HARVEY MORRIS, Plaintiff and Respondent, v. SPENCER W. WILLIAMS et al., Defendants and Appellants, 67 Cal. 2d 733

SULLIVAN, J. — We are called upon to inquire into the validity of certain amended regulations of the Health and Welfare Agency reducing benefits provided under the California Medical Assistance Program, popularly known as MediCal. Accordingly, as required by long established and unassailable California precedents, we here discharge our responsibility to determine whether the Agency has acted in obedience to the mandate of the Legislature or has ignored or violated it. [1] Our function is to inquire into the legality of the regulations, not their wisdom.

Nor do we superimpose upon the agency any policy judgments of our own. [2] Administrative regulations that violate acts of the Legislature are void and no protestations that they are merely an exercise of administrative discretion can sanctify them. They must conform to the legislative will if we are to preserve an orderly system of government.

As we shall explain, we have concluded that the regulations under review are violative of the pertinent law in two major respects: (1) by restricting physicians’ services for recipients of public assistance without eliminating the medically indigent from the Medi-Gal program; and (2) by eliminating certain services entirely in the absence of a showing that proportionate reductions were not feasible to some extent. We hold that the trial court properly enjoined their implementation. We therefore affirm the judgment.

Plaintiff, a recipient of welfare assistance eligible for MediCal benefits, commenced the instant class action on behalf of himself and all other persons eligible for assistance under the Medi-Cal program for the purpose of challenging the validity of the regulations. Defendants appeal from the ensuing judgment declaring the regulations invalid and permanently enjoining their implementation. The Medi-Cal program is found in chapters 7 and 8 of

part 3 of division 9 of the Welfare and Institutions Code (§ 14000 et seq.). These statutes were enacted by the Legislature at the 1965 Second Extraordinary Session in order to establish a program of basic and extended health care services for recipients of public assistance and for medically indigent persons (§§ 14000 et seq., 14500 et seq.) and, by meeting the requirements of federal law, to qualify California for the receipt of federal funds made available under title XIX of the Social Security Act.

An outline of the pertinent provisions of these statutes is essential to a grasp of the issues now presented to us. The Federal Statute Title XIX, enacted by Congress in 1965 as Public Law 89-97, authorizes the Secretary of Health, Education and Welfare to make payments to states whose medical assistance programs meet the requirements of the statute. (42 U.S.C.A. § 1396.)° A state plan must cover individuals receiving aid or assistance under federally aided state programs for the aged, blind, disabled, and needy families with children; these groups must be treated equally.

Persons who do not meet the income requirements for such aid or assistance may also be covered, but in “amount, duration, or scope” no greater than extended to cash recipients. (42 U.S.C.A. § 1396a(a) (10).) A state must provide at least five categories of medical assistance : inpatient hospital services; outpatient hospital services; other laboratory and X-ray services; skilled nursing home services; and physicians’ services, wherever furnished. (42 U.S.C.A. §§ 1396a(a) (13), 1396d(a) (1-5).) The plan may not require any contribution by the individual towards payment for inpatient hospital services. (42 U.S.C.A. § 1396a (a) (14) (A).) In addition to these and other specific requirements, the federal statute provides that the Secretary “shall not make payments . . . unless the State makes a satisfactory showing that it is making efforts” to broaden “the scope of the care and services made available under the plan” and to liberalize “the eligibility requirements for medical assistance, with a view toward furnishing by July 1, 1975, comprehensive care and services to substantially all individuals who meet the plan’s eligibility standards. . . .” (42 U.S.C.A. § 1396b(e).) The California Statute As previously stated, the Medi-Cal program provides for basic health care (eh. 7) and extended health services (ch. 8).

It is the purpose of

chapter 7 “to afford basic health care and related remedial or preventive services to recipients of public assistance and to medically indigent aged and other persons, including related social services which are necessary for those receiving health care under this

chapter and

Chapter 8 (commencing with

Section 14500).” (§ 14000, 1st par.) The Legislature expressed its intent to provide through

chapter 7 “for basic health care for those aged and other persons, including family persons who lack sufficient annual income to meet the costs of health care, and whose other assets are so limited that their application toward the cost of such care would jeopardize the person or family’s future minimum self-maintenance and security.” (§ 14000, 2d par.) It also expressed its intent “that the scope and duration of health services under this

chapter and

Chapter 8 (commencing with

Section 14500) shall be at least equivalent to the level provided in 1964-65 under public assistance programs.” (§14000.1.) “Basic health care . . . may include diagnostic, preventive, corrective, and curative services and supplies essential thereto . . . for conditions that cause suffering, endanger life, result in illness or infirmity, interfere with capacity for normal activity including employment, or for conditions which may develop into some significant handicap.” (§14059.) The specific categories of basic health care are those listed in the federal statute. (§ 14053, following 42 U.S.C.A. § 1396d.) The Legislature authorized the Administrator of the Health and Welfare Agency to administer the program.

Section 14105, reenacted by

chapter 104 of the 1967 statutes, contains the legislative mandate: “The director [the Administrator of the Health and Welfare Agency, as defined in

section 14060] shall prescribe the policies to be followed in the administration . . . [of the program] and the scope of the services to be provided, and may limit the rates of payment for such services, and shall adopt such rules and regulations as are necessary for carrying out, not inconsistent with, the provisions [of the statute], . . . Insofar as practical, consistent with the efficient and economical administration of this part, the department [the Health and Welfare Agency, as defined in

section 14062] shall afford recipients of public assistance free choice of arrangements under which they shall receive basic health care. ...”

Section 14105 further requires that “In establishing the scope of services to be provided, the director shall provide for recipients [of public assistance] at least for a minimum coverage”—defined by

section 14056 as the five basic services required by 42 H.S.C.A. § 1396a(a) (13) (see fns. 8 and 9, ante)—“and insofar as possible shall include other health care and related remedial or preventive services giving priority to those services which are considered to have the greatest value in preventing or reducing the likelihood of future high cost medical services.”

Section 14152 expresses “the intention of the Legislature, whenever feasible, that the needs of recipients of public assistance for health care and related remedial or preventive services be met under the provisions of this chapter.” Explicit priorities favoring recipients of public assistance over those whose “income and resources are comparable” are set forth in

section 14006.5, which provides that the “director shall reduce services in accordance with the priorities. ’ ’

Section 14105 provides also that the Administrator “may-limit, by appropriate classifications, the number of medically indigent persons eligible, and may limit the scope and kinds of basic health care and extended health services to which such persons arc entitled, to the extent necessary to operate programs under this part within the limits of appropriated funds. When and if necessary, such action shall be taken by the director with the advice of the Health Eeview and Program Council. ...” Additional standards for the Administrator’s guidance are contained in

chapter 1421 of the 1967 statutes, approved by the Governor and filed with the Secretary of State, August 25, 1967. The act is “an urgency statute” which took effect immediately “In order that the California Medical Assistance Program be permitted to operate at its present level, as contemplated by the Legislature.” (Ch. 1421, §3.) Medi-Cal expenditures from state sources for the fiscal year 1967-68 may not exceed $305 million, “except that with the approval of the Director of Finance additional amounts may be expended if they are obtained by transfer from other sources as authorized by the Legislature.” (Ch. 1421, § 4.) The new act adds

section 14120 to the Welfare and Institutions Code, requiring the Administrator, with the approval of the Director of Finance, to “set up a monthly

schedule of anticipated total payments and payments for physician services . . . for the fiscal year.” (§14120, subd. (a).) “At any time the total amounts paid for physician services since the beginning of the fiscal year exceed by 10 percent the amounts scheduled to have been paid by that time, the administrator shall so inform the Director of Finance and at that time the administrator shall modify the method of payment of usual and customary fees to physicians to assure that the total amount paid for physicians’ services in the fiscal year shall not exceed the total amount scheduled.” (§14120, subd. (e).) Similarly, when total payments exceed by 10 percent the amount scheduled, the Administrator “within 30 days . . . shall institute program reductions which shall in his judgment assure that total payments in the fiscal year shall not exceed” available revenues. (§ 14120, subd. (d).)

Section 14103.7, also added by the new statute, provides that the Administrator, “when reducing services under this

chapter [chapter 7] and

Chapter 8 of this

part in order to maintain the program within the fiscal limits fixed by the Legislature, shall, to the extent feasible, make proportionate reductions in all services, rather than eliminating any service or services entirely. ’ ’ The Administrator must present a comprehensive report to the Legislature not later than January 31, 1968, including details of payment rates, program reductions, and “expenditure reductions caused by program reductions ’ ’ for each type of service. (Ch. 1421, § 5(7).) The Regulations Defendants adopted the challenged regulations as an emergency measure to take effect September 1, 1967.

The emergency, as recited in the order of the Health and Welfare Agency, arose from the budget limitation of Medi-Cal expenditures in the 1967-68 fiscal year to $305 million. With the federal contribution added, and over-obligations from the previous fiscal year subtracted, approximately $600 million are available for program benefits in 1967-68. At existing rates of program expenditures, however, the total expenditures for the year would approximate $811 million.

The emergency measure was designed to prevent the potential over-expenditure of $211 million by curtailing program benefits available under regulations in effect August 31,1967. Several of the changes restrict the scope of “minimum coverage” as defined in

section 14056.

Regulation 51305 of title 22, California Administrative Code, providing for physicians’ services for recipients of public assistance is amended to exclude coverage for non-emergency surgery; routine care of nails, corns, and callouses; outpatient psychiatric care; eye refractions except after operations; pleoptics and orthoptics; hearing examinations for the purpose of hearing aid utilization ; drugs administered by physicians except those listed in the state formulary; and services rendered beyond eight days in a private hospital or rehabilitation center except when approved by a Medi-Cal consultant.

The same limitations on physicians’ services are imposed upon the medically indigent under amended regulation 51403 (a). Inpatient hospital services are another category of “minimum coverage” modified by defendants’ order. Amended regulation 51327(a), which applies to recipients of public assistance, limits these services to a maximum of eight consecutive days in a noncounty hospital, unless extended by a Medi-Cal consultant. Regulation 51405 applies the same limitation to the medically indigent.

Amended regulation 51307 limits dental services to “the relief of pain or the elimination of acute infection, ’ ’ and eliminates diagnostic and restorative dental services. The services of chiropractors, spiritual healers, occupational therapists, psychologists, and audiologists are eliminated.

Physical and speech therapy is covered “only when provided to an inpatient . . . under an arrangement whereby the cost of services are included in the payment formula of the institution.’’ (Amended reg. 51309 (e).) Discharge medications are limited to a maximum of 14 days’ supply. (Amended reg. 51313.) Eliminated are prosthetic and orthotie appliances (reg. 51315), hearing aids (reg. 51319), and assistive devices (reg. 51321).

Eyeglasses are covered “only for the initial restoration of adequate vision following extraction of the lens of the eye.” (Amended reg. 51317.) Home health care services are limited to 14 days and may be extended by the Medi-Cal consultant to a maximum of 30 days. (Amended reg. 51337.) Special duty nursing (reg. 51339) is eliminated.

Findings of Foot cmd> Conclusions of Law The trial court found so far as is here material that insufficient funds are available for expenditure during the 1967-68 fiscal year to finance the Medi-Cal program at the level provided for in the regulations prior to their amendment and at the level of health services provided in 1964-65 under public assistance programs; that the amended regulations delete as physicians’ services, inter alia, psychiatric service (other than inpatient care) and eye refractions (except as necessary following extraction of the lens of the eye) for recipients of public assistance; that the amended regulations eliminated some health services entirely and did not make proportionate reductions in all such services; that the amended regulations do not exclude the medically indigent as defined in

section 14005, subdivisions (

b) and (

c) and in portions of

section 14006.5; that the Administrator did not provide explanations convincing to the court of the lack of feasibility of proportionate reductions in services; and that curtailment of expenditure reasonably may be possible to permit proportionate reduction in service particularly in the utilization of public hospital facilities and in the establishment of fee schedules for providers where not now established. The trial court concluded that the Administrator “property cannot maintain” the Medi-Cal program at the expenditure level of the preceding fiscal year or at the 1964-65 level; that

section 14000.1 has been modified by

chapter 1421, particularly

section 4 of the measure and

section 14103.7; that

section 14006.5 has been modified by

chapter 104, statutes of 1967 and particularly

section 14105; that

chapter 1421, statutes of 1967 did not modify

section 14006.5 or

section 14105 (as reenacted in 1967) ; and that “the amended regulations by providing for the elimination of some services entirety and not proportionately, in the absence of explanation by the Administrator convincing to the Court of lack of feasibility, as heretofore found, are violative of

section 14103.7 . . . and the amended regulations are invalid in this regard. ’ ’ The court further concluded that “amended regulations by eliminating as physicians’ services, certain psychiatric service and e3re refractions do not provide for the minimum coverage for public assistance recipients as required by sections 14105, 14056 and 14053 . . . and the amended regulations are invalid in this regard ’ ’; and that the ‘‘ amended regulations do not provide for the limitation of care for the medically indigent to the extent necessary to operate the program within the limits of appropriated funds as directed by

section 14105 ... as reenacted . . . and the amended regulations insofar as they reduce minimum coverage to public assistance recipients are invalid. ’ ’ Judgment was entered accordingly. This appeal followed. The parties’ positions may be conveniently summarized as follows. Defendants’ position may be analyzed as two principal assertions:

(1) That the amended regulations are valid under

section 14103.7. Upon this issue, defendants urge that although the Administrator eliminated some services entirety instead of reducing all services proportionately, he acted within the discretion conferred by the statute to determine whether across-the-board reductions were “feasible.” The record, they argue, supports as reasonable the Administrator’s considered decision not to curtail expenditures by utilizing public hospitals or by establishing fee schedules for physicians. The trial court, however, improperly reviewed the Administrator’s judgment not for abuse of discretion, but for correctness or wisdom.

Moreover, defendants contend, the court’s admittedly misleading indication to the parties that the burden of proof on the “feasibility” issue rested on plaintiffs, taints the finding that defendants did not convincingly explain why proportionate reductions were unfeasible.

(2) That the amended regulations are valid under

section 14105. The argument runs as follows: Although the Administrator reduced the “minimum coverage” for recipients of public assistance, he acted within the discretion conferred by the statute to define the scope of that coverage. Moreover, the statute permits him to meet budgetary limitations by restricting the basic five services without eliminating the medically indigent from the program. The record, defendants contend, supports as reasonable the Administrator’s considered decision to limit coverage for physicians’ services and not to curtail expenditures by striking the medically indigent. The trial court, however, erroneously construed the statute to preclude such a determination. If

section 14105 does require elimination of persons before reduction of services, defendants urge that it should be deemed modified in that regard by

section 14103.7, more recently enacted. Plaintiffs’ position consists essentially of four contentions:

(1) That the amended regulations violate

section 14000.1 by reducing the “scope and duration of health services” below the level provided in 1964-65 under public assistance programs. Plaintiffs urge that the trial court erroneously concluded that

section 14000.1 was modified by

chapter 1421, Statutes of 1967; whereas

section 3 of

chapter 1421 recites the Legislature’s intention, consistent with

section 14000.1, that the program “be permitted to operate at its present level.”

(2) That the amended regulations violate sections 14105, 14053, subdivision (5) and 14056, by reducing “physicians’ services” for recipients of public assistance. Plaintiffs argue that the statute’s general language mandates unqualified physicians’ services; the Administrator may control their utilization by requiring prior authorizations, but may not reduce their scope.

(3) That the amended regulations violate

section 14120 subdivision (c), added by

chapter 1421, by failing to establish monthly schedules of payments for physicians' services. The Administrator thus illegally avoided his duty to “modify the method of payment of usual and customary fees” should payments exceed the scheduled amounts by 10 percent.

(4) That the amended regulations violate

section 14103.7 by eliminating some services entirely. Upon this issue, the argument runs as follows: The evidence presented at the hearing fails to show that the Administrator discharged his duty to determine whether proportionate reductions were “feasible.” Material prepared after the hearing contains a superficial analysis of the problem. The record as a whole supports the finding that proportionate reductions “reasonably may be possible.” Thus, plaintiffs contend, defendants failed to meet their burden of proving the contrary proposition.

Before proceeding to consider the parties’ contentions, we deem it proper to delineate the scope of judicial review of the administrative actions plaintiffs attack. Under Government Code

section 11373, “Bach regulation adopted [by a state agency] ,[] to be effective, must be within the scope of authority conferred. ...” Whenever a state agency is authorized by statute “to adopt regulations to implement, interpret, make specific or otherwise carry out the provisions of the statute, no regulation adopted is valid or effective unless consistent and not in conflict with the statute. . . .” (Italics added.) (Gov. Code, §11374.) Our first duty, therefore, is to determine whether the Administrator exercised quasi-legislative authority within the bounds of the statutory mandate. While the construction of a statute by officials charged with its administration, including their

interpretation of the authority invested in them to implement and carry out its provisions, is entitled to great weight, nevertheless “Whatever the force of administrative construction . . . final responsibility for the

interpretation of the law rests with the courts.” (Whitcomb Hotel v. California Emp. Com. (1944) 24 Cal.2d 753, 757 [151 P.2d 233, 155 A.L.R. 405], and authorities there collected.) Administrative regulations that alter or amend the statute or enlarge or impair its scope are void and courts not only may, but it is their obligation to strike down such regulations. (Whitcomb Hotel v. California Emp. Com., supra; Hodge v. McCall (1921) 185 Cal. 330, 334 [197 P. 86] ; Boone v. Kingsbury (1928) 206 Cal. 148, 161-162 [273 P. 797] ; First Industrial Loan Co. v.

Daugherty (1945) 26 Cal.2d 545, 550 [159 P.2d 921] ; see Brock v. Superior Court (1938) 11 Cal.2d 682, 688 [81 P.2d 934].) If we conclude that the Administrator was empowered to adopt the regulations, we must also determine whether the regulations are “reasonably necessary to effectuate the purpose of the statute.” (Gov. Code, § 11374.) In making such a determination, the court will not ‘' superimpose its own policy judgment upon the agency in the absence of an arbitrary and capricious decision.” (Pitts v. Perluss (1962) 58 Cal.2d 824, 832 [27 Cal.Rptr. 19, 377 P.2d 83] ; Ray v.

Parker (1940) 15 Cal.2d 275, 311 [101 P.2d 665].) But we need not make such a determination if the regulations transgress statutory power. (Whitcomb Hotel v. California Emp. Com., supra, 24 Cal.2d 753, 759.) To put it another way, it is unnecessary for us to review administrative action for abuse of discretion, where we find no discretion was in fact conferred. With the foregoing principles in mind, we proceed to a consideration of the issues before us.

The trial court found, and defendants stipulated, that the amended regulations reduce Medi-Cal below the level of medical assistance provided under 1964-65 programs. (§ 14000.1.) The regulations thus contravene the legislative intent expressed in

section 14000.1.

Chapter 1421 of the 1967 statutes provides for a maximum of $305 million in state funds for Medi-Cal in 1967-68. It is undisputed that the 1964-65 level of health care “scope and duration” cannot be maintained under that appropriation. The Administrator is empowered to spend no more than the appropriated amount. His authority must therefore be measured by the annual budgetary provisions.

Section 14000.1, by contrast, contains no mandate directed to the Administrator that defines his spending power. Rather, that

section is directed to future Legislatures informing them of a principal long-term goal of Medi-Cal founders. The 1965 Legislature, of course, could not bind its successors and did not intend to do so. Nothing in

section 14000.1 prevents the 1967 Legislature from establishing different goals or modifying old ones to accord with fiscal realities. Plaintiffs urge, however, that

chapter 1421 in its urgency clause reaffirms the objective of

section 14000.1 by expressing the Legislature’s “contemplation” that Medi-Cal “be permitted to operate at its present [1966-67] level.” The Legislature, however, clearly contemplated that program reductions may be necessary to meet fiscal limitations. For that reason

chapter 1421 contains numerous provisions for reduction and possible elimination of services, and requires the Administrator to report such actions by January 31, 1968. To focus on the precatory language of the urgency clause is to miss the central impact of the act: that the limited appropriation may compel program cuts that would necessarily reduce the 1966-67 level. The fact that the statute leaves open the possibility that additional funds may yet be authorized, in no way alters the responsibility of the Administrator to spend the appropriated amount only.

The possibility of legislative relief is, in theory, always available. We agree with the trial court that the Administrator was entitled to proceed on the practical assumption that no further financial succor was forthcoming. The first issue presented as to the propriety of the reductions is whether the Medi-Cal statute authorizes the Administrator to reduce the minimum coverage for recipients of public assistance (hereafter sometimes “recipients”) without eliminating the medically indigent from the program.

The record reveals that the elimination of the medically indigent would produce a reduction of expenditures estimated at $145 million. The Director of Health Care testified that the regulations eschewed this method of reducing the estimated $210 million deficit on the ground that the counties would be forced to care for the medically indigent without the benefit of federal matching funds and with an injurious effect on local tax rates. Defendants contend that these reasons suffice to uphold their decision as a reasonable exercise of administrative discretion.

Federal law enables states to include medically indigent persons in medical assistance programs that qualify for federal grants. The inclusion of that group, however, is not required by federal law; a plan providing only for recipients of public assistance fully meets the qualifications of 42 U.S.G.A.

section 1396a(a) (10). (See fn. 7, ante.) Accordingly, California’s Medi-Cal legislation includes coverage of persons not receiving public assistance whose income and resources are not sufficient to meet the cost of health care (§§ 14000; 14005 ; 14006.5; 14051), but clearly expresses priorities favoring public assistance recipients. (§§ 14006.5—see fn. 11, ante, 14105—see fn. 10, ante.)

Section 14006.5 foresees the possibility that “sufficient funds” may not be available to provide “health care” for all persons initially covered. In that event, the Administrator “shall reduce services in accordance with the priorities set forth in this section. ...” (Italics added.) Upon analysis, the designated priorities indicate general categories: First, persons receiving public assistance; and second, persons “whose income and resources are comparable” to those in receipt of public assistance or to the standards prescribed for other specified aid and assistance. The clear preference for recipients of public assistance appears also in

section 14105 (see fn. 10, ante), reenacted in 1967 with one change not relevant here. That

section requires the Administrator to “provide for recipients at least for a minimum coverage”—the basic five services as defined in sections 14056 and 14053—and, “insofar as possible,” other services, “giving priority to” preventive care. By contrast, the same

section provides that the Administrator “may limit, by appropriate classifications, the number of medically indigent persons eligible, and may limit the scope and kinds” of health care to which they are entitled, “to the extent necessary to operate programs under this part within the limits of appropriated funds.'’ (Italics added.) The trial court determined that a conflict existed between the mandatory order of priorities established in

section 14006.5, and the permissive language relating to the medically indigent in

section 14105. The court concluded that

section 14105 modifies

section 14006.5 by virtue of recent reenactment. Nevertheless, the court held that by reducing minimum coverage for recipients without eliminating the medically indigent, the Administrator violated

section 14105. We reach the same holding through a somewhat different analysis. We find no conflict between sections 14006.5 and 14105. Both are part of the original Medi-Cal legislation, and the reenactment of the latter

section in 1967 left unchanged its language relating to recipients of public assistance and to the medically indigent. Our examination of the two sections fails to convince us that they are “irreconcilable, clearly repugnant, and so inconsistent as to prevent their concurrent operation” (Warne v. Harkness (1963) 60 Cal.2d 579, 588 [35 Cal.Rptr. 601, 387 P.2d 377] ; California Drive-In Restaurant Assn. v. Clark (1943) 22 Cal.2d 287, 292 [140 P.2d 657, 147 A.L.R. 1028] ; see People v. Harmon (1960) 54 Cal.2d 9, 26 [4 Cal.Rptr. 161, 351 P.2d 329]) and that the settled presumption against repeal or modification by implication has been overcome.

Section 14006.5 indeed establishes a mandatory order of priorities for reducing services to the two groups of persons covered by the act.

Section 14105 specifies the manner in which the Administrator may act in following the priorities of

section 14006.5. He “may limit” the number of the medically indigent eligible for any coverage; he “may limit” the coverage provided to those medically indigent who are eligible ; and he ‘ ‘ shall ’ ’ seek the advice ’ ’ of the Health Review and Program Council when acting in either way. The “permissive” language of

section 14105 means that the Administrator may adopt one or more of these methods; the mandatory language of

section 14006.5 means that he must adopt some. In short,

section 14105 tells the Administrator what he may do about the medically indigent when

section 14006.5 tells him to do something. The event that triggers this duty under

section 14006.5 is the insufficiency of funds to provide “health care” for all.

Section 14105 requires that the basic five services be provided to recipients of public assistance. When the Administrator seeks to meet budgetary limitations by reducing the hard core of the program, the clearest ease of insufficient funds under

section 14006.5 appears. The requirement of minimum coverage for recipients, moreover, constitutes an independent duty imposed on the Administrator. To discharge that duty faithfully, the Administrator must utilize every weapon the legislation makes available. Those weapons are the methods outlined in

section 14105 for implementing the priorities of

section 14006.5. Since the Administrator reduced minimum coverage for recipients as well as for the medically indigent, it is obvious that his method of limiting care for the latter group did not enable him to provide full minimum coverage for recipients as required by

section 14105. In these circumstances, the Administrator was bound to resort to the alternative method of eliminating some or all of the medically indigent. His failure to do so invalidates the amended regulations insofar as they reduce minimum coverage for recipients of public assistance. Our holding upon this issue fully effectuates the legislative intent in accordance with a fundamental rule of statutory construction. (Select Base Materials v. Board of Equalization (1959) 51 Cal.2d 640, 645 [335 P.2d 672] ; East Bay Garbage Co. v.

Washington Township Sanitation Co. (1959) 52 Cal.2d 708, 713 [344 P.2d 289] ; Kusior v. Silver (1960) 54 Cal.2d 603, 620 [7 Cal.Rptr. 129, 354 P.2d 657].) The Medi-Cal program combines previously disparate plans of medical assistance for recipients of public assistance. These persons, first and foremost, are the beneficiaries of the statutory scheme, and the Legislature intended that, whenever feasible, their needs be met. (§ 14152.) While a truly comprehensive program would provide fully for the medically indigent as well, they are given secondary status in both federal and state legislation.

Their number is considerably smaller than that of public assistance recipients ; and they have recourse at the county level if excluded from statewide coverage. There is no more justifiable occasion for invoking the power to exclude them than when fiscal difficulties threaten to undermine the right of public assistance recipients to receive the minimum coverage guaranteed by both state and federal laws.

Defendants contend, however, that they have discretion to define the content of “minimum coverage,” and that as long as a “reasonable” version of the basic five services is provided, the duty to provide “minimum coverage” is discharged. Thus, they argue, the Administrator may reduce physicians’ services—the only one of the basic five at issue here— when funds are in short supply without doing violence to the priorities established by the Legislature.

Section 14105 generally authorizes the Administrator to “prescribe . . . the scope of the services to be provided” and to adopt regulations “not inconsistent” with the provisions of the act. The same section, however, contains a specific mandate that “In esiablishing the scope of services to be provided, the director shall provide for recipients at least for a minimum coverage . . . .” (Italics added.) This specific requirement clearly qualifies the general authority conferred by the section.

Moreover, it constitutes a duty with which implementing regulations may not be “inconsistent.” We have no occasion upon this appeal to decide the meaning of “physicians’ services” in some theoretical sense. We deal rather with the statutory mandate the Administrator must follow in the present circumstances of limited funds. The statute does not tell the Administrator that he may redefine physicians’ services to meet financial needs.

As we have indicated, the statute requires that he must curtail expenditures for the medically indigent before he reduces the minimum coverage afforded prior to the incipiency of a fiscal crisis. Such a reduction is plainly “inconsistent” with the priority provisions of the statute and therefore outside the authority conferred by

section 14105. It may be that minimum coverage must be reduced when even the elimination of the medically indigent fails to free sufficient funds. In that event, the reduction must accord with the provisions of

section 14103.7 on “proportionate” reductions, which we discuss in detail below.

Section 14103.7 contains no independent authorization to reduce services. Rather, it provides the method to be used “when reducing services under this chapter. ...” (Italics added.) There is thus no conflict between sections 14105 and 14103.7, and no implied repeal of the former as urged by defendants. We now turn to examine the validity of the amended regulations under

section 14103.7, which provides: “The Administrator . . . , when reducing services under this

chapter ... in order to maintain the program within the fiscal limits fixed by the Legislature, shall, to the extent feasible, make proportionate reductions in all services, rather than eliminating any service or services entirely. ’ ’ Defendants stipulated at the hearing that some services were eliminated entirely and hence all services were not reduced proportionately, and the trial court so found. The sole issue for our determination, therefore, is whether the Administrator met the “feasibility” criterion of the statute.

As we have already pointed out, the trial court found that the Administrator failed to explain to the court’s satisfaction why proportionate reductions were not feasible and also found that the utilization of public hospitals and the establishment of fee schedules for providers of medical assistance may possibly curtail expenditures “to permit” proportionate reductions. From these facts the court concluded that the amended regulations violate

section 14103.7. The Director of Health Care testified at the hearing that, on a statewide basis, there are sufficient facilities in county hospitals (7,000 beds) to accommodate the 5,000 recipients of assistance who require inpatient services at any given time, and that per diem charges of county hospitals are typically lower than those of private hospitals. He agreed that the use of county hospital facilities would result in a saving, and that these facilities were used to care for recipients prior to the Medi-Cal program.

In response to a question by the court, the witness explained that utilization of county hospitals was rejected on two grounds: reluctance to consign recipients to treatment in facilities “traditionally reserved for the poor,” and fear of interruption in continuity of cane by physicians having no staff privileges at county hospitals. With respect to establishing fee schedules for physicians, the witness testified that the possibility was rejected in order to give effect to “an expressed preference” in the law for payment of ‘ usual and customary” fees.

Section 14103.7 was added by

chapter 1421 of the 1967 statutes to guide the Administrator in tailoring the program to meet appropriated funds. The 1967 Legislature, while foreseeing that reductions in services may be inevitable, hoped that the program could be permitted to operate at its 1966-67 level, to wit, without reductions in services (eh. 1421, § 3). If reductions could not be avoided, the Legislature mandated that, “to the extent feasible,” they be made proportionately in all services. The record is woefully deficient in evidence on the meaning of proportionality of reductions in services that cannot be qualitatively compared.

It is not clear whether proportionality of reductions means a strictly uniform percentage cut in the expenditures for all services, or merely partial reductions in varying degrees. It is clear, however, that the challenged regulations accord with no possible meaning of the term insofar as they eliminate some services entirely. The record establishes that the elimination of certain services was undertaken because proportionate reductions in all services were not expected to produce the savings needed to meet budgetary limitations.

If the deficit could be narrowed by economy measures unrelated to cuts in services, however, proportionate reductions in services may then result in enough savings to avoid the elimination of any service. It is in this context that the trial court suggested the possibility of cutting costs through the utilization of public hospitals and the establishment of fixed fees for physicians. Defendants obviously agreed that such factors were relevant in determining the possibility of compliance with the mandate of

section 14103.7, for they considered (and rejected) the very measures the trial court suggested. They contend that their decision in this respect was made in reasonable exercise of discretion under the statute. However, it is the duty and responsibility of the courts to examine statutes with care to ascertain that the Legislature indeed intended to subject administrative action to the narrow scope of review that discretion occasions (see Pitts v. Perluss, supra, 58 Cal.2d 824, 832), and to identify with particularity the areas, if any, truly within administrative discretion.

Section 14103.7, by requiring proportionate reductions “to the extent feasible” (italics added), confers no discretion upon the Administrator to decline to follow its mandate if proportionate reductions are “feasible” to some extent. The Administrator must therefore use every “feasible” means of curtailing expenditures in an effort to reduce the deficit so that no service need be eliminated. He has discretion to select the means to be utilized if not all are necessary to produce the necessary savings. Moreover, whether a particular measure is “feasible” is initially for the Administrator to determine.

But his determination must be based on factors that the statute, as interpreted by the courts, permits him to weigh. He has no discretion to decline to adopt an economy measure, not specifically proscribed by law, on grounds unrelated to curtailment of expenditures. “Feasible,” in short, means capable of being done and capable of producing a saving in a manner not otherwise barred by the statute. We articulate the foregoing definition in the light of the full substance of the statute. (Wallace v. Payne (1925) 197 Cal. 539, 544 [241 P. 879] ; City of San Diego v.

Granniss (1888) 77 Cal. 511, 517 [19 P. 875].) Any other construction of “feasibility” would fail to take cognizance of the overriding purpose of the 1967 legislation to provide the most comprehensive care possible under emergency fiscal conditions. The Legislature was aware that the limited appropriation may necessitate curtailment of expenditures that served useful purposes.

The 1965 Legislature preferred, for example, that “In determining the reasonable charge for a physician’s services, there shall be taken into consideration the customary charge for similar services generally made by the physician, as well as the prevailing charges in the locality for similar services” (§14104, subd. (c)6). But the 1967 Legislature in reenacting

section 14105, as the only change in the provision, added authority for the director to “limit the rates of payments” for services. (See fn. 10, ante.) By

chapter 1421, moreover, the same Legislature added

section 14120 requiring the Administrator to “modify the method of payment of usual and customary fees to physicians” when the amount paid exceeds by 10 percent the amount scheduled to be paid. These recent enactments indicate to us that the Legislature intended to compromise the customary fee principle if necessary.

Section 14103.7 indicates that the Legislature intended to avoid elimination of services “to the extent feasible.” In combination, these provisions justify fixing physicians’ fees as a method of preventing the elimination of services. The same principle supports the conclusion that utilization of county hospitals is a “feasible” measure within the meaning of

section 14103.7. Although there is a legislative preference for free choice of facilities (§§ 14000, 14000.2), this policy is required only “Insofar as practical, consistent with the efficient and economical administration” of the program (§ 14105). The Administrator in fact compromised the policy by promulgating the eight-day limit for private hospital services. The evidence supports the trial court’s conclusion that more drastic measures along similar lines may result in a saving and thus qualify as “feasible” under

section 14103.7. We do not decide that the Administrator must utilize either or both of these measures. He may institute others that would meet the requirements of

section 14103.7. In particular, we reject plaintiffs’ contention that the Administrator has violated

section 14120 by failing to establish schedules for physicians’ fees and thus avoiding the duty to reduce fees when payments exceed the scheduled amount. The Director of Health Care testified that the pendency of the action made it impossible to prepare monthly schedules, because until the court determined which services must be provided, there was no sound basis upon which to base monthly schedules of anticipated payments for services. In view of the fact that the legislation was enacted only two weeks prior to the hearing, the Director’s explanation provides a plausible ground for suspending implementation of the mandate of

section 14120. We conclude that the evidence supports the trial court’s finding that the Administrator failed to explain why proportionate reductions were not feasible. The amended regulations therefore violate

section 14103.7 insofar as they eliminate certain services entirely. Defendants contend that the trial court misled them by indicating that the burden of proof on the issue of nonfeasibility rested on plaintiffs. As we have pointed out, the hearing below, by stipulation of the parties in open court, was a trial on the merits. Plaintiffs, proceeding upon their amended complaint in two counts, sought a permanent injunction and a declaratory judgment that the amended regulations were invalid. (Gov. Code, § 11440.) The sole witness was defendant Carel Mulder, Director of the Office of Health Care.

Plaintiffs called Mr. Mulder as an adverse witness (Evid. Code, § 776). At the conclusion of such cross-examination of Mr. Mulder, defendants’ counsel stated that before proceeding he would “like to address an inquiry as to the Court as to the sharing of the burden of going forward here. ... I wonder if at this point it would be appropriate for the Defendant to move for a nonsuit or whether you desire me at this time to inquire of Mr.

Mulder on these areas which would be similar, to clarify these issues for the Court?” (Italics added.) The court replied: “Well, I don’t think there’s any basis for nonsuit in this matter. It primarily is a matter of law. ’ ’ A colloquy ensued among counsel and the court on the subject of the feasibility language in

section 14103.7. The court remarked that if such

section was applicable “it seems to me we should either by affidavit or through testimony have something with respect to the meaning of the feasibility language in

Section 14103.7 as added by Senate Bill 1065. . . . Now, I think Mr. Meyers, on this that this is the Plaintiffs’ burden and unless something is produced, why, it isn’t produced, period. I see no reason why you have to go into that.” (Italics added.) The court then stated, apparently in response to an interruption by plaintiffs’ counsel, “let me hasten to assure you that I regard that as really short of a relatively minor point, because I think basically we are talking about law.” Apparently because of these remarks of the court plaintiffs’ counsel further questioned Mr. Mulder.

Defendants’ counsel then took the witness on redirect examination after which plaintiffs’ counsel took the witness on recross-examination. This completed the testimony. Counsel for both parties then proceeded to introduce various affidavits subject to a reserved motion to strike. It would therefore appear that all testimony in the case was introduced during the plaintiffs’ case in chief. The record fails to disclose that either of the parties formally rested at any point. Nor does it disclose that defendants made a motion for nonsuit at any point.

Instead, after affidavits had been offered by both parties, counsel for each of them stated that there was “nothing further at this time.” After statements by each of the counsel on the legal issues, both counsel indicated their agreement that the court “close the hearing.” The court then took the matter under submission.

Fairly read the record discloses that counsel did not pursue, nor did the court insist upon, all of the usual trial procedures; rather both counsel appeared to have been desirous of presenting, and the court of receiving, all competent and material evidence which might assist the court in resolving the problem before it. Subsequently the court in its memorandum opinion indicated that defendants failed to meet the burden on the issue of nonfeasibility under

section 14103.7. Defendants then protested that they had been misled, and proffered material in part prepared subsequent to the hearing purporting to explain the reasons for the adoption of the regulations. We have no doubt that the burden of going forward with the evidence on the issue of nonfeasibility properly belonged to defendants. Although a plaintiff ordinarily has the burden of proving every allegation of the complaint and a defendant of proving any affirmative defense, fairness and policy may sometimes require a different allocation. (See Evid.

Code, § 500.) Where the evidence necessary to establish a fact essential to a claim lies peculiarly within the knowledge and competence of one of the parties, that party has the burden of going forward with the evidence on the issue although it is not the party asserting the claim. (Garcia v. Industrial Acc. Com. (1953) 41 Cal.2d 689, 694 [263 P.2d 8] ; 9 Wigmore, Evidence (3d ed. 1940) § 2486 ; Witkin Cal. Evidence (1958) § 56(b).) Clearly only defendants could explain why they deemed proportionate reductions not feasible, and the burden on this issue was theirs.

Defendants’ proper remedy for raising the point now made was by motion to reopen following submission of the cause, supported by affidavit showing good grounds. (Shimpones v. Stickney (1934) 219 Cal. 637 [28 P.2d 673] ; Eatwell v. Beck (1953) 41 Cal.2d 128 [257 P.2d 643] ; Foster v. Keating (1953) 120 Cal.App.2d 435, 451 [261 P.2d 529].) Having failed to assert error properly below, defendants are precluded from raising the matter at this stage of the proceeding. (Damiani v. Albert (1957) 48 Cal.2d 15, 18 [306 P.2d 780] ; Horn v. Atchison T. & S.F.

By Co. (1964) 61 Cal.2d 602, 610 [39 Cal.Rptr. 721, 394 P.2d 561].) Assuming arguendo that the contention is properly before us, we are convinced that despite the trial court’s unfortunate language, defendants should have known that the burden rested on them. As part of their case, plaintiffs showed that the regulations eliminated certain services entirely, and that arguably “feasible” methods for achieving proportionate reductions were available. As we have pointed out, the court indicated that plaintiffs had established a prima facie case and that a motion for nonsuit would fail.

Defendants did not make that motion. Defendants’ counsel in fact examined the Director of Health Care and had the opportunity to elicit the information defendants now claim that witness could have produced.

As we have explained, we think counsel for both parties strove conscientiously to provide the court with all available evidence either through oral testimony or by affidavit and at the conclusion of their efforts both clearly indicated to the court that it could “close the hearing.” Defendants subsequently submitted material containing additional information and, although not properly in evidence, these exhibits are filed with the record on appeal.

We have examined them and we find that the information they contain would in all likelihood have been deemed irrelevant under the test of feasibility set out in this opinion. In sum, we cannot say that defendants were prejudiced in the presentation of their case. We reach these conclusions:

(1) Neither

section 14000.1 nor the urgency clause found in

section 3 of

chapter 1421, Statutes of 1967, prohibits reductions in services that accord with the directives of the relevant statutory provisions.

(2) The amended regulations violate the mandatory requirements of sections 14006.5 and 14105 by restricting physicians’ services for recipients of public assistance without eliminating the medically indigent from the Medi-Cal program.

(3) The amended regulations violate

section 14103.7 by eliminating certain services entirely in the absence of a showing that proportionate reductions were not “feasible” to some extent. The judgment is affirmed. Traynor, C. J., Peters, J., Tobriner, J., and Moslc, J., concurred. PlaintifE alleges that the members of such class are readily ascertamable from the records of the Department of Social Welfare and the respective county welfare departments, but are so numerous as to make joinder impracticable; and that the issues of law and fact are common to all members of the represented class. Defendants are: Spencer W.

Williams, Administrator of the Health and Welfare Agency (hereafter Administrator and Agency); Carel Mulder, Director of the California Office of Health Care (hereafter Director of Health Care) ; and John Montgomery, Director of the State Department of Social Welfare (hereafter Director of Social Welfare). Defendants appealed to the Court of Appeal for the Third Appellate District. Upon the request of the parties and in view of the importance and urgency of the matter involved we ordered the cause transferred to this court. (Cal.

Buies of Court, rule 20.) The judgment recites that such amended regulations are declared invalid pursuant to

section 11440 of Government Code. That section, which is found in the Administrative Procedure Act (ch. 4, art. 5 of pt. 1 of div. 3 of tit. 2; and see § 11370), provides as follows: “Any interested person may obtain a judicial declaration as to the validity of any regulation by bringing an action for declaratory relief in the superior court in accordance with the provisions of the Code of Civil Procedure and in addition to any other ground which may exist, such regulation may be declared to be invalid for a substantial failure to comply with the provisions of this

chapter or, in the case of an emergency regulation or order of repeal, upon the ground that the facts recited in the statement do not constitute an emergency within the provisions of

Section 11421(b).” Hereafter, unless otherwise indicated, all

section references are to the Welfare and Institutions Code. 42 U.S.C.A.

section 139G provides: “Por the purpose of enabling each State, as far as practicable under the conditions in such State, to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or permanently and totally disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care, there is hereby authorized to be appropriated for each fiscal year a sum sufficient to carry out the purposes of this sub-chapter. The sums made available under this

section shall be used for malting payments to States which have submitted, and had approved by the Secretary of Health, Education, and Welfare, State plans for medical assistance. ’ ’ 42 U.S.C.A.

section 1396a provides in pertinent part: “ (

a) A State plan for medical assistance must— ... (10) provide for making medical assistance available to all individuals receiving aid or assistance under State plans approved under subehapters I, IV, X, XIV, and XVI of this chapter, and— _ ‘ ‘ (

A) provide that the medical assistance made available to individuals receiving aid or assistance under any such State plan— (

i) shall not be less in amount, duration, or scope than the medical assistance made available to individuals receiving aid or assistance under any other such State plan, and (ii) shall not be less in amount, duration, or scope than the medical or remedial care and services made available to individuals not receiving aid or assistance under any such plan; and “(

B) if medical or remedial care and services are included for any group of individuals who are not receiving aid or assistance under any such State plan and who do not meet the income and resources requirements of the one of such State plans which is appropriate, as determined in accordance with standards prescribed by the Secretary, provide— (

i) for making medical or remedial care and services available to all individuals who would, if needy, be eligible for aid or assistance under any such State plan and who have insufficient (as determined in accordance with comparable standards) income and resources to meet the costs of necessary medical or remedial care and services, and (ii) that the medical or remedial care and services made available to all individuals not receiving aid or assistance under any such State plan shall be equal in amount, duration, and scope; ...” The five subchapters mentioned in subparagraph (10) above are entitled respectively as follows: I (§ 301 et seq.)—Grants to States for Old-Age Assistance and Medical Assistance Por The Aged; IT (§ 601 et seq.)—Grants To States For Aid And Services To Needy Families With Children; X (§1201 et seq.)—Grants To States For Aid To The Blind; XIV (§ 1351 et seq.)—Grants to States for Aid To The Permanently and Totally Disabled; and XVI (§1381 et seq.)—Grants To States For Aid To The Aged, Blind, Or Disabled, Or For Such Aid And Medical Assistance For The Aged. 42 U.S.C.A.

section 1396a provides in pertinent part: ” (

a) A State plan for medical assistance must— . . . (13) provide for inclusion of some institutional and some noninstitutional care and services, and, effective July 1, 1967, provide (

A) for inclusion of at least the care and services listed in clauses (1) through (5) of

section 1396d(

a) of this title, and (

B) for payment of the reasonable cost (as determined in accordance with standards approved by the Secretary and included in the plan) of inpatient hospital services provided under the plan; ...” 42 U.S.C.A.

section 1396d(

a) lists such care and services as follows: '‘ (1) inpatient hospital services (other than services in an institution for tuberculosis or mental diseases) ; (2) outpatient hospital services; (3) other laboratory and X-ray services; (4) skilled nursing home services (other than services in an institution for tuberculosis or mental diseases) for individuals 21 years of age or older; (5) physicians’ services, whether furnished in the office, the patient’s home, a hospital, or a skilled nursing home, or elsewhere; ...” For convenience or reference, we set forth in toto the provisions of

section 14105 as reenacted in 1967: “The director shall prescribe the policies to be followed in the administration of this

chapter and

Chapter 8 (commencing with

Section 14500) and the scope of the services to be provided, and may limit the rates of payment for such, services, and shall adopt such rules and regulations as are necessary for carrying out, not inconsistent with, the provisions thereof. “Such policies and regulations shall include rates for payment for services not rendered under a contract pursuant to

Section 14104. Standards for costs shall be based on payments of the reasonable cost for such services. “Insofar as practical, consistent with the efficient and economical administration of this part, the department shall afford recipients of public assistance free choice of arrangements under which they shall receive basic health care. “In establishing the scope of services to be provided, the director shall provide for recipients at least for a minimum coverage as defined in

Section 14056, and insofar as possible shall include other health care and related remedial or preventive services giving priority to those services which are considered to have the greatest value in preventing or reducing the likelihood of future high cost medical services. “Notwithstanding the provisions of the preceding paragraph, and in accordance with the intent of this

chapter and

Chapter 8 (commencing with

Section 14500), the director, with respect to medically indigent persons, may limit, by appropriate classifications, the number of medically indigent persons eligible, and may limit the scope and kinds of basic health care and extended health services to which such persons are entitled, to the extent necessary to operate programs under this part within the limits of appropriated funds. When and if necessary, such action shall be taken by the director with the advice of the Health Review and Program Council and in ways consistent with the requirements of the Federal Social Security Act. ’ ’ (The italicized portion was added by

chapter 104 of the 1967 statutes as the only change in the original version of the section.) Seetion 14006.5 provides: “Health care shall be provided, as soon as practicable under this

chapter and

Chapter 8 of this part, to persons and families who would, had they chosen to apply, have been considered as medically indigent and eligible for medical or other assistance under the state programs in effect in December 1965. “Health care shall, within the limits of available funds and in accordance with federal law, be extended to other persons and families in accordance with the following priorities: '‘ (

a) Public assistance recipients and persons and families who would be eligible for public assistance but for the fact that they do not meet the durational residence requirements prescribed for public assistance. ‘ ‘ (

b) Persons and families whose income and resources are comparable to those in receipt of public assistance. ‘ ‘ (

e) Persons and families whose income and resources are comparable to the standard for the medical assistance for the aged program in effect in December 1965. “ (

d) Persons and families whose income and resources are comparable to the standard for the aid to the blind program in effect in December 1965. ‘ ‘ If sufficient funds are not available to provide health care for all of the persons enumerated in this section, the director shall reduce services in accordance with the priorities set forth in this

section and in accordance with the provisions of

Section 1902(a) (14) of the Federal Social Security Act. ’ ’ The cause was advanced for hearing on the merits by stipulation of the parties. This finding contained the following: “The Court did indicate to the parties at the hearing that the burden of proof in this regard rested on the plaintiff. ’ ’ Government Code

section 11000 in pertinent part provides: “As used in this title [title 2 “Government of the State of California”] ‘state agency’ includes every state office, officer, department, division, bureau, board, and commission.”

Section 14005 in pertinent part provides that basic health care shall be provided “to any person who is a resident of the state and is: (

a) A recipient of public assistance; or (

b) A medically indigent adult person [of specified income] . . . ; or (

c) A medically indigent family person in a family [of specified income]. ...” Seetion 14051 provides: “ ‘Medically indigent person’ means an aged or other person who is not currently receiving public assistance, but whose income and resources as defined by regulations are not sufficient to meet the cost of maintenance and health care or coverage. ’ ’ The trial court’s conclusion on this point is subject to another

interpretation as well. It may be that the conflict found is between the first sentence of

section 14006.5 (see fn. 11, ante), requiring that "Health care shall he provided” to a certain category of "medically indigent,” and the last paragraph of

section 14105, under which the Administrator ‘‘may limit” services provided to the medically indigent. (Italics added.) An examination of the record reveals, however, that the first sentence of

section 14006.5 was never discussed by the parties or the court. Only that part of the

section which sets forth priorities among eligible groups was argued below. In its memorandum opinion, the trial court phrased the question as "whether

section 14006.5 and its system of priorities has been modified.” The court’s conclusion that the

section has been modified, therefore, reasonably pertains to the system of priorities. The first sentence of

section 14006.5 is in fact irrelevant to the issues in this case. It merely describes a category of eligible persons to be included in the program from its inception, continuing the eligibility criteria dealt with in the immediately preceding sections 14005 (see fn. 15, ante), 14005.1, 14005.2 and 14006. The eligibility of any group was not an issue before the trial court; the system of priorities among eligible groups was. Although the language of

section 14006.5 is hardly a model of clarity, we are satisfied that the

section establishes the priority of recipients of public assistance over the medically indigent. The low-priority group is described by the

section as ‘ ‘ Persons and families whose income and resources are comparable” to those in receipt of public assistance or to standards for other specified aid and assistance. A reference to “comparable standards” is found also in 42 U.S.C.A.

section 1396a(a) (10) (B) (see fn. 7, ante) dealing with the group whose coverage is optional with the states. Since this group is not in receipt of public assistance, it can only be covered by the program at all if it consists of medically indigent (see §§ 14005 (fn. 15, ante), 14051 (fn. 16, ante)). The administrative regulations also refer to persons covered as two groups: Group 1 consists of recipients of public assistance, and Group II of medically indigent. Moreover, one of the trial court’s findings refers to the “medically indigent as defined” in “portions of

section 14006.5.” This was also the parties’ understanding. In fact, both counsel stated at oral argument that the

section establishes the priorities as we have construed them. Tlie number of medically indigent is estimated at 160,000 (Memorandum of Charles W. Stewart, Exhibit on Appeal), as compared with an estimated 1,358,200 recipients of public assistance (Medi-Cal Fiscal and Expenditure Program

Summary, Exhibit on Appeal). The trial court indicated that the eight-day limit on private hospital services (followed by transfer to county hospital) was a “control measure . . . not before me” rather than a reduction of service. Since the regulations did not of their own force reduce the coverage under the drug formulary, the trial court did not pass on the validity of that restriction. By leave of court, plaintiffs filed such amended complaint at the commencement of the hearing and by stipulation of the parties its material allegations were deemed denied by defendants.

In further explanation, the court stated that ‘' the question is a very simple one. Why, Mr. Mulder, was it not feasible to make proportionate reductions in all services rather than eliminating certain services entirely ? ’ ’ The remarks of defense counsel at this point are significant.

"Well, I’ve been waiting for the last half hour for the question that your Honor suggested he ask, although I don’t think it’s the obligation of the Defendant to do this, I think in the purpose of clarity and to get on with it- The Court: If you don’t ask it at tlis point, I’m going to ask it. ’ ’ Note: The plural form " plaintiffs ’ ’ has been used subsequently in the, discussion of class issues.