(dissenting):
I must respectfully dissent for the reason that in my view appellants, as agents for health care employees whose compensation *283is frozen by the New York State regulation in question, 10 N.Y.C.R.R. § 86.21(k), have standing to attack it on the grounds that (1) it precludes payment of “reasonable” costs (which includes wages) as that term is used in the Social Security Act, 42 U.S.C. § 1396a(a)(13)(D); and (2) it places an undue burden upon the right of non-profit health facility employees to bargain collectively as authorized by the Labor Management Relations Act, 29 U.S.C. §§ 151, et seq. (LMRA). I believe it was error for the district court to dismiss their complaint sua sponte without giving the plaintiffs an opportunity to demonstrate their compliance with standing requirements and to introduce evidence in support of their claims on the merits.
Title XIX of the Social Security Act, 42 U.S.C. §§ 1396, et seq. (Federal Medicaid Program), authorizes the federal government, in furtherance of a cooperative federal-state program, to fund up to 60% of the reasonable cost of inpatient hospital or nursing home services provided by qualified institutions in a state, subject to certain conditions. One of these is that the state wishing to participate in the Federal Medicaid Program submit to the Secretary of Health, Education and Welfare (HEW) for approval a plan obligating the state to pay the non-federal share (40%) of such Medicaid payments, 42 U.S.C. § 1396a(a)(2), and providing for payment of the “reasonable cost of inpatient hospital services provided under the plan,” § 1396a (a)(13)(D). In computing the reasonable cost of services “All necessary and proper expenses of an institution in the production of services, including normal standby costs, are recognized,” 20 C.F.R. §§ 205.20 and 405.402. Thus it is beyond dispute that the term includes wages paid to employees represented by appellants.
New York’s plan provides in essence that each year’s reimbursement will be calculated prospectively, based on the previous year’s costs. The year for which reimbursement is being calculated is the “rate year,” and the year used as the basis for calculating costs is the “base year.” 10 N.Y.C.R.R. § 86.11. To the actual costs incurred during the base year (“the allowable basic rate”) is added an inflation factor (“a factor to project allowable cost increases during the effective period of the reimbursement rate”). 10 N.Y.C.R.R. § 86.15(b).
In November 1975 the state amended 10 N.Y.C.R.R. § 86.21(k) to provide that in determining base year costs for the purpose of these calculations, no cost increases over the year previous to the base year, except as allowed by the inflation factor, will be taken into account. Assuming that the amendment takes effect for fiscal years ending in 1976, as its terms state, this implies that the reimbursement rate thereafter will be the costs for the fiscal year ending in 1974 plus yearly adjustments for inflation. In August 1976 § 86.21(k) was approved by HEW.1
The current suit was precipitated by negotiations between the appellant local, which has been joined here by its national parent, and Lakeshore Nursing Home (Lakeshore), Rochester, New York. According to plaintiffs, whose affidavits must be accepted as true for present purposes, the parties to the negotiations agreed on a $.30 per hour wage hike. Of that amount $.20 per hour was required to meet the state’s minimum wage law requirements. Approval of the settlement was sought from the state Department of Health, which refused to allow reimbursement for the added $.10 per hour on' the basis of § 86.21(k). In other words, so long as the regulation remains in effect, employees at Lakeshore will be limited to the state’s minimum wage plus cost of living increases, unless the nursing home can obtain funds to pay the employees more than that from non-Medicaid patients or other sources.
Faced with the state’s denial, on the basis of § 86.21(k), of any greater reimbursement, hospitals and nursing homes, which *284rely upon the Federal Medicaid Program for reimbursement of as much as 90% of their costs (depending on the ratio of Medicaid to non-Medicaid patients at a given institution), have refused to negotiate or to pay any higher wages.2 The district court noted that “labor is the major expense in the operation of a health facility.” According to plaintiff, 60% of hospital and nursing home costs are attributable to salaries and wages of employees. As Judge Metzner stated, “The record shows that health care facilities have already stated to the unions that pay increases over present levels will be impossible as contracts come due, since such increases would not be covered by Medicaid reimbursement except for an inflation factor determined by the Department of Health.” Through their unions these employees contend that § 86.21(k) frustrates both the implementation of § 1396a(a)(13)(D), which provides that reimbursement shall be for “reasonable” costs (including reasonable wages) and the operation of the LMRA, which entitles them to bargain collectively for reasonable wages.
It was recognized by the district court and does not appear to be disputed by the majority here that the appellants, as representatives of the health care employees, satisfy the requirements of Art. Ill of the Constitution for standing.3 The employees and their representatives can allege and show direct economic injury as the result of the- application of § 86.21(k). Thus they have a direct personal stake in the outcome of whether § 86.21(k) violates the provision of § 1396a(a)(13)(D) for reimbursement of “reasonable” costs, including reasonable wages. A “case or controversy” is presented in an adversary setting between parties having a concrete interest at stake, with a logical nexus between appellants and the claim sought to be adjudicated. This is sufficient to confer constitutional standing. See Flast v. Cohen, 392 U.S. 83, 102-03, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968); Sierra Club v. Morton, 405 U.S. 727, 732-35, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972); Data Processing Service v. Camp, 397 U.S. 150, 152-53, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970); Warth v. Seldin, 422 U.S. 490, 498-99, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); Singleton v. Wulff, 428 U.S. 106, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976).
Apparently conceding the existence of constitutional standing, the majority concludes that appellants may not invoke this court’s jurisdiction because they have no rights or interests protected by the federal statutes relied upon by them as the basis for their challenge of § 86.21(k). According to the majority, the only persons who gain rights under § 1936a are the providers (hospitals and nursing homes) and possibly the patients. With this conclusion I must respectfully disagree. It ignores the actual state of affairs, which was well within Congress’ contemplation when it enacted the Federal Medicaid Program.
The object of the Federal Medicaid Program is to provide essential health services. While it is true that the owners of hospitals and nursing homes, most of whom could not successfully operate without the aid provided by the Program, have a direct interest in the interpretation and application of Title XIX’s provisions and the patients as beneficiaries have a similar interest, theirs is not the only interest deriving from the Program. The employees, who are the persons actually engaged in rendering the essential services (as distinguished from providing or patronizing the facilities), have an equal if not greater interest than their employers or their patients in the interpretation of Title XIX, and particularly of the term “reasonable” as used in § 1936a(a)(13)(D). It is the employees, not the hospitals, providers of *285patients, who render the health services and are the ultimate recipients of the funds being paid and reimbursed under the Program, with the hospitals acting for the most part merely as conduits. The jobs, wages and livelihood of most health service employees depend directly upon the reimbursement provisions of the Program, without which most providers could not employ them. On the other hand, since the employer is reimbursed under the Program, he is not as much concerned with increasing his employees’ compensation to a reasonable level as are his employees. Since the employer will suffer from paying substandard wages only if his employees engage in a work stoppage or if the compensation is insufficient to attract competent help, he has little incentive to challenge a regulation such as § 86.21(k), whereas the employees have a very real and direct concern.
Thus appellants are not voicing a generalized grievance or seeking to enforce the interest of third parties; they are asserting their own direct and vital interest, which is at stake. I would hold that they meet recognized standards for prudential standing and should be held to have an implied right under § 1396a(a)(13)(D), as persons “arguably within the zone of interests to be protected or regulated” by that statute, see Data Processing Service v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 830, 25 L.Ed.2d 184 (1970), to assert a claim that § 86.71 is inconsistent with the term “reasonable costs” as used in § 1396a(a)(13)(D). Since the practical effect of § 86.21(k) is to place a ceiling upon their wages by precluding reimbursement of any larger amount under § 1396a(a)(13)(D), the statute and regulation, when read together, constitute a “regulation” of their compensation. Aside from appellants’ unique relationship, we have here another unusual prudential circumstance strongly militating in favor of standing. Unless appellants are permitted to bring suit, it is unlikely that those recognized by the majority as entitled to standing—the providers and the patients—will do so, at least until there is a serious work stoppage or unavailability of employees, since the effect of § 86.21(k) is to lower labor costs for the providers, while the patients do not have a sufficient interest at stake as long as the hospitals and homes continue to operate. Except to the extent that substandard wages may result in strikes or inability to attract competent help, therefore, the hospitals and patients would have little or no interest in seeking to obtain reasonable wages for the employees. The real parties in interest, those who are presently “aggrieved,” are the underpaid employees. Their only alternative, once they are denied standing, is to engage in crippling strikes which will close down the health care institutions, adversely affecting the public interest and violating the principles underlying the LMRA. To force appellants to resort to work stoppages rather than to the courts as a means of asserting their rights does not seem to me to constitute a very “prudential” rule of standing.
For these reasons appellants are the “proper proponents of the particular rights on which they base their suit,” Singleton v. Wulff, supra, 428 U.S. at 112, 96 S.Ct. at 2873. The failure of the Federal Medicaid Program to name the employees and the fact that it provides for reimbursement rather than for direct advances to the employees are matters of form, not substance. Most of the money “reimbursed” by the federal government is paid over to the employees, with the employers acting essentially as conduits. From a substantive viewpoint, therefore, the employees’ interest is directly affected.
Even if the employees were viewed as indirect beneficiaries of the Program, the Supreme Court’s observation in Warth is pertinent:
“The fact that the harm to petitioners may have resulted indirectly does not in itself preclude standing. When a governmental prohibition or restriction imposed on one party causes specific harm to a third party, harm that a constitutional provision or statute was intended to prevent, the indirectness of the injury does not necessarily deprive the person harmed of standing to vindicate his *286rights. E. g., Roe v. Wade, 410 U.S. 113, 124 [93 S.Ct. 705, 35 L.Ed.2d 147] (1973).
“In several cases, this Court has allowed standing to litigate the rights of third parties when enforcement of the challenged restriction against the litigant would result indirectly in the violation of third parties’ rights. See, e. g., Doe v. Bolton, 410 U.S. 179, 188 [93 S.Ct. 755, 35 L.Ed.2d 147] (1973); Griswold v. Connecticut, 381 U.S. 479, 481 [85 S.Ct. 1678, 14 L.Ed.2d 510] (1965); Barrows v. Jackson, 346 U.S. 249 [73 S.Ct. 1031, 97 L.Ed. 1586] (1953).” 422 U.S. at 504-05, 510, 95 S.Ct. at 2208, 2211.
More recently in Singleton v. Wulff, 428 U.S. 106, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976), the Supreme Court, following these principles, held that two physicians who performed abortions reimbursable under the Medicaid Program had standing to attack the constitutionality of a Missouri antiabortion statute and that standing was not limited to their patients. There, as here, since the physicians stood to benefit through payment for their services, constitutional standing was not questioned. With respect to prudential standing Justice Blackmun, speaking for four members of the Court, was of the view that the closeness of the physician-patient relationship and the unlikelihood that patients would assert their rights, made it appropriate to allow the physicians to do so. Justice Powell, speaking for four other Court members, while concurring in the result, disagreed with this reasoning, asserting that as a general rule a party should not be permitted to assert the rights of a third party, lest the court become “roving commissions” engaged in the business of issuing advisory opinions, and that such permission had been granted in the past only when the official action under attack had had an “impact” upon or “direct interference” with the relationship between the plaintiff and the third party. Speaking of prior decisions upholding a person’s right to assert jus tertii, Justice Powell said:
“In each instance the State directly interdicted the normal functioning of the physician-patient relationship by criminalizing certain procedures. In the circumstances of direct interference, I agree that one party to the relationship should be permitted to assert the constitutional rights of the other, for a judicial rule of self-restraint should not preclude an attack on a State’s proscription of constitutionally protected activity. See also Meyer v. Nebraska, 262 U.S. 390 [43 S.Ct. 625, 67 L.Ed. 1042.] (1923).” at 128, 96 S.Ct. at 2881.
The plaintiffs in the present case qualify for standing under either the principles espoused by Justice Blackmun or the reasoning of Justice Powell. The employers and their employees constitute a close, mutually interdependent relationship similar to that of the physician and patient in Singleton, and § 86.21(k) constitutes a “direct interference” with that relationship by preventing the employer from paying reasonable wages that will avoid a strike or work stoppage. The employers, furthermore, like the patients there, have little or no incentive to sue.4
Were there any doubt about the appellants’ standing to challenge § 86.21(k), several other factors favor their standing here. First of these is § 10 of the Administrative Procedure Act, 5 U.S.C. § 702, which be*287came applicable upon approval of § 86.21(k) by the Secretary of HEW. It provides:
“A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute is entitled to judicial review thereof.”
Here there can be no dispute about the fact that the employees represented by appellants are “adversely affected” and “aggrieved” by HEW’s action in approving § 86.21(k) and are suffering injury as long as that regulation precludes them from negotiating wages.5
Another and even more cogent factor favoring standing for appellants is found in the provisions of the Labor-Management Relations Act, 29 U.S.C. §§ 151, et seq., which were amended by Congress in 1974 to extend its provisions to employees of nonprofit health care institutions, including those represented by appellants.6 The objective of the LMRA, of course, is to promote the free flow of commerce, general welfare and industrial peace by encouraging the resolution of labor disputes through collective bargaining rather than by work stoppages. See LMRA § 1(b), 29 U.S.C. § 141(b); Vaca v. Sipes, 386 U.S. 171, 182, 87 S.Ct. 903, 17 L.Ed.2d 842 (1967); NLRB v. American National Insurance Co., 343 U.S. 395, 401-02, 72 S.Ct. 824, 96 L.Ed. 1027 (1952). Appellants here contend that as long as § 86.21(k) places a ceiling on salaries and wages payable to health service employees by employers who are almost completely dependent upon reimbursement under the Medicaid Program for the continuance of their hospitals or nursing homes the effect of § 86.21(k) will be to turn the pertinent provisions of LMRA into a dead letter in New York. Since the LMRA was enacted for appellants’ benefit and the employees’ rights under it are thus threatened by § 86.21(k), I agree with the district court that they have standing under LMRA to challenge the validity of § 86.71(k) on the ground that it adversely affects their bargaining rights.
On the merits, however, the district court, while recognizing that appellants had standing under the LMRA to attack § 86.-21(k), held that the complaint failed to state a claim for relief. Judge Metzner reasoned that the wage freeze imposed by § 86.21(k) could not preclude the employers from bargaining in good faith because “the available sources of income are not limited to Medicaid Reimbursement” and “limitations on the sources of income do not connote refusal to bargain in good faith.” I disagree. To the extent that providers would rely upon fees received from non-Medicaid patients as the source of funds used to pay any wage increases above the freeze imposed by § 86.-21(k), the providers would be violating federal regulations to the effect that the costs of Medicaid patients should not be shifted to private patients, see 20 C.F.R. §§ 402(b)(3), 405. This policy was made clear by Congress in the Senate Report accompanying the original Medicaid bill, which stated:
“Although payment may be made on various bases the objective, whatever method of computation is used, will be to approximate as closely as practicable the actual cost (both direct and indirect) of services rendered to the beneficiaries of the program so that under any method of determining costs, the costs of services of individuals covered by the program will not be borne by individuals not covered, and the costs of services of individuals not covered will not be borne by the program.” S.Rep.No.404, 89th Cong., 1st Sess. (1965), reprinted at 1965 U.S.Code Cong. & Admin.News, p. 1976. (Emphasis supplied).
Nor do I agree that the non-existence of alternative sources of income to the em*288ployer does not preclude bargaining in good faith. When a provider has established a health service institution which depends heavily upon Medicaid reimbursement (as much as 90% in some instances), it is unrealistic to suggest, as does the majority, that in response to a regulation that precludes payment of “reasonable” costs as authorized by the Act he has the “choice of either making [his] operation more efficient or not accepting Medicaid patients.” Whether or not we may personally agree with the Federal Medicaid Program, it depends for its success on the ability of providers to employ competent health service employees at reasonable, competitive rates. If such rates cannot be paid because of the New York regulation under attack, it is no answer to tell providers dependent on the Program that they can go out of business.
Whether the interpretation of the “reasonable costs” provision of the Medicaid Act embodied in § 86.21(k) conflicts with the language of that Act or conflicts with the good faith bargaining provisions of the LMRA are questions so inextricably intertwined that, in may view, it is necessary to consider them simultaneously. I would therefore find an implied right of action in favor of the appellants under the Administrative Procedure Act, the Medicaid Act, and the LMRA to challenge the validity of § 86.21(k) and remand for the development of a record on which we can better consider the merits of these issues.
Finally, in support of its conclusion that appellants must be denied standing, the majority concludes without supporting data that some state governmental subdivisions are on “the brink of financial disaster” because of their “Medicare and Medicaid contributions” and that appellants merely “wish to negotiate higher wages for nursing home employees and then force the State to pay for them.” While such a statement may have appeal for conservative voters, it ignores the limit placed by § 1396a upon reimbursement of providers, which restricts them to “reasonable” costs. I do not believe that we are experts on what constitutes “reasonable” wages that may be paid to health service employees and reimbursed by the state. However, I am confident that Congress did not intend to permit the states to require providers to pay sweat-shop or substandard wages, as is claimed by appellants and apparently tolerated by the majority on the theory that it would make the providers’ “operation more efficient.”
Both the state and federal governments can surely use means other than a flat prohibition against any wage increases at all, which is the method used by § 86.21(k), to prevent appellants from gouging the providers, and thus the state, or forcing them to pay excessive wages. I see no reason, for instance, why governmental representatives, armed with the usual elaborate labor statistics kept by governmental agencies, including prevailing wages for comparable work, could not attend key bargaining sessions (such as those conducted with the League of Voluntary Hospitals and Homes of New York, Inc., which represents 50 hospitals and homes in the City of New York), and assist in establishing reasonable levels that would form a pattern for the industry. The important point, however, is that the issue of standing should not be resolved here on the basis of whether some of the state’s subdivisions need to be rescued from “the brink of financial disaster,” but upon a fair analysis of who has been injured by the challenged regulation, and how.
For these reasons I would reverse and remand the case to the district court for further proceedings, including the making of a record with respect to issues raised by this dissent and the taking of evidence as to other sources of providers’ income, the practical effects and alternatives to § 86.21(k), and the merits.
. The Secretary’s approval has mooted appellants’ claim that § 86.21(k) was invalid on the ground that it had not been approved by HEW. Cf. Hospital Association of New York State, Inc. v. Toia, 73 F.R.D. 565 (S.D.N.Y., 1976, opinion of Judge Morris E. Lasker).
. Representatives of the League of Voluntary Hospitals and Homes of New York City, Inc., which represents over 50 hospitals and nursing homes in New York City, have refused to negotiate any increases in wages or fringe benefits over and above those reimbursable under § 86.-7l(k).
. The unions’ right, as the representatives of the health services employees in this litigation, to any standing enjoyed by their members is not disputed. See Warth v. Seldin, 422 U.S. 490, 511, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (reaffirming the principle of representational standing).
. The majority suggest that if standing is granted to health services employees to attack § 86.21(k), the doors will be open to suits by other “providers of the providers” such as “medical supply houses, laundries, etc.” This fear is unjustified. Suppliers and other independent contractors do not stand in the same close relationship to the providers as do employees who devote their entire working hours to personal rendition of the health services regulated by the Act. In contrast, the supplier is usually one of several competing contractors who are not so wedded to the provider as to be dependent entirely upon him. Furthermore, payments to the suppliers represent a much smaller percentage of the provider’s outlay than the 60% paid to employees. However, should there be any dispute as to these significant differences in status, the proper remedy is a hearing on the issue rather than a summary dismissal of the complaint.
. Although the Secretary of HEW has not been named as a party, this formality could easily be remedied by permitting appellants to amend their complaint upon remand to name him.
. As amended § 2(14), 29 U.S.C. § 152(14) defines a health care institution as “any hospital, convalescent hospital . . ., nursing home, extended care facility, or other institution devoted to the care of sick, infirm or aged person.”