemplated by the Contract. We will therefore set out the correspondence in some detail.

37    On 17 July 2015, Bupa referred to the data analysis it had undertaken, noted the “clear change in billing pattern” following the re-banding of item 42739, and requested that Dr Chang provide “supporting evidence that appropriate anaesthetic services were required and performed” in the procedures the subject of this case. The letter provided relevantly as follows:

Dear Mr Chang,

…

The result of a routine audit has identified a mismatch of medical billing of Medical Benefits Schedule (MBS) items 42738 and 42739.

…

For intravitreal injection episodes that fall outside the parameters identified in the MBS for the 42739 item, it would be appropriate to bill the 42738 item. The benefit paid to you would remain unchanged.

When the classification of MBS items for intravitreal injections changed in 2012 we note that your billing initially conformed to the pattern we would expect. During the fourth quarter of that year, there was a clear change in billing pattern for our mutual customers. A significant number of 42739 items were billed without associated anaesthetic services, and this has continued until the present time.

Since September 2012 there have been 4025 instances of item 42739 billed where no associated anaesthetic bill has been submitted.

To validate these claims paid on behalf of our customers we are requesting supporting evidence that appropriate anaesthetic services were required and performed in relation to these episodes. Where this evidence is unavailable we will consider these episodes to be billed as 42738 for hospital billing purposes.

We are monitoring the billing of all providers in relation to these other items, and request that your billing in the future conforms to the requirements outline in the MBS.

I have attached the list of the relevant episodes for your review.

Please forward your reply to the address below by the 21 August 2015.

38    In response, on 10 August 2015, Dr Chang’s lawyers asserted that claims had been made under item 42739 where patients had received Xanax, relevantly as follows:

Dear Ms Street

Dr Andrew Chang

We refer to your letter dated 17 July 2015.

We advise that we act for Dr Chang in this matter and request that all future correspondence be forwarded to our office.

We are instructed to provide the following response to your letter.

1.    MBS item 42739

1.1    MBS item 42739 is claimed when the patient requires sedation in addition to the usual topical and subconjunctival injection of anaesthesia, whereas, MBS item 42738 is claimed when the patient receives an injection of intravitreal drug without additional anaesthetic service.

…

1.3    Dr Chang only claims MBS item 42739 when additional anaesthetic service, in the form of sedation, is administered. The injections are performed in an operating theatre room environment. The patients may require sedation either as oral sedation, which involves alprazolam (a Schedule 8 drug) in a titrated dose, or intravenous sedation.

1.4    Dr Chang agrees that anaesthetic drops administered by a clinical nurse would not constitute an anaesthetic service for billing purposes. This is why an anaesthetic fee is not charged. However, the administration of a sedation (alprazolam) is an anaesthetic service.

…

1.6    Neither the surgeon nor the anaesthetist claims for an anaesthetic service under the MBS when oral sedation is used.

…

3.    Supporting Evidence

3.1    We note your request to review supporting evidence for 3462 clinical episodes. This request relates to copying over 3,400 episodes which is a huge logistical and expensive process noting that Dr Chang sees patients at the Sydney Retina Clinic and Day Surgery (the Clinic), Norwest Eye Clinic, St Vincent’s Hospital in Darlinghurst, the Sydney Eye Hospital, Strathfield Retina and Canberra Eye Hospital. It also involves consideration of handling sensitive health information. Noting that the benefit paid to Dr Chang is the same whether 42738 and 42739 is claimed this request for supporting evidence appears excessive.

3.2    Should Bupa still require supporting evidence following review of this letter we are instructed to propose two alternatives. Either;

   (a)    Bupa chooses a random selection of 30 patient records; or

(b)    an authorised representative from Bupa attends the Sydney Retina Clinic and Day Surgery to conduct an audit of a pre-determined selected sample of the relevant patient records.

Should you require further information, please contact Karen Keogh at your convenience.

39    On 15 February 2016, Bupa sent a letter setting out the findings from an audit Bupa conducted at the Clinic on 15 January 2016, relevantly as follows:

Dear Ms Keogh,

Andrew Chang Services Pty Ltd ABN 32 087 878 537 (Sydney Retina and Day Surgery)

We refer to the onsite audit of clinical records for 30 Bupa customers.

The Audit was conducted by Dr Chris Dalton and Ms Margaret Street on Friday 15th January 2016 at the premises of Dr Andrew Chang, Park House 187 Macquarie Street Sydney NSW 2000.

The purpose of the audit was to verify that correct itemisation for Paracentesis of Anterior Chamber or Vitreous Cavity had been provided to Bupa for the purpose of billing for medical and day surgery admission services[.]

…

Findings from the audit

•    Both auditors were requested to sign an Authority to View Medical Records – copy attached;

•    No original clinical records were sighted. Black and white photocopies of clinical notes and day surgery admission and treatment notes, placed in hard folders were provided. Monochromic copies do not provide visibility of contemporaneous note taking;

•    Comments regarding patients/customers request for sedation appeared to be prominently placed in the copied hand written notes and possibly not written at the time of the consultation. There were intermittent references in the notes such as ‘wishing oral sedation, anxious re injection’ etc. In some cases these notes appeared to be written over the next consultation’s date stamp. Unable to be verified in the copied notes provided;

•    No files contained documentation by an anaesthetist of the provision and administration of anaesthetic services;

•    Average total procedure time was 2 mins;

•    Average total length of stay for patients/customers in the day surgery facility was 30 mins;

•    All files contained documentation of the administration of an oral tablet form of Alprazolam (Xanax) 250mcgs and local anaesthetic drops of Benoxinate Hydrocloride 0.4% 4 drops administered over 15 mins;

…

•    The sedation could not be considered effective in the given time frame, especially with a smaller dose and not described as an anaesthetic service. Whilst alprazolam is rapidly absorbed it seems unlikely that the sub therapeutic dose of 0.25mgs would have clinical efficacy within 10-30 mins.

•    If the oral alprazolam did have some effect, a technique that could easily be used in ordinary doctors’ rooms should not be used to justify a special day surgery centre fee. Such use is against the spirit of the MBS item descriptor, which requires an anaesthetic service. An anaesthetic service which allows an extra fee implies that an anaesthetist is involved, which would require day surgery centre facilities with cardio-respiratory monitoring. There is no record of continuous cardio-respiratory monitoring in these patients.

•    If the peak serum concentration is in 1-2 hours and given the long half-life, and the patient is usually discharged in under an hour, there does appear to be further issues with the safety, effectiveness and appropriateness of this technique.

For the above reasons it is our belief that MBS item 42738 reflects the treatment provided to all Bupa patients referenced in our letter of 17 July 2015.

Bupa seeks recoveries of day surgery admission fees for incorrect billing of MBS item number 42739 for the amount of $562,130.76 as per the attached spreadsheet.

40    On 15 March 2016, Dr Chang’s lawyers responded, setting out his justification for administering Xanax and for claiming item 42739, relevantly as follows:

Dear Ms Street

Dr Andrew Chang

We refer to your letter dated 15 February 2016.

We are instructed that Dr Chang disputes that MBS Item 42738 reflects the treatment that he provided to the patients listed in the attachment to your letter. Dr Chang maintains that the appropriate MBS item number for the services provided is 42739. This is the MBS item number that has been approved and paid by Medicare.

Dr Chang disputes the alleged debt of $562,130.76

…

3.    Intravitreal Injection

…

Dr Chang has continually strived to provide the best possible care to these patients in surroundings that are safe and which optimise treatment because the patients are comfortable and relaxed.

Intravitreal injections do have recognised risks of complications. A lack of cooperation by the patient leading to patient movement can lead to risk of haemorrhage as well as damage to the lens and retina. Postoperative complications include corneal abrasion and ulceration. Strict asepsis and appropriate care postoperatively is essential.

We are instructed that Dr Chang is concerned no attempt has been made by BUPA to understand the medical background or process of this highly focused area of ophthalmology. It does not appear that an ophthalmologist peer with vitreoretinal subspecialist expertise, has had input into BUPA’s audit.

…

4.    Contemporaneous notes and documentation

…

The booking and note taking process at the Day Surgery is highly efficient. The clinical records follow the patient on admission and entries are made in the notes during the patients’ journey through the Day Surgery. These include the following stages:

(a)    Consultation with the patient and carer with Dr Chang where he records the needs of the patient including the requirement for additional support such as oral or intravenous sedation, ocular lubricants, preference for antiseptic preparation and post-operative antibiotics. The patient is, at this time, requested to sign an informed consent.

The indications for sedation where applicable are noted by Dr Chang each time the patient is assessed for an injection. Dr Chang acknowledges that his record of the need/request for sedation is prominently located in the clinical notes. This is because it is a requirement under the MBS item descriptor that an appropriate note is made in the clinical notes. Dr Chang does not therefore appreciate the apparent bewilderment of BUPA that the need for sedation is prominently and always noted.

...

6.    MBS Item 42739

…

Dr Chang only claims MBS item 42739 when additional anaesthetic service, in the form of sedation, is required and administered.

…

7.    Performing the procedure in an In-Patient setting

The procedure for patients requiring additional anaesthetic support in the form of Alprazolam is as follows:

(a)    the patient is admitted to the Day Surgery. At this time the patient’s heart rate and blood pressure will be measured and recorded;

(b)    the patient will then be moved to a pre-procedure room where the Alprazolam will be administered by a Registered Nurse. This is recorded in the S8 drug book;

(c)    the patient will then be moved to a procedure room where the local anaesthetic drops are administered according to a standard work-instruction and protocol.

(d)    Dr Chang assesses each patient and determines the Indication for subconjunctival infiltration of local anaesthesia. The requirement for additional timing and dosing of sedation is determined. Dr Chang will then perform the procedure using strict aseptic technique with the assistance of a Registered Nurse.

…

10.    Conclusion

Dr Chang has an uncompromising approach to patient care. Dr Chang believes patient comfort safety and quality care is fundamental. He takes the duty of care he owes his patients very seriously and requires a lengthy preparation period before performing intravitreal injection.

Dr Chang understands the difference in the interpretation of the Medicare MBS descriptor. However, Dr Chang maintains that the procedure is properly characterised as MBS Item 42739 and not MBS Item 42738. Medicare has paid on this Item number and Dr Chang continues to use this item number based on the appropriate descriptor of the item number. The interpretation by Dr Chang of the 42739 descriptor has been reviewed by Medicare and found to be appropriate. Dr Chang therefore has a reasonable expectation that if Medicare accepts the use of Item number 42739 that BUPA should as well.

Dr Chang will not be making a repayment to BUPA as our instructions are the services were correctly rendered.

It is Dr Chang’s intention to continue to provide oral sedation or intravenous sedation to patients in whom it is indicated. He believes in providing the highest quality care. His practice does continue to evolve dependent on new techniques and medication but where appropriate he will continue to use MBS Item 42739.

The issues raised by BUPA have been forwarded to the Medical Advisory Committee of the Day Surgery. Should it be necessary, the Day Surgery will consider formally involving the services of a Specialist Anaesthetist during oral sedation. It is expected if this is done that the Specialist Anaesthetist will render an account to Medicare and the respective health funds.

We reserve all our client’s rights.

41    On 17 June 2016, Bupa gave notice to Dr Chang as follows:

Dear Ms Keogh,

Andrew Chang Services Pty Ltd ABN 32 087 878 537 (Sydney Retina Clinic and Day Surgery)

We refer to your letter dated 15 March 2016.

Bupa maintains the view that it is inappropriate and unsustainable to bill MBS item 42739 for a patient receiving only a low-dose oral sedative or anxiolytic. This phenomenon is only identified at Dr Chang’s practice.

When MBS item 42740 was expanded to three items in 2012, the National Procedure Banding Committee initially set all three items at Procedure Band 3 for the purposes of hospital theatre billing. Dr Chang billed item 42738 consistently until 13 September 2012, when this item was reclassified to Procedure Band 1. On the same date item 42739 was reclassified to Procedure Band 2, which attracts a higher rate of theatre benefits. Dr Chang’s billing history shows that the inappropriate billing of item 42739 commenced on this date. As the owner-operator of the day facility, Dr Chang benefits directly from this change of billing behaviour. It is difficult to see how this sudden overnight change is not related primarily to financial considerations for his facility.

Bupa has worked with the Presidents and Ethics Committees of several professional organisations and colleges in the past in relation to billing behaviour concerns, and will do so in this instance unless it can be resolved directly.

We have independent external advice that a Professional Service Review committee of Dr Chang’s peers would be very unlikely to find it appropriate to define low-dose Alprazolam as an ‘anaesthetic service’.

We note Dr Chang’s identification of inconsistencies in the claim list. We have reviewed and revised the list in light of Dr Chang’s feedback, and updated our request for recovery of day surgery theatre fees to reflect services provided up until 31 May 2016. We have also included the Medical Record Number and the invoice reference for each patient and episode. The list is attached to this letter.

The updated sum of $569,079 must be forwarded to Bupa by 18 July 2016. If we do not receive this amount by the due date we will take such further action as we consider necessary to recover the debt from Dr Chang.

Please contact me for EFT details, or if payment is via cheque it can be forwarded via registered mail to:

Private and Confidential

Attention: Martin Anfinsen

Hospital and Medical Utilisation Review

Bupa HI Pty Ltd

179 Turbot Street - Level 17

Brisbane 4000 QLD

Along with full repayment from Sydney Retina Clinic and Day Surgery, we require an undertaking from Dr Chang that this billing practice will cease immediately.

If we do not resolve this issue by 18 July 2016, Bupa is with this letter giving notice that we will deregister Dr Chang from our Medical Gap Scheme. The terms and conditions of the scheme allows us to deregister a practitioner whose “conduct may adversely impact the goodwill, reputation or business of Bupa at any time”. The deregistration period is for a minimum of six months.

Yours sincerely,

Margaret Street

42    The correspondence continued after the giving of the notice. On 5 July Dr Chang’s lawyers replied, relevantly in these terms:

Dear Ms Street

Andrew Chang Services Pty Ltd (t/as Sydney Retina Clinic and Day Surgery)

We refer to your letter dated 17 June 2016;

Alleged Debt

A/Prof Chang disputes the alleged debt of $569,079. We note BUPA has obtained independent external advice and we request a copy of it so A/Prof Chang can properly respond to it.

As set out in our letter dated 15 March 2016, Medicare has paid on MBS item 42739.

Our client agrees that the appropriate adjudicator to determine if an MBS item has been appropriately rendered to Medicare is the Professional Service Review (PSR).

Please note that A/Prof Chang’s rendering of MBS item 42739 has been reviewed by PSR and we confirm that PSR stated that his records supported the claims for item MBS item 42739 and ‘the decision to treat is strongly supported by the clinical notes and the safety and quality documentation surrounding each procedure is impressive’. Additionally, PSR stated that ‘the clinical input appears to be high quality, consistent, personal and appropriate’.

PSR concluded that ‘In all cases, the records supported the claim of item 42739 (intravitreal injection requiring anaesthetic services) within an interpretation of ‘anaesthetic services’ including oral sedation. The clinical notes were clear and referred to associated investigations that supported the decision to treat. All cases had clearly documented administration of oral alprazolam. There is no information suggesting the intervention of an anaesthetist.’

With regard to the definitional issue of use of 42739, over 42738 when oral sedation is used, PSR commented that patients ‘... received oral sedation which is justifiable as an anaesthetic service.’

Dr Coote, the Director of PSR, concluded overall that ‘I am satisfied that there are insufficient grounds on which a Committee could reasonably find that Dr Chang engaged in inappropriate practice.’

If the PSR has determined that A/Prof Chang’s use of MBS item 42739 is appropriate and Medicare has deemed it appropriate to pay all claims that have been made under MBS item 42739, we fail to see how BUPA can say that use of MBS item 42739 is inappropriate. Therefore there is no debt owed to BUPA and there are no steps BUPA can take to recover the alleged debt. Our client has billed correctly for services rendered to BUPA members.

…

Deregistration

Our client disputes that there is a basis for BUPA to give written notice of deregistration on the basis that our client’s conduct has adversely impacted the goodwill, reputation or business of BUPA.

As set out in our letter dated 15 March 2016, and above, A/Prof Chang stands by his use of Medicare item 42739 which has been confirmed as appropriate by the PSR.

Any attempt to deregister A/Prof Chang from the GAP scheme will adversely affect vulnerable patients and BUPA members most of all. BUPA members who seek emergent care for conditions such as retina detachment, intraocular infections and complications of cataract surgery will not be able to make alternative changes in their choice of doctor or transfer of membership to another fund resulting in financial detriment. This includes patient attending the Sydney Eye Hospital where A/Prof Chang is a consultant vitreoretinal surgeon on call for retinal conditions

…

Yours faithfully

TressCox

43    On 8 July 2016 Mr Cook from Bupa wrote an email to Dr Chang’s lawyers, relevantly as follows:

Dear Ms Keogh

We refer to your letter dated 5 July 2016 to Margaret Street, Bupa’s Manager - Hospital & Medical Utilisation Review. Margaret has referred your letter to me.

…

Before responding in detail, we request a full copy of the report from Dr Bill Coote, Director of Professional Services Review, referred to in your letter. Can you please send this to me within 7 days.

As requested by you, the advice we received from our external consultant, Dr Tony Webber (past Director of the PSR), states (in full):

“I can see no justification for classing low dose oral alprazolam as an anaesthetic. The purpose of item 42739 is for a patient who is either unable to keep still or who is very anxious and requires an anaesthetic for these or other reasons. All ophthalmologists I know either use an injection of local anaesthetic or no anaesthetic before giving the intra-ocular injection. Using any other form of anaesthetic is very unusual.

Claiming that oral alprazolam is an “anaesthetic” is not sustainable and his colleagues would not be doing this. If brought before a PSR committee of his peers I believe they would find he has practiced inappropriately.

An anaesthetist should not be able to charge an Anaesthetic item for only giving an oral sedative. It would not even be used as a premed before a formal anaesthetic because it was given orally.”

Please ensure all future correspondence in relation to this matter is sent to me.

We look forward to hearing from you. In the meantime, Bupa reserves all of its rights.

Regards, Calum

44    The lawyers responded, relevantly as follows:

Dear Mr Cook,

We refer to your email dated 8 July 2016.

…

As previously requested, please forward us a full copy of the report from Dr Tony Webber and the instructing letter sent to Dr Webber requesting his report. Dr Chang is entitled to see this report if it is being relied upon by BUPA to comment upon his practice.

Please also inform us if Dr Webber was paid to provide his opinion to BUPA.

We maintain and believe that any Court would prefer the independent opinion of the current Director of PSR (who made his decision with input from an independent ophthalmic expert) to the opinion of a former Director of PSR commenting on an item number and descriptor that was introduced after his retirement, who is not an ophthalmologist and who presumably was paid to provide an opinion to BUPA.

Our client maintains that there is no basis to give written notice of deregistration and our client will challenge any notification of deregistration.

We reserve all our client’s rights.

Regards

Karen Keogh

Partner

45    The final piece of correspondence is an email from Dr Chang’s lawyers to Mr Cook, relevantly as follows:

Dear Mr Cooke,

We refer to your email dated 22 July 2016.

We have taken instructions and advise our client has considered the brief opinion of Dr Webber which we note does not consider the clinical justifications for the administration of Alprazolam and has not been made following detailed review of Dr Chang’s practice and/or Dr Chang’s medical records. Dr Webber’s opinion and the graph relating to the practice of Sydney Retina Clinic and Day Surgery does not alter our client’s position.

We continue to maintain that a Court would prefer the independent opinion of the current Director of PSR and an independent ophthalmic expert (noting both the current Director of PSR and the independent ophthalmic expert have reviewed Dr Chang’s practice at the Sydney Retina Clinic and Day Surgery as well as his clinical records) to the opinion of a former Director of PSR commenting on a brief email request relating to an item number and descriptor that was introduced after his retirement and who is on a paid retainer with BUPA.

Our client also maintains there is no debt owed by Sydney Retina Clinic and Day Surgery to BUPA in the sum of $569,079 or at all.

The offer to make a payment of $550,000 is rejected.

In relation to the proposed deregistration of Dr Chang from BUPA’s medical gap scheme, we reiterate there is no basis to give written notice of deregistration and our client will challenge any notification of deregistration on the basis it is unjustified and in breach of BUPA’s terms and conditions. Further, we note that the proposed deregistration of Dr Chang will adversely affect BUPA members requiring surgery for emergent retina detachment and trauma (ie. conditions that do not include intravitreal injection) at private and public hospitals under the care of Dr Chang if they are not unable (sic) to access GAP cover and cannot make changes to their insurance or treating doctor. Deregistration of Dr Chang in these circumstances raises issues regarding patient choice, safety and quality of patient care and the interference in the doctor patient relationship by BUPA.

We continue to reserve all our client’s rights.

Regards

Karen Keogh

Partner

The reasoning of the primary judge

46    The primary judge said (J at [111]) that:

The obvious starting point is specifying the conditions necessary for a valid deregistration to occur in conformance with the Deregistration Procedure, which requires Bupa to take the following steps:

(a)    form a “reasonable” opinion that Dr Chang’s conduct may adversely impact the goodwill, reputation or business of Bupa at any time (Step 1);

(b)    prior to the exercise of “its rights” under the Deregistration Procedure, Bupa is required to:

(i)    give Dr Chang a written notice setting out the reasons for deregistration (Notice) (Step 2); and

(ii)    provide Dr Chang with an opportunity to make submissions in relation to the matters set out in the Notice (Step 3); and

(c)    make a deregistration determination which is for a minimum period of 6 months (Step 4).

47    Bupa contended at trial, as it does on appeal, that Ms Street was the relevant employee who held the reasonable opinion that Dr Chang’s conduct in directing, or authorising, ACS to submit the claims that may adversely impact upon the goodwill, reputation or business of Bupa.

Step 1

48    The primary judge held that Bupa’s opinion (that Dr Chang’s conduct may adversely impact the goodwill, reputation or business of Bupa at any time) was not reasonable because it was formed by reference to the mistaken premise that the “Oral Sedation Procedure” (being, as pleaded by Bupa, “oral sedation involving Xanax in a titrated dose”) could never be considered an anaesthetic service. (J at [141]). According to the primary judge, this entailed the unreasonable result that Dr Chang would be deregistered unless he abandoned billing the Oral Sedation Procedure pursuant to the higher item, even when he considered an anaesthetic service was required.

49    As the primary judge put it, another way of saying why the formation (and communication) of the opinion was unreasonable was because it was formed (and communicated) for an “extraneous purpose” when having regard to Bupa’s subjective motivations for deregistering Dr Chang. (J at [141]-[142]). At [126], his Honour said, along the same lines, that “the question of the content of any express (Step 1) or implied (Step 4) obligation of reasonableness in the present case is essentially the same as an inquiry as to whether, on the facts, Bupa exercised its contractual rights for the purpose for which they were given and not for an extraneous purpose”. His Honour held that Bupa’s real motivation for forming and then communicating the opinion to Dr Chang was “… to communicate with Dr Chang in a minatory way in order to place commercial pressure on him to repay all sums claimed to which Bupa asserted he was not entitled and to change his billing practices” and that it was unreasonable because “Bupa’s approach to Dr Chang was driven out of financial self-interest”. (J at [139]).

50    The primary judge also took the following matters into account in coming to the conclusion that Bupa’s opinion was not reasonable within the meaning of the Contract:

(1)    that the on-site audit conducted by Bupa in January 2016, as part of its investigation, was not designed for any useful purpose (J at [134]);

(2)    that Bupa had accepted claims that were made by other private hospitals in similar circumstances because they were of lower total cost to Bupa (J at [39], [135] and [140]);

(3)    that Bupa’s assumption that Dr Chang had always administered a dosage of 0.25mg Xanax was not soundly based (J at [144]); and

(4)    that the three matters above, or a combination of them, indicated that Bupa held a “fixed” or “closed” view, this being consistent with an “all or nothing” process of reasoning, and a further factor pointing to unreasonableness (J at [133]-[136]).

Step 2

51    The notice contemplated by Step 2 and relied on by Bupa was the letter dated 17 June 2016, sent to Dr Chang’s lawyers and set out at [41] above.

52    The primary judge held that the clause in the Contract providing that Bupa give “a written notice setting out reasons for deregistration” required Bupa to give “notification of the process of reasoning by which the conclusion was reached, expressed in sufficient detail for the provision of submissions in response” (J at [154]). That paragraph reads relevantly as follows:

The process required more than a statement of a conclusion. It required notification of the process of reasoning by which the conclusion was reached, expressed in sufficient detail to allow for the provision of submissions in response. The 17 June Letter fell well short of this in stating a definitive conclusion. The 17 June Letter does not set out the reasons for the formation of the Step 1 opinion as revealed by Ms Street in her evidence. More fundamentally it did not invite submissions from Dr Chang, but rather, it constituted a demand for payment, failing which Bupa would deregister Dr Chang.

(Emphasis in original).

Step 3

53    As to Step 3 the primary judge held as follows (J at [156]):

It follows from the conclusion that I reached in relation to Step 2, that the Step 3 process miscarried. As I noted at [111(b)(ii)] above, Step 3 was the opportunity “to make submissions in relation to the matters set out in the Notice”, that is the 17 June Letter. Although there was a series of exchanges between the solicitors for the respondents and Bupa, the process set out at Step 3 could only operate following the anterior steps being taken in conformity with the Deregistration Procedure. For reasons I have already explained, this did not occur.

Step 4

54    The primary judge also held in respect of Bupa’s decision with respect to Step 4 (J at [117] and [157]):

Given the express contractual obligation to form the Step 1 opinion “reasonably”, in this case, the question as to whether it is necessary to imply a term of reasonableness that restricts the exercise of contractual powers, only directly arises in relation to Step 4. I think there is little doubt given the text, context and purpose of the Deregistration Procedure that a reasonableness “control” on the Step 4 exercise of the contractual “right” is to be implied (like the express obligation of reasonableness at Step 1).

…

Although I have already made reference to the fact that the Step 1 process and the Step 4 process as a matter of contractual construction are to be regarded separately and the obligation of reasonableness that is expressed in relation to Step 1 applies by implication in relation to Step 4, the conclusions I have reached concerning Step 1 as to reasonableness apply to Step 4 with equal force. The whole point of the Step 4 analysis was for Bupa to make a decision based, among other things, on material that had been supplied to it following the service of a proper notice in accordance with Step 2 and after reviewing any material provided by a practitioner pursuant to Step 3. This did not occur as Bupa merely proceeded to implement (as foreshadowed in June) its intention to determine Dr Chang’s registration given he had not repaid the money demanded nor indicated that he was prepared to change his approach to billing in the future.

(Emphasis in original).

Relevant legal principles

Bupa may deregister Dr Chang if in Bupa’s reasonable opinion, his conduct may adversely impact the goodwill, reputation or business of Bupa at any time

55    The principal question that arises on Bupa’s draft notice of appeal is whether the primary judge erred in finding that Bupa’s opinion involving, as it did, two judgments, was not “reasonable”. There was no dispute that Dr Chang engaged in the conduct in respect of which these judgments were made.

56    The first judgment involves the characterisation of Dr Chang’s relevant “conduct”, which was expressed in Bupa’s notice to Dr Chang as the “inappropriate and unsustainable” billing of MBS item 42739 for a patient receiving only a low-dose oral sedative or anxiolytic. Bupa accepted that for its opinion to be reasonable it had reasonably to be of the opinion that the claims made by Dr Chang were “unjustified”, because they were not covered by item 42739. The characterisation of the billing being “inappropriate” may thus be read as meaning “unjustified”.

57    The second judgment concerns the impact of that conduct – viz, that such billing, and Dr Chang’s insistence that it was not inappropriate and unsustainable, was “conduct [which] may adversely impact the goodwill, reputation or business of Bupa at any time”.

The parties’ submissions

58    The substance of Mr Jackman’s submission about the critical phrase “reasonable opinion” is that it means an opinion arrived at reasonably, as well as reasonably based on available material.

59    That submission is consistent with the (obiter) observation of Hodgson CJ in EFG Australia Ltd v Kennedy [1999] NSWSC 922 at [57]. In that case, the employer was entitled without notice to terminate an executive if “in the reasonable opinion of the Board” he was “guilty of negligence or dishonesty or misconduct or incompetence”. His Honour found on the facts that the executive in question had breached his fiduciary duty to his employer and had repudiated his contract of employment. Having done so, his Honour went on to say in the alternative (at [57]):

If Mr. Phillips’ conduct had not amounted to repudiation, then I am inclined to think that instant dismissal was not justified by the contract. … I am inclined to think that “reasonable opinion” … means an opinion arrived at reasonably, as well as reasonably based on available material. In most cases, this would require natural justice to be afforded.

(Emphasis added).

60    Mr Hutley, for Bupa, on the other hand, says that it is sufficient to establish that its opinion was reasonable within the meaning of the Contract if it bona fide formed the two judgments and those judgements were later confirmed supported by an expert to be capable of being reasonably held, albeit in circumstances where reasonable, including expert, minds may differ. It says therefore that a “mistaken” judgment does not necessarily lead to an unreasonable opinion, citing Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310; (2008) 257 ALR 292 at [96] and [140] (per Allsop P) and Australian Workers’ Union v Bowen (No 2) (1948) 77 CLR 601 at 606 (per Latham CJ).

61    Mr Hutley submits that Dr Chang could not discharge the burden of demonstrating that Bupa’s opinion was unreasonably held because Dr Chang had not challenged the primary judge’s finding that Bupa’s opinion that the use of Xanax did not constitute an anaesthetic service was shared by Associate Professor Forrest, and that such an opinion could reasonably be held by anaesthetists or reasonable medical practitioners. That opinion, which the primary judge found was reasonably held (J at [81] and [127]) was proffered in the context of the joint meeting of experts at the trial, and was to the effect that the Oral Sedation Procedure administered by Dr Chang was not an “anaesthetic service” within the meaning of the MBS. The expression of that expert opinion is found in a document entitled “List of issues to be addressed by expert witnesses” filed below, in which the following appears:

8.    Is the procedure performed by Dr Andrew Chang at the Clinic, as described in paragraph 17 of the Statement of Claim and in the affidavit of Dr Andrew Chang, an “anaesthetic service” within the meaning of the MBS?

Dr Koumoukelis and Dr Lee [experts retained at trial on behalf of the respondents] agree that the procedure described in paragraph 17 of the Statement of Claim and in the affidavit of Dr Andrew Chang was an “anaesthetic service” within the meaning of the MBS, for reasons outlined in the preceding paragraph.

Dr Forrest does not agree that the procedure performed by Dr Andrew Chang at the Clinic, as described in paragraph 17 of the Statement of Claim and in the affidavit of Dr Andrew Chang was an “anaesthetic service” within the meaning of the MBS, for reasons outlined in the preceding paragraph.

62    It is common ground that both opinions were reasonably held opinions.

63    As to the second judgment – that such billing, and Dr Chang’s insistence that it was not inappropriate and unsustainable, was conduct which might adversely impact Bupa’s goodwill, reputation or business, Mr Hutley put Bupa’s case in his oral submissions in these terms:

He – it has cost us, according to our view, of over half a million dollars. [His] position is [that] he intends to continue with the procedure and he’s not repaying the half a million dollars. Now ask there – stop there and ask oneself: if we had the belief, reasonable belief, that his conduct was unjustified, was his conduct harming my client’s business. Well, it obviously was. It was holding back from it a half a million dollars’ worth of capital and proposing to seek from my client further matters which my client considered to be unjustified.

Now, if one stopped there, one would say: what he is proposing, if we’ve got a reasonable belief, is he is doing something which, in the reasonable opinion of our client, is likely may harm our business. It will harm it for if no other reasons he will withhold from my client a half a million dollars’ worth of capital and is seeking … further moneys. And we say that was a simple position to be in and that was a simple fact.

Consideration

Reasonable opinion

64    In our view, on the proper construction of the relevant terms of the Contract set out at [34] above, it was for Dr Chang, on his cross-claim, to establish on the balance of probabilities that the opinion that Bupa formed based upon the two judgments, and relied on in deregistering Dr Chang (that is, that it was inappropriate and unsustainable to bill MBS item 42739 for a patient receiving only a low-dose oral sedative or anxiolytic and that Dr Chang’s conduct might adversely impact the goodwill, reputation or business of Bupa) was not arrived at reasonably, and that the opinion was not reasonably based on available material.

65    We do not, with respect, share the primary judge’s view that the terms that are set out under the heading “Bupa’s Medical Gap Scheme deregistration procedure” are to be addressed by reference to numbered chronological steps. In relation to the basis for deregistration on which Bupa relies here, the terms require that when Bupa gives a practitioner written notice of deregistration, Bupa holds the reasonable opinion that the practitioner’s conduct may adversely impact the goodwill, reputation or business of Bupa at any time.

66    The terms also require a certain process to be followed before the notice of deregistration is issued. Bupa must give the practitioner written notice setting out reasons for deregistration. And (assuming there is no urgency) it must provide the practitioner with an opportunity to make submissions in relation to the matters set out in that notice. The practitioner’s entitlement is to make submissions in response to the reasons that Bupa has articulated. That entitlement would be pointless if Bupa were permitted to form an opinion at the outset of the process and then hold the opinion regardless of the content of the submissions made by the practitioner. It would also be pointless if a notice of deregistration could be contractually effective, even though the opinion justifying it was only reasonable because of matters that Bupa had not disclosed to the practitioner, being matters on which the practitioner could not make submissions. It follows that the question of whether or not the opinion was reasonable must be evaluated by reference to the reasons given by Bupa in the written notice to the practitioner setting out reasons for deregistration, and in light of the submissions made by the practitioner in response.

67    The standard of reasonableness is also necessarily informed by the contractual context, which is that deregistration will, for a minimum period of six months, deprive the practitioner of significant benefits, including the incentive for Bupa’s members to use his or her licensed hospital or day hospital services because they pay no gap. Deregistration is a serious step. An opinion on Bupa’s part would not be reasonable so as to ground a contractually effective deregistration if it were based on insubstantial grounds.

68    We also do not agree with the primary judge’s conclusion (J at [126], set out at [49] above) that the content of the requirement of reasonableness is to be resolved by reference to considerations of the purpose for which Bupa issued its notice to Dr Chang.

69    Bupa’s letter of 17 June 2016 was the written notice setting out reasons for deregistration. The essential basis of the reason advanced by Ms Street on behalf of Bupa was that it had “independent external advice that a Professional Service Review committee of Dr Chang’s peers would be very unlikely to find it appropriate to define low-dose Alprazolam as an ‘anaesthetic service’”. That was the advice of Dr Webber, which is set out in full in Mr Cook’s email of 8 July 2016 set out at [43] above. He was a general practitioner, but Bupa ultimately did not contend that his opinion provided a foundation for the reasonableness of its opinion.

70    It is, with respect, striking that Ms Street, herself not a doctor (although an experienced administrator and once a nurse) so concluded without taking care first to ask an ophthalmologist or anaesthetist about the matter. Mr Jackman quoted from his cross-examination of Ms Street (in italics below) and made submissions before us, as follows:

MR JACKMAN: Ms Street is not an expert. Ms Street is involved in the management of Bupa … [S]ome time in the past she was a nurse, but she’s not an ophthalmologist and she’s not an anaesthetist. Indeed, she acknowledged that she – if your Honours go to the transcript at page 48. So this is tab 94, page 48. Now, I ask her, at the top of the page: In relation to your investigations and inquiries, you never consulted any ophthalmologist? Correct.

You never consulted any anaesthetist? Correct.

You only consulted a general practitioner in Camden. And a non-responsive answer followed.

You consulted with a general practitioner in Camden? Yes.

…

You consulted an ear, nose and throat specialist? Correct.

Goodness knows why. Did it occur to you an ophthalmologist or an anaesthetist might have had something worthwhile to say to you about the way in which way the item operates in practice?

And she didn’t really answer that. I repeated it at line 28:

Did it occur to you an ophthalmologist or an anaesthetist might have had something worthwhile to say about how that item number actually operates in practice? No.

She couldn’t be bothered finding out how ophthalmologists and anaesthetists see this item number as working in clinical practice. She shut her mind totally to the possibility that someone might not share her point of view. Someone who really does know what they’re talking about might not share her point of view. This is the fixed and all or nothing stance that she adopted.

71    Mr Jackman continued:

… [S]he didn’t have the benefit, first of all, of any opinion by a reasonably competent practitioner, because she never bothered to ask.

It just so happens that there are people like Professor Forrest out there, who, if asked, would have supported her opinion. But she didn’t know that, so it wasn’t part of her grounds for forming an opinion. She just decides as a person who’s not an anaesthetist or an ophthalmologist, that she’s not going to pay the claim.

72    We agree. It seems to us, with respect, that it must follow that the primary judge was correct to conclude that Ms Street did not arrive reasonably at the judgment that it was inappropriate and unsustainable to bill MBS item 42739 for a patient receiving only a low-dose oral sedative or anxiolytic. In truth, she had no reliable, professional or expert opinion upon which to base it. The fact that one anaesthetist (Dr Forrest) subsequently expressed his agreement with it is of no moment, once it is understood that, properly construed, the clause requires the process – not merely the result – to be reasonable. Compare EFG Australia Ltd v Kennedy [1999] NSWSC 922 at [57]. As we have said, reasonableness must be evaluated by reference to the reasons that Bupa has notified to the practitioner. It is therefore not to the point that, subsequent to the notice of deregistration, Bupa obtained the reasonably held opinion of an expert anaesthetist that the procedure that Dr Chang performed did not involve an “anaesthetic service”. That was not something Bupa knew at the time and it was not disclosed to ACS as a reason for deregistration.

73    Further, the fact that the consequences of deregistration would be serious for ACS and Dr Chang reinforces the view that an opinion formed on that basis was not a reasonable one.

74    In order for the second judgment reasonably to be held, it must first be established that the belief that the billing claims were unjustified was reasonable. In circumstances where we have found, as the primary judge found, that the judgment that the billing claims were unjustified was not reasonably held, a judgment that there would be a requisite adverse impact could never also reasonably be held. We do not understand Bupa to have contended otherwise.

Other grounds relied on by the primary judge for the finding of unreasonableness

75    We should add something briefly about the findings of the primary judge that Bupa’s real motivation in its letter of 17 June 2016 was to communicate with Dr Chang in a “minatory” way in order to place commercial pressure on him to repay all sums claimed and that it was unreasonable because Bupa’s approach to Dr Chang was driven out of financial self-interest.

76    “Minatory” relevantly means “menacing” or “threatening”. See Macquarie Dictionary (7th ed, 2017). The basis upon which Bupa founded its notice is, for reasons explained above, an unreasonable one, but we do not share his Honour’s view that the letter is menacing or threatening, or anything of the sort. It is a strongly worded expression of Bupa’s view, no doubt, but there was nothing improper about it.

77    As to the judge’s conclusion that Bupa’s opinion was unreasonable because it was driven out of self-interest, in our view that also is not a basis for founding requisite unreasonableness. A clause such as the one in question here permits the party relying on it to act in their own economic interests. Compare in the context of unconscionability claims: Cordon Investment Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144]-[145]; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 273, [288]; Australian Securities & Investment Commission v Kobelt [2019] HCA 18; (2019) 93 ALJR 743 per Keane J at 768, [117] (“To say that the respondent was pursuing his own commercial interests with a view to profit is to state the obvious, but also to say very little as to whether he engaged in unconscionable conduct. In particular, it does not assist in discerning whether the conduct in question exhibits those features which distinguish unconscionable conduct from the legitimate pursuit of self-interest”).

78    Mr Jackman also submitted, as the primary judge found, that the 17 June letter required notification of the process of reasoning by which Bupa had reached its opinion in sufficient detail to allow for the provision of submissions in response. It is unnecessary to deal with that point, but were it necessary to decide, we would not accept that submission. In our view, a contractual requirement that a notice set out “reasons” does not require the exposure of a path of reasoning. In any event, in light of the exchange of correspondence that is set out at unfortunate length earlier in these reasons, Dr Chang could not have been under any misapprehension about the grounds that Bupa was seeking to rely on to deregister him from the Gap Scheme. Indeed, his lawyers, among many other contentions that they advanced in specific response to the matters raised by Bupa, identified what we regard as the critical flaw in Bupa’s approach, namely that it had made no attempt “to understand the medical background or process of this highly focused area of ophthalmology” and that “[i]t [did] not appear that an ophthalmologist peer with vitreoretinal subspecialist expertise, ha[d] had input into BUPA’s audit”. See the 15 March letter at [40] above. That point can now be shown to have been well made, for the reasons set out above. And the correspondence read as a whole also shows that Dr Chang’s lawyers voiced no concerns about their understanding of the case being put against their client.

Disposition

79    Orders and declarations to the following effect will be made:

1.    Bupa’s application for leave to appeal be allowed.

2.    Bupa’s appeal be dismissed.

3.    Declare that Bupa’s deregistration of Dr Chang from the Bupa Medical Gap Scheme with effect from 15 August 2016 was invalid.

4.    Declare that Dr Chang remains a “Registered Medical Gap Scheme Practitioner” within the meaning of the Bupa Medical Gap Scheme and has been continuously since before and after 15 August 2016.

5.    Order that Bupa undertake all steps necessary to reinstate Dr Chang to the register of Registered Medical Gap Scheme Practitioners maintained by Bupa for the purpose of the Bupa Medical Gap Scheme, such reinstatement to occur within seven days of this order.

6.    The proceeding be remitted to the primary judge for an assessment of damages on Dr Chang’s cross-claim.

7.    Bupa is to pay the respondents’ costs.

Associate:

Dated:    17 October 2019

SCHEDULE OF PARTIES