Appellants, 148 proprietors of "skilled nursing homes" which care for 5,000 elderly patients in New York State, appeal from the denial of a preliminary injunction by the United States District Court for the Northern District of New York. This appeal was certified by Judge Port under 28 U.S.C. Sec. 1292(b) and taken under 28 U.S.C. Sec. 1292(a) (1). The injunction was sought to prevent the New York Departments of Social Services and Health and the United States Department of Health, Education and Welfare (HEW) from terminating without a hearing appellants' participation in the New York Medicaid program and their rights to Medicaid reimbursement. For rendering skilled nursing care to eligible patients appellants have been reimbursed in part by federal funds pursuant to Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396 et seq.

Title XIX is administered in each state by a "single State agency," 42 U.S.C. Sec. 1396a(a) (5), in New York the Department of Social Services. Social Services has in the past executed a so-called "provider agreement" with each nursing home, pursuant to 42 U.S.C. Sec. 1396a(a) (27), under which the home agrees to keep records and furnish information regarding payments claimed for providing services. To qualify for reimbursement, a nursing home must have a state operating certificate and must meet federal requirements as a "skilled nursing home." 18 N.Y.C.R.R. Sec. 505.9(a). A state operating certificate is obtained from the Department of Health and cannot be "revoked, suspended, limited or annulled without a hearing." N.Y.Pub. Health Law Sec. 2806(2) (McKinney 1971).

Appellees contend that appellants' state operating certificates are intact and not in question here. Appellants on the other hand argue that their state operating certificates will be "limited" if not "annulled" if the homes are ineligible for reimbursement under the federal scheme. Appellants contend that they will be driven out of business in a matter of weeks if they receive no reimbursement for the 75 per cent of their patients who are Medicaid recipients.

We turn then to the complex federal statutory and regulatory scheme to see what has occurred to appellants. Because New York does not have a fire and safety code approved by HEW, to qualify for a "provider agreement" after December 31, 1969, each skilled nursing home in the state must conform with relevant provisions of the Life Safety Code of the National Fire Protection Association (1967 ed.) 42 U.S.C. Sec. 1396a(a) (28) (F) (i); 45 C.F.R. Sec. 249.33(a) (1) (vii). The state agency may, however, waive

. . . in accordance with regulations of [the Secretary of HEW], for such periods as it deems appropriate, specific provisions of such code which, if rigidly applied, would result in unreasonable hardship upon a nursing home, but only if such agency makes a determination (and keeps a written record setting forth the basis of such determination) that such waiver will not adversely affect the health and safety of the patients of such skilled nursing home. . . .

42 U.S.C. Sec. 1396a(a) (28) (F) (i); 45 C.F.R. Sec. 249.33(a) (1) (vii). The provisions of the Life Safety Code are numerous, explicit and restrictive, e. g., "Institutional buildings 2 stories or more in height shall be constructed of at least 2-hour fire-resistive construction." Chapter 10, subsection 10-1322.

We do not know in what specific respects appellants do not comply with this Code. On the basis of representations made on oral argument we assume that some appellants can comply with the Code and some cannot. But none has had a hearing of any kind before any state or federal agency regarding compliance with the Code. The state agency (Social Services) has refused to waive compliance, even though the federal statute and regulations permit it, because it refuses to make the necessary "determination . . . that such waiver will not adversely affect the health and safety of the patients . . .." This is done, as we gather it, not by examination of appellants on a case-to-case basis,1 but apparently because the state agency believes that, under the federal statute and regulations, any failure to comply with the Life Safety Code necessarily will affect the safety of the patients adversely. Thus appellants, and more to the point, appellants' patients-many of whom might be forced into nursing homes outside the state of New York were appellants forced to close down-are victims of a rather wondrous bureaucratic shell game, in which a waiver of compliance is permitted by the federal agency, but the state agency says that it cannot issue a waiver under any circumstances-now you see it, now you don't.2

The district court denied injunctive relief against HEW, because before the Secretary may terminate payments to the State he must give the state agency ". . . reasonable notice and opportunity for hearing . . .." 42 U.S.C. Sec. 1396c; see 45 C.F.R. Sec. 213.1 et seq. Hearings adverse to the State are subject to judicial review under 42 U.S.C. Sec. 1316 (a) (3) and under the general review provisions of 5 U.S.C. Sec. 701 et seq.; see 42 C.F.R. Sec. 213.32(d). We affirm this portion of the order below, both because the application as to the federal appellee is premature and because there is no relationship between appellants and HEW.

The district court also denied injunctive relief against the two state departments involved, although it assumed a likelihood of success insofar as a right to hearings is concerned.3 Its ground for denial was that appellants will not be irreparably harmed. If appellants (or any of them individually) lose on the merits, the court reasoned, the decision not to provide funds prior to hearings will be vindicated. If, the court went on to say, appellants prevail on the hearings-either because homes are ". . . without deficiencies or because the deficiencies may be waived . . ."-they would be entitled to a "so called '12 month' agreement . . . effective from January 1, 1972 voluntarily . . or by order of the court."4 The court concluded that, except for the legal question whether appellants are entitled to a hearing, ". . . this seems to be a policy problem, the solution of which appropriately lies within the province of the defendants."

We disagree with the district court's view on this phase of the case because, as argument revealed, the State takes the blanket position that it cannot waive any failure to comply with the Life Safety Code, since such a failure necessarily adversely affects the safety of the patients. In doing so, the State, we think, misreads the federal regulations. In the case of each nursing home the state agency should, as we read 45 C.F.R. Sec. 249.33(c) (2), determine whether failure to waive relevant Life Safety Code provisions would result in "unreasonable hardship" for the home. If such hardship would result, and if the waiver would not affect the patients' health and safety adversely, waiver is permissible.5 Moreover, HEW itself considers that construction standards of the Life Safety Code may be waived by the single state agency in individual cases.6

The question is whether, pending such individual determination, preliminary injunctive relief should be granted. Is there a reasonable likelihood of success on the merits? Unicon Management Corp. v. Koppers Co., 366 F.2d 199, 204 (2d Cir. 1966). Would there be irreparable harm to appellants if such relief were not granted?

The statutory argument may very well succeed, because for all practical purposes ineligibility for a "provider agreement" may make the state operating certificate, concededly still outstanding, useless.7 In a real sense the certificate is being "limited." This is true although the homes may still treat private patients. It is true although the homes may apparently continue to receive state and federal aid as "Intermediate Care Facilities" under 42 U.S.C. Sec. 1396d(c);8 interestingly, we are informed by HEW's brief that the Secretary has not yet promulgated regulations setting federal standards pertaining to health and safety, etc., for patients requiring only "intermediate care." Parenthetically, it will be recalled that when a certificate is "limited," a hearing is required under N.Y.Pub.Health Law Sec. 2806(2) (McKinney 1971).9

Despite the possible receipt of state and federal aid as "Intermediate Care Facilities" and the ability to retain approximately 1,70010 private patients, the inability to care for Medicaid patients will be costly to appellants and will require the discharge of trained personnel. That the public interest is also seriously affected is of no small concern to us. Neither state nor federal appellees dispute the proposition that there are presently no facilities in the state of New York to provide skilled nursing care for the patients now treated by appellants; how these patients would be cared for does not appear.

We must, of course, also consider the possibility of harm to appellees, and the patients whose interests they are, after all, seeking to protect by promulgating high safety standards. In this regard there is a possibility that harm will accrue to the State if HEW cuts off its reimbursement funds for state noncompliance. Since the federal statute and regulations are not easy to interpret and, as noted above, have in fact been misinterpreted by the State, and since oral argument disclosed that many states presently are not seeking in any way to enforce the federal standards, we assume the HEW procedures will have sufficient flexibility to allow the State to afford appellants hearings if it does so on an accelerated basis.

Insofar as harm to the State is concerned, the State's position is essentially that it will afford hearings so long as it does not lose federal funds. Since the State is entitled to notice and hearing before federal funds are cut off, 42 U.S.C. Sec. 1396c; 45 C.F.R. Sec. 213.1 et seq., we need not cross this bridge now.

Lest it be thought that in granting preliminary relief, the court is giving nursing home proprietors a carte blanche to avoid safety regulations and endanger patients, it should be pointed out that these homes have been operating under provider agreements and temporary waivers for some time, and it is only by virtue of a change in the federal regulations that appellants have come under the State's guns. Appellant Maxwell, for example, had a statement as of August 1971 from the Health Department that "This facility, though it is a two story wood frame, non-fire resistence [sic] structure, provides a safe and comfortable environment." Social Services, familiar with the status of each appellant, can easily schedule its hearings on an expedited priority basis, hearing those cases in which there are strong potential hazards first, those in which the danger is little or none later. Under 45 C.F.R. Sec. 249.33(c) (2) (iii), the state agency may, of course, set any conditions on waivers for the 31 or so homes we are told are engaged in major structural changes which will bring them into compliance with the Life Safety Code.

We therefore reverse and direct the granting of a preliminary injunction against the state departments, restraining them from terminating medical reimbursement to appellants until a hearing has been afforded on the question whether waiver will be permitted under the applicable federal regulations as we have construed them. These hearings shall be held as quickly as possible, the State to determine the order in which they will be held.

One additional procedural problem remains. We have throughout this opinion treated appellants as a class, although the district court's opinion does not expressly do so. This is entirely appropriate under Fed.R.Civ.P. 23 and Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir. 1968), and appellees do not object to it. The question, however, is whether that class should be extended to include voluntary nursing homes, public nonproprietary nursing homes [which are administered by the New York State Department of Health under N.Y.Pub. Health Law Secs. 201, 2903, 2906 (McKinney 1971)] and mental hygiene facilities. For purposes of this appeal we think not, since there has been no demonstration that appellants here can "fairly and adequately protect the interests" of voluntary or public nursing homes or mental hygiene facilities. Fed.R.Civ.P. 23 (a) (4). Moreover, as to the State's own homes, the State would appear to be in a difficult situation-perhaps the Health Department would have to hold a hearing to determine whether to grant itself a waiver so as to maintain eligibility for HEW funds. We do not think it appropriate to treat these issues on this appeal. Fully realizing that there may here be a Pandora's box, we leave to the district court the task of determining whether to expand appellants' class in any respect. We continue the stay against appellee HEW insofar as it applies to reimbursement to public nursing homes and mental hygiene facilities until the district court has made the necessary determination.

Judgment in accordance with opinion.