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NOTICE: This opinion is subject to motions for rehearing under Rule 22 as well as formal revision before publication in the New Hampshire Reports. Readers are requested to notify the Reporter, Supreme Court of New Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any editorial errors in order that corrections may be made before the opinion goes to press. Errors may be reported by E-mail at the following address: reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme. THE SUPREME COURT OF NEW HAMPSHIRE ___________________________ Merrimack No. 2005-765 MAXI DRUG NORTH, INC. d/b/a BROOKS PHARMACY & a. v. COMMISSIONER, NEW HAMPSHIRE DEPARTMENT OF HEALTH AND HUMAN SERVICES Argued: March 16, 2006 Opinion Issued: August 22, 2006 Cook & Molan, P.A., of Concord (Glenn R. Milner on the brief, and John S. Krupski orally), for the petitioners. Kelly A. Ayotte, attorney general (Suzanne M. Gorman, senior assistant attorney general, on the brief and orally), for the State. DALIANIS, J. The petitioners, five pharmacies participating in New Hampshire's Medicaid program, appeal from an order of the Superior Court (McGuire, J.) denying their petition for a declaratory judgment and granting the State's request for declaratory and injunctive relief. We affirm. The Medicaid program is a joint state and federal program under which the federal government provides financial support to States that establish and administer a state Medicaid program, in accordance with federal law, through an approved state plan. The New Hampshire Department of Health and Human Services (DHHS) administers New Hampshire's state plan. DHHS'

responsibilities include setting the rates of government reimbursement for providers of Medicaid goods and services. Pursuant to the state plan, the petitioners provide pharmaceuticals and pharmacy services to Medicaid customers, and are reimbursed for the pharmaceuticals by DHHS. RSA 126-A:3, III(a) (2005) includes a requirement, which states: Notwithstanding any provision of law to the contrary, and notwithstanding any fee, rate, or payment schedule established under the medical assistance program pursuant to RSA 161 and RSA 167 or any other fee, rate, or payment schedule for any other program of [DHHS], no provider shall bill or charge [DHHS] more than the provider's usual and customary charge . . . . Subject to certain exceptions, "usual and customary" means "the lowest charge, fee, or rate charged by a provider for any product or service at the time such product or service was provided." RSA 126-A:3, III(b) (2005). New Hampshire Administrative Rules, He-W 570.14 states that payment for pharmaceuticals shall be reimbursed at the least of four distinct rates, including "the usual and customary charge to the general public." Prior to January 12, 2004, the standard DHHS reimbursement rate for pharmacies was the average wholesale price (AWP) minus twelve percent, plus a dispensing fee of $2.50. On December 15, 2003, the commissioner of DHHS issued a letter to pharmacy providers stating that preliminary audits of pharmacies indicated overcharges to the State in violation of State law, and that DHHS would be "stepping up the audit activity" as a result. Shortly thereafter, on January 8, 2004, the commissioner issued another letter, declaring that a "temporary rate change" would go into effect on January 12, 2004, to address the situation, and would remain in effect for a minimum of six months. Pursuant to the "temporary rate change," DHHS would presume the "usual and customary charge" for pharmacies to be the AWP minus sixteen percent, plus a dispensing fee of $1.75, and would reimburse pharmacies accordingly. The letter further stated that an individual pharmacy could exempt itself from the presumed rate upon a clear demonstration that the presumption did not reflect its usual and customary charge. The petitioners thereafter sought a declaratory judgment in superior court pursuant to RSA 541-A:24 (1997), claiming that DHHS "unilaterally promulgated a new reimbursement rate for pharmacy providers without adhering to the mandatory rulemaking procedures of the Administrative Procedures Act (APA), RSA 541-A" when it issued the January 8, 2004 letter. Among other things, the petitioners requested that the temporary rate be declared invalid and that they be reimbursed for all losses related to its application. DHHS counterclaimed, alleging that the petitioners refused to

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cooperate with its audits and requesting an injunction prohibiting them from continuing to do so. The superior court concluded, however, that the January 8, 2004 letter was not a rule, and that it merely implemented RSA 126-A:3, III. Accordingly, the superior court ruled that DHHS did not promulgate an invalid rule when it issued the January 8, 2004 letter, and that DHHS had the right to obtain the petitioners' acquisition cost records. On appeal, the petitioners urge this court to find: (1) that the commissioner's January 8, 2004 letter constitutes an agency "rule" as defined in RSA 541-A:1 (Supp. 2005); and (2) that the invoice information of individual pharmacies is unrelated to the government's interest in conducting audits to determine compliance. We address each issue in turn. The petitioners first assert that the commissioner's letter of January 8, 2004 constitutes an agency "rule" subject to the rulemaking requirements of the APA. For the purposes of the APA, a "rule" is defined as: each regulation, standard, or other statement of general applicability adopted by an agency to (a) implement, interpret or make specific a statute enforced or administered by such agency or (b) prescribe or interpret an agency policy, procedure or practice requirement binding on persons outside the agency, whether members of the general public or personnel in other agencies. RSA 541-A:1, XV (Supp. 2005). The trial court did not reach the issue of whether the letter fell within this definition. Rather, the trial court concluded that RSA 126-A:3, III empowers the DHHS commissioner to enforce it "without resorting to formal rulemaking," and that the commissioner exercised this power by "presuming a particular rate" in the January 8, 2004 letter. We disagree. The trial court, in reaching its conclusion, relied upon Nevins v. New Hampshire Department of Resources and Economic Development, in which we stated that "promulgation of a rule pursuant to RSA chapter 541-A is not necessary to carry out what a statute authorizes on its face." Nevins v. N.H. Dep't of Resources and Economic Dev., 147 N.H. 484, 487 (2002); see also Smith v. N.H. Bd. of Psychologists, 138 N.H. 548, 553 (1994). In Nevins, we considered RSA 227-H:9 (2000), which empowers the New Hampshire Department of Resources and Economic Development (DRED) to "make contracts for the leasing of privileges and concessions." Nevins, 147 N.H. at 487. Though RSA 227-H:9 grants DRED a specific power "on its face," we nevertheless recognized that it was "not sufficiently detailed to effectuate its purpose," and that DRED was therefore required to promulgate rules. Id. We only upheld DRED's actions against the petitioners' challenge because the

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petitioners could not identify any specific way in which they were prejudiced by the agency's failure to adopt rules. Id. at 488. RSA 126-A:3, III does not, "on its face," authorize DHHS to implement or enforce its provisions, either generally or by the more specific method of amending presumptive reimbursement rates. It merely sets forth a provider's obligations to DHHS when seeking reimbursement under the state plan. If the statute grants any authority to implement or enforce those obligations, it does so only by implication. While it may be true that the January 8, 2004 letter represented an effort by DHHS to implement the requirements of RSA 126-A:3, III, we do not believe that the statute authorized such action in a way that exempted DHHS from the rulemaking requirements of RSA chapter 541-A. Thus, we must consider whether the letter was indeed a "rule" pursuant to the definition set forth in RSA 541-A:1, XV. Because it "institut[es] a temporary rate change" applicable to all pharmacy providers seeking reimbursement pursuant to the state plan, it is plainly a "statement of general applicability adopted by an agency." RSA 541-A:1, XV. Furthermore, the letter "prescribe[s] . . . an agency policy . . . binding on persons outside the agency," id., in that it lowers the presumed "usual and customary charge" for all pharmacy providers from AWP minus twelve percent plus a $2.50 dispensing fee to AWP minus sixteen percent plus a $1.75 dispensing fee. As such, we believe that the January 8, 2004 letter, insofar as it instituted a "temporary presumption" binding upon all pharmacy providers, was a "rule" as defined by RSA 541-A:1, XV. Though we find that DHHS engaged in rulemaking by changing the presumptive rate of reimbursement for the purposes of New Hampshire Administrative Rules, He-W 570.14(a), we nevertheless conclude that the rule at issue was exempt from the requirements of the APA. The DHHS commissioner must comply with RSA chapter 541-A when adopting rules relative to matters necessary to implement the duties set forth in RSA chapter 161. RSA 161:4-a, IX (2002). Such duties include supervising the development and administration of the state Medicaid plan. RSA 161:4, I (2002); RSA 161:2, VI (Supp. 2005); see also N.H. Admin. Rules, He-W 520.02(a) ("The department of health and human services shall . . . [d]evelop and administer the federal Title XIX [Medicaid Act] State Plan, pursuant to applicable federal regulations and RSA 161:2, VI . . . ."). The DHHS commissioner is also required to establish rates of reimbursement to providers of medical services under the medical assistance program administered under RSA chapters 161 and 167. RSA 161:4, VI(a) (2002). The procedure for adopting rules pursuant to the APA is set forth in RSA 541-A:3 (1997), which requires:

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I. Filing a notice of the proposed rule under RSA 541-A:6 . . . ; II. Providing notice to occupational licensees or those who have made timely requests for notice as required by RSA 541-A:6, III; III. Filing the text of a proposed rule under RSA 541-A:10; IV. Holding a public hearing and receiving comments under RSA 541-A:11; V. Filing a final proposal under RSA 541-A:12; VI. Responding to the committee when required under RSA 541A:13; and VII. Adopting and filing a final rule under RSA 541-A:14. However, RSA 541-A:21, III (Supp. 2005) states that "[r]ules adopted under RSA 161:4, VI, relative to rates of reimbursement to providers of medical services under the medical assistance program, shall be exempt from the requirements of RSA 541-A:5 through RSA 541-A:14." Thus, while rules, relative to rates of reimbursement, adopted by the DHHS commissioner pursuant to RSA 161:4, VI are not exempt from RSA 541-A:3, they are exempt from each of that statute's enumerated provisions and, therefore, the rulemaking requirements of the APA. See also RSA 161:4, VI(a) (publication of rates of reimbursement established pursuant to RSA 161:4, VI(a) is exempt from the provisions of the APA). Pursuant to RSA 541-A:22, I (Supp. 2005), "[n]o agency rule is valid or effective against any person or party, nor may it be enforced by the state for any purpose, until it has been filed as required in [RSA chapter 541-A]." Moreover, RSA 541-A:23 (1997) states that failure to file a rule with certain designated entities will prevent a rule from taking effect. Rules adopted by the DHHS commissioner pursuant to RSA 161:4, VI are not exempt from these provisions. However, RSA 541-A:22 and RSA 541-A:23 merely set forth consequences for failing to adhere to the various filing requirements of RSA chapter 541-A, which the DHHS commissioner is exempt from under RSA 541A:21, III. As such, they do not render rules adopted by the DHHS commissioner pursuant to RSA 161:4, VI invalid. The petitioners contend that the exemption for rules adopted under RSA 161:4, VI does not apply in this case because DHHS acted under the "specific statutory grant of authority" of RSA chapter 126-A. However, the only section of that chapter offered by the petitioners in support of their position is RSA 126-A:5, IV (Supp. 2005), which states that the DHHS commissioner shall have, pursuant to RSA chapter 541-A, "the authority to establish fees, copayments or any other charges for services or assistance provided by or on behalf of [DHHS]." In its letter of January 8, 2004, despite the "temporary rate change" language, DHHS established only a presumption as to the pharmacies' "usual and customary charge" for purposes of reimbursement. It instituted no

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fee, co-payment, or charge as described in RSA 126-A:5, IV, and, as such, that statute does not apply. Rather, by adopting a rule relative to rates of reimbursement to medical providers, DHHS acted pursuant to the mandate set forth in RSA 161:4, VI. Therefore, the petitioners' argument must fail. The petitioners next contend that DHHS is not entitled to access invoice information from individual pharmacies, claiming that such information "is wholly unrelated to the government's interest in conducting . . . compliance reviews." We disagree. On March 31, 2004, and June 1, 2004, the DHHS commissioner sent letters to the petitioners informing them that DHHS was conducting compliance reviews of Medicaid provider pharmacies to ensure compliance with RSA 126-A:3, III. The letters requested, among other things, "[i]nvoices for the months of July 2000, March 2001, March 2002, March 2003 and 2004 [sic] showing actual acquisition costs for the fifty (50) highest cost and fifty (50) highest volume pharmaceuticals." The commissioner noted that DHHS was conducting the compliance reviews "pursuant to its authority under State and Federal law, including but not limited to RSA 161:2 XV, He-W 570.14(f), and 42 C.F.R.

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