Background
Macquarie Hospital Services and the other plaintiffs operate Category B second-tier private hospitals that principally provide rehabilitation care but also offer services including operating theatres and surgical accommodation. After the hospitals terminated their business partnership agreements with private health insurer CBHS Health Fund Limited in March 2026, they claimed default minimum benefits under sch 5 cl 3 of the Private Health Insurance (Benefit Requirements) Rules 2011 (Cth).
The dispute concerned how cl 3(6) identifies an “episode of hospital treatment.” CBHS had 20 negotiated agreements with Category B hospitals in New South Wales as at 1 August 2025. Eight included benefits for theatre fees, and eight included benefits for overnight surgical accommodation. CBHS argued that because neither benefit appeared in a majority of all 20 agreements, Schedule 5 could not be used: theatre fees would attract no fallback benefit, while surgical accommodation would receive only the lower benefit available under Schedules 1 and 3. The hospitals contended that cl 3(6) required the Court to examine the agreements containing an equivalent episode and identify the classification system and payment structure used by the majority of that relevant subset.
The Court’s Holding
Peden J accepted the hospitals’ construction. The word “relevant” in cl 3(6) qualifies the insurer’s negotiated agreements. Accordingly, the agreements relevant to identifying a particular episode are those containing an equivalent type of episode. The word “majority” then directs attention to the patient-classification system and payment structure used by the majority of those relevant agreements; it does not require the episode to appear in a majority of every agreement the insurer has with comparable hospitals.
The Court held that cl 3(6) is an identification mechanism, not a threshold barring benefits. Because the methodology could be determined from the applicable eight-agreement subsets covering theatre fees and surgical accommodation, CBHS had to calculate the minimum benefits under sch 5 cls 3(4) and 3(5). The Court declared that CBHS must pay a separate theatre-fee benefit greater than zero and a surgical-accommodation benefit calculated under Schedule 5, and ordered CBHS to pay the plaintiffs’ costs.
Key Takeaways
- Under sch 5 cl 3(6), “relevant” agreements are those containing an equivalent episode of hospital treatment.
- The majority inquiry concerns the classification and payment methodology used within that relevant subset, not whether the episode appears in most of all comparable-hospital agreements.
- CBHS must calculate separate minimum benefits under Schedule 5 for theatre fees and surgical accommodation provided by the plaintiff hospitals.
Why It Matters
The decision clarifies how Australian private health insurers must calculate default benefits for treatment at second-tier hospitals when no negotiated agreement governs the relationship. An insurer cannot avoid a Schedule 5 calculation merely because fewer than half of all its comparable-hospital agreements expressly cover the disputed episode.
The construction supports Schedule 5’s function of providing minimum benefits by using commercially negotiated agreements that contain equivalent treatment as the benchmark for identifying and pricing an episode.