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August 14, 1975

James R. DUMPSON, Commissioner of Social Services and Administrator for Human Resources of the City of New York, et al., Defendants

The opinion of the court was delivered by: WEINSTEIN


 WEINSTEIN, District Judge.

 This is a motion for a preliminary injunction. Initial evidentiary hearings have been held, but a full trial on the merits will be required. See Rule 65(a) (2), Federal Rules of Civil Procedure. Plaintiffs have shown a substantial probability of success on the merits and a high probability of irreparable injury unless immediate relief is granted. See, e. g., Inmates of Attica Correctional Facility v. Rockefeller, 453 F.2d 12, 20 (2d Cir. 1971); Clairol, Inc. v. Gillette Co., 389 F.2d 264, 265 (2d Cir. 1968); Bass v. Richardson, 338 F. Supp. 478 (S.D.N.Y.1971). As indicated below, the court must exercise its equitable powers to minimize burdens on the parties while the litigation is prosecuted to completion as speedily as circumstances permit.

 This memorandum, with its findings of fact and law, is based on preliminary hearings only and is not a decision on the merits in any respect. It does not include a full discussion of the substantial ethical, economic and social factors involved. The court's oral statements at the hearings outlined some of the complex issues posed which need not be decided at this preliminary stage of the litigation.

 Plaintiffs, seven clinical laboratories presently licensed to provide services under subchapter XIX of chapter 7 of Title 42 of the United States Code (Medicaid), have brought an action to enjoin a New York City program in which exclusive contracts for all Medicaid services will be let after competitive bidding to one laboratory for each of four of the City's five boroughs. Under the terms of these contracts, each of the four contracting laboratories would become the exclusive provider of Medicaid laboratory services in one of the four boroughs. Each laboratory would establish a station for collection of specimens and a Medicaid recipient could not seek laboratory services available at the central laboratory from any other laboratory, regardless of the patient's or doctor's preference.

 Plaintiffs file this suit on behalf of themselves and approximately three hundred similarly-situated laboratories doing Medicaid work in New York City. They allege that a large number of these laboratories would be forced out of business by the city's single-contract competitive bidding plan.

 Plaintiffs' primary contention is that the City's proposal would impair Medicaid recipients' right under Medicaid statutes to free choice of persons and institutions providing medical services, including laboratory services. It is this contention that is of central concern to the court, although plaintiffs include additional claims that under Medicaid statutes only one agency (the state) may supervise the Medicaid assistance program, that the City's proposal would violate the Sherman Antitrust Act (15 U.S.C. §§ 1 and 2), and that it would deprive the plaintiffs of Fourteenth Amendment rights of due process and equal protection.

 I. Statutory Framework

 Medicaid is the program of federal medical assistance for the poor and medically needy adopted in 1965. See, generally, Rosenblatt, Book Comment: Dual Track Health Care: The Decline of the Medicaid Cure, 44 U. of Cincinnati Law Review (1975) on R. and R. Stevens, Welfare Medicine in America: A Case Study of Medicaid (1974). It is financed by federal, state, and municipal funds and administered by each participating state. A state must submit a plan for approval by the federal Department of Health, Education and Welfare ("HEW") that complies with requirements of federal law. The federal statute (42 U.S.C. § 1396 et seq.) requires that states provide at least seven basic services: physician services, inpatient and outpatient hospital services, nursing home services, child health screening, and x-ray and laboratory services. 42 U.S.C. §§ 1396a(a)(13)(C)(i), 1396d(a)(1)-(5). These services must be available to at least all recipients of federal welfare programs (Aid to Families with Dependent Children, 42 U.S.C. § 601 et seq. and Supplemental Security Income for the Aged, Blind and Disabled, 42 U.S.C. § 1381 et seq.). States may provide additional services, such as dental care and drugs, and may include as Medicaid recipients "medically needy" individuals meeting the characteristics of welfare recipients (old age, blindness, disability, or childhood dependence), but whose incomes or resources are slightly above welfare eligibility levels. New York provides under its Medicaid plan for the mandatory medical services, as well as many optional ones, on behalf of both welfare recipients and the medically needy. 52A N.Y. Social Welfare Law §§ 363-369 (McKinney's Consol.Laws, c. 55, 1966). Costs of the program are shared by the United States, New York State, and New York City in the ratio of approximately 50%, 25% and 25%, respectively.

 The acknowledged purpose of the Medicaid program was to bring the poor into the mainstream of American medical services. Hearings Before the Subcommittee on Medicaid and Medicare of the Senate Finance Committee, 91st Cong., 2d Sess., pt. 1 at 57 (1965). Congress required that the program be in effect in all parts of the participating state (42 U.S.C. § 1396a(a)(1)); that services be made available promptly (42 U.S.C. § 1396a(a)(8)); that services for which the state pays be comparable for covered groups (42 U.S.C. § 1396a(a)(10)(B)); and that the program be administered in the "best interests of the recipients" (42 U.S.C. § 1396a(a)(19)). In 1968, Congress added provisions establishing a system of reviewing use and quality of care. 42 U.S.C. § 1396a(a)(30)-(31). It permitted Medicaid recipients to choose health care providers according to their own preference. 42 U.S.C. § 1396a(a)(23). Section 1396a(a)(23) is commonly referred to as the "freedom of choice" provision.

 When a state plan is filed that meets the requirements of both 42 U.S.C. § 1396a(a) and federal implementing regulations, the Secretary of HEW must approve it. 42 U.S.C. § 1396a(b). Once a state's plan has been approved, the Secretary, pursuant to 42 U.S.C. § 1396b, reimburses the state for a substantial portion of the costs it incurs in providing medical assistance. Each state has the responsibility of administering its own medical assistance program, with HEW's role largely restricted to disbursing funds.

 No exhaustion of administrative remedies or delegation issues are raised in this case since there is no supervisory or regulatory administrative agency involved, but rather a Congressionally-established financial disbursement scheme, where federal, state and municipal agencies perform disbursement, not regulatory functions. In addition, such review powers over programs as the Secretary of HEW possesses under 42 U.S.C. § 1396c only become operative after a program is actually implemented and, even then, only after extensive administrative review. Plaintiffs would be irreparably harmed if they were required to await implementation and HEW review. The question here is thus one of statutory interpretation, not of administrative agency review. All parties, including HEW, concur that this court has jurisdiction which should be exercised now. See, Almenares v. Wyman, 334 F. Supp. 512 (S.D.N.Y.1971), modified at 453 F.2d 1075 (2d Cir.) cert. den., 405 U.S. 944, 92 S. Ct. 962, 30 L. Ed. 2d 815 (1972).

 II. "Freedom of Choice" Provision

 As noted above, plaintiffs contend that the proposed New York City program, which would have the effect of requiring City Medicaid recipients to obtain laboratory services from a designated laboratory within the borough of their residence, conflicts with the "freedom of choice" provision of 42 U.S.C. § 1396a(a)(23). That section provides in relevant part:

"A State plan for medical assistance must --
. . .
(23) provide that any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person, qualified to perform the service or services required (including an organization which provides such services, or arranges for their availability, on a pre-payment basis), who undertakes to provide him such services . . . ."

 Thus, in view of this statutory language, plaintiffs' success in this suit necessarily depends on whether laboratory services are a form of "medical assistance" and whether a laboratory is an "institution, agency, community pharmacy, or person." The plaintiffs and the Secretary of HEW, acting as an amicus at the court's request, submit that both of these inquiries must be answered in the affirmative and that, therefore, plaintiffs come within the purview of the provision's "freedom of choice" guarantee. Their argument is summarized in the paragraphs below.

 The term "medical assistance" is defined at length in 42 U.S.C. § 1396d(a). Paragraph (3) expressly includes "laboratory and x-ray services" within that definition. Clearly, then, the services provided by plaintiffs come within the scope of "medical assistance" under Subchapter XIX.

 On first reading it would appear to be possible to interpret the language of Section 1396a(a)(23) to exclude clinical laboratories as providers coming within its purview. Plaintiffs are not institutions, agencies, or community pharmacies, and if the term "person" is interpreted to mean "natural person," plaintiffs, as corporations, would not fit within any of the providers as to which freedom of choice is guaranteed. Plaintiffs and the Secretary submit that such a narrow reading of the word "person" will not withstand analysis. Federal law expressly states that "[in] determining the meaning of any Act of Congress, unless the context indicates otherwise -- . . . the words 'person' and 'whoever' include corporations . . . as well as individuals . . . ." 1 U.S.C. § 1. In the instant case, there is nothing in "the context" of the specific statutory provision or in Subchapter XIX to suggest that the intended scope of the word "person" is confined to "natural persons." What evidence is available in the legislative history of Section 1396a(a)(23) all tends in the opposite direction. Both the House and Senate Reports accompanying H.R. 12080 state the purpose of the provision in broad, general terms. Thus, they announce that the provision is being included in order to provide Medicaid recipients with "freedom in their choice of medical institution or medical practitioner." H.R.Rep.No.544, 90th Cong., 1st Sess. 122 (1967); S.Rep.No.744, 90th Cong., 1st Sess. 183 (1967) U.S.Code Cong. & Admin.News, 1967, pp. 2834, 3021 (Emphasis added). The Reports also state expressly that "[under] this provision an individual is to have ...

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