Did Maryland's Medicaid program have to go through formal rulemaking before requiring doctors to write a reason for prescribing a brand-name drug instead of its generic version?

Plain-English summary

The Joint Committee on Administrative, Executive, and Legislative Review asked the Attorney General in January 1990 whether a Maryland Medicaid agency memo, called Physicians Transmittal No. 91, had to go through the formal rulemaking process before taking effect. The transmittal told physicians that, starting in 1989, they could not be reimbursed at the brand-name price for a prescription unless they wrote a specific medical reason on the prescription explaining why a generic drug would not work. DHMH, the state health department, had issued the transmittal without publishing it for public comment, on the theory that it merely interpreted an existing regulation rather than creating a new one.

The Attorney General concluded that the transmittal met the Administrative Procedure Act's broad definition of a "regulation," but that it also qualified for the APA's "internal management" exception, so DHMH did not have to use the notice-and-comment rulemaking process for it. The opinion reasoned that physicians and pharmacists who participate in Medicaid have a contract with DHMH that already requires them to certify medical necessity when prescribing a brand-name drug, and that a transmittal specifying exactly how to document that certification was simply detail about administering that existing contractual duty. Because the transmittal did not change anyone's underlying rights or reimbursement entitlement, and did not shift any cost onto patients, it did not have the kind of direct effect on the public that would take it outside the internal management exception.

Currency note

This opinion was issued in 1990 and analyzed the Medicaid regulations, provider agreements, and Administrative Procedure Act provisions in effect at that time. Subsequent statutory amendments, regulatory changes, or later AG opinions may have changed how Maryland's Medicaid program handles brand-name drug documentation or how the APA's internal management exception is applied. Treat this page as historical context, not current legal advice. Verify the current Medicaid pharmacy regulations and APA rulemaking requirements before relying on any specific rule described here.

Common questions

Why didn't Maryland's Medicaid agency have to hold a public comment period before requiring doctors to write "Brand Medically Necessary" on prescriptions?
According to this 1990 opinion, the requirement fell within the Administrative Procedure Act's "internal management" exception because it addressed a detail of the agency's existing contract with participating physicians and pharmacists, rather than creating a new right or burden for the public.

What is the "internal management" exception in Maryland's APA, as this opinion explained it?
The opinion described it as a two-part test: a statement qualifies only if it concerns solely the agency's internal management and does not directly affect the rights of the public or the procedures available to them. A directive addressed to outside parties can still qualify if those parties are bound to it only by an existing contract that already incorporates the underlying requirement.

Did this 1990 opinion say Medicaid patients could be denied brand-name drugs because of the new documentation requirement?
No. The opinion stated that patients had a right to brand-name drugs only when medically necessary, and that the documentation requirement did not change that entitlement. It also noted that providers had agreed, as a condition of participating in Medicaid, not to bill patients if DHMH denied reimbursement for a service found not medically necessary.

Background and statutory framework

Maryland's Medicaid Program, established under Title XIX of the Social Security Act and administered under Title 15, Subtitle 1 of the Health-General Article, does not provide care directly. Instead, DHMH contracts with physicians and pharmacists, who must apply and be approved for participation and who sign a provider agreement obligating them to comply with Medicaid regulations, transmittals, and guidelines. Since the 1970s, Maryland's Medicaid pharmacy rules had encouraged generic drugs, first through statutory generic-substitution defaults and then through a 1976 regulation, now codified at COMAR 10.09.03.070(3), that capped reimbursement at the generic price unless the prescriber personally certified in writing that a specific brand-name drug was medically necessary. Federal Medicaid regulations imposed a parallel requirement but left it to each state to decide the exact form of certification.

Physicians Transmittal No. 91, issued February 23, 1989, was the latest in a series of DHMH bulletins spelling out that certification procedure: prescribers had to write "Brand Medically Necessary" on the prescription along with the specific medical reason a generic substitute would not work, and it specified that "patient demand" was not an acceptable reason. A later transmittal, Pharmacy Transmittal No. 85, superseded it in May 1989 with the same core requirement, carving out certain drugs from the reason requirement; the opinion treated its analysis as applying equally to both.

The opinion explained that Maryland's APA, codified at Title 10 of the State Government Article, defines "regulation" broadly to include any statement of general application and future effect that an agency adopts to carry out a law it administers, in any form including a guideline, standard, or statement of interpretation. Unlike the federal APA, Maryland's version draws no distinction between "interpretative" and "legislative" rules for purposes of the adoption requirements; both must go through the same notice, Attorney General approval, and Maryland Register publication process described in SG §§10-107, 10-111, 10-112, and 10-114, and a rule adopted without that process is void.

Maryland's APA carves out three exceptions from the regulation definition, including one for statements that concern only an agency's internal management and do not directly affect the rights of the public or procedures available to it. The opinion reasoned that a directive to Medicaid providers ordinarily would not qualify, since providers are not DHMH employees and act independently in deciding whether to participate and how to treat patients. But because providers agree by contract to follow DHMH's regulations, transmittals, and guidelines, a transmittal that only supplies operational detail about an obligation the provider has already assumed by contract, in this case, exactly how to document a medical-necessity certification already required by regulation, concerns solely the agency's management of that contractual relationship. The opinion also examined the transmittal's effect on physicians, pharmacists, and patients separately, concluding that none of the three had their underlying rights or reimbursement entitlements altered, only the manner of documenting an obligation that already existed.

Citations and references

Statutes:

• 42 C.F.R. §430.0, describing states' broad discretion to administer Medicaid within federal rules
• HG §15-103(c)(2), authorizing the Medicaid Program to contract for provision of care
• COMAR 10.09.02.03A and B, and COMAR 10.09.03.03B and C, governing physician and pharmacy provider approval
• COMAR 10.09.02.018(25) and COMAR 10.09.03.018(25), defining "provider" under the Medicaid physician and pharmacy regulations
• §11-101(m)(2)(iii) of the State Finance and Procurement Article, exempting Medicaid reimbursement contracts from the Procurement Law
• Former Article 43, §42(a), the original 1969 generic-substitution default provision
• Former Article 43, §254A(b), the pharmacist notification duty later amended for Medicaid prescriptions
• Chapter 881 of the Laws of Maryland 1975, excusing pharmacists from notifying prescribers of generic substitution in Medicaid cases
• Chapter 410 of the Laws of Maryland 1969, the original generic-substitution statute
• HG §15-118(b), the recodified generic-substitution default provision
• 40 Fed. Reg. 32302 (July 31, 1975) and 40 Fed. Reg. 36342 (Aug. 20, 1975), the original federal generic-reimbursement rule
• 45 C.F.R. §19.3(a)(3), the since-superseded federal regulation codifying that rule
• 3:12 Md. Reg. 663 and 3:18 Md. Reg. 981, the 1976 proposal and adoption of Maryland's brand-name reimbursement regulation
• COMAR 10.09.03.070(3), the current Medicaid regulation capping reimbursement at the generic price absent certified medical necessity
• HG §§15-105(a) and 15-118(d), DHMH's general and pharmacy-specific Medicaid rulemaking authority
• 42 C.F.R. §447.332(b) and 42 C.F.R. §447.331(c), the 1987 federal regulation on multiple source drug payment limits and medical necessity certification
• 52 Fed. Reg. 28652 (July 31, 1987), the federal rulemaking adopting that regulation
• Pub. L. No. 404, 60 Stat. 237 (1946), codified at 5 U.S.C. §551 et seq., the federal Administrative Procedure Act
• SG §10-102(a), applying Maryland's APA to virtually every executive branch unit
• SG §10-112(a)(2) and SG §10-112(a)(4), requiring submission of proposed regulations to the Division of State Documents and the AELR Committee
• SG §10-107, requiring Attorney General approval of proposed regulations as to legality
• SG §10-111(a), requiring publication of proposed regulations in the Maryland Register 45 days before adoption
• SG §10-114, requiring publication of adopted regulations in the Register and COMAR
• SG §10-125(d)(3), allowing courts to invalidate a regulation adopted without required procedures
• SG §10-101(e), Maryland's broad statutory definition of "regulation," and its internal management exception at SG §10-101(e)(2)(i)
• SG §10-101(e)(1)(iv)4, including a "statement of interpretation" within the definition of regulation
• SG §10-101(e)(2)(i)2, the internal management exception's requirement that the statement not directly affect public rights or procedures
• Revisor's Note to SG Article §10-102(g), explaining the 1984 recodification's substitution of "regulation" for "rule"
• COMAR 10.09.02.07 and COMAR 10.09.03.07D and E, the physician and pharmacist reimbursement-submission regulations discussed as examples of contract detail left to transmittals
• COMAR 10.09.02.031 and COMAR 10.09.03.03K, the provider agreement terms barring providers from billing patients for denied claims
• 42 U.S.C. §1983, the federal civil rights statute discussed in connection with a pending Supreme Court case on providers' rights under the Medicaid Act

Cases:

• Chamber of Commerce of United States v. OSHA, 636 F.2d 464, 470 (D.C. Cir. 1980), Hatch v. United States, 212 F.2d 280, 283 (9th Cir. 1954), Herron v. Heckler, 576 F. Supp. 218, 232 (N.D. Cal. 1983), Senn Park Nursing Center v. Miller, 104 Ill. 2d 169, 470 N.E.2d 1029, 1035 (1984), and Board of Education v. Cooperman, 209 N.J. Super. 174, 507 A.2d 253, 269 (1986), cited for courts invalidating agency rules adopted without required rulemaking procedures
• Ex Parte Traylor Nursing Home, Inc., 543 So. 2d 1179, 1183 (Ala. 1988), Senn Park Nursing Center v. Miller, 118 Ill. App. 3d 504, 455 N.E.2d 153, 157 (1983), aff'd in part and rev'd in part on other grounds, 104 Ill. 2d 169, 470 N.E.2d 1029 (1984), and Burke v. Children's Services Division, 552 P.2d 592 (Or. App. 1976), aff'd 607 P.2d 141 (1980), state cases broadly construing APA "regulation" definitions similar to Maryland's
• Comptroller v. M. E. Rockhill, Inc., 205 Md. 226, 234, 107 A.2d 93 (1954), and Waverly Press, Inc. v. Department of Assessments and Taxation, 312 Md. 184, 191, 539 A.2d 223 (1988), on the distinction between legislative and interpretative rules
• Gibson Wine Co. v. Snyder, 194 F.2d 329, 331 (D.C. Cir. 1952), on legislative rules creating new law
• Maryland Port Administration v. Brawner Contracting Co., 303 Md. 44, 60, 492 A.2d 281 (1985), on valid legislative rules having the force of law
• Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 844 (1984), on courts deferring to reasonable agency interpretations of ambiguous statutes
• Joseph v. United States Civil Service Comm'n, 554 F.2d 1140, 1154 n.26 (D.C. Cir. 1977), and Chrysler Corp. v. Brown, 441 U.S. 281, 301-03 (1979), on interpretative rules not binding courts
• Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), on the weight courts give interpretative rules
• Department of Health and Mental Hygiene v. Lion's Manor Nursing Home, 281 Md. 425, 378 A.2d 1351 (1977), on DHMH's inability to unilaterally alter provider rights by management directive, and on a directive's continuing contractual effect even if not an effective rule
• Barry Laboratories v. Wisconsin State Board of Pharmacy, 132 N.W.2d 833, 838 (Wis. 1965), on merely informational agency guidance not requiring rulemaking
• Walker v. Commissioner, Dept. of Income Maintenance, 446 A.2d 822 (Conn. 1982), a Connecticut case rejecting an "internal management" defense for a policy substantially affecting applicants' rights
• Baliles v. Virginia Hospital Ass'n, No. 88-2043, the pending Supreme Court case on whether providers have a private right of action under the Medicaid Act
• Case v. Weinberger, 523 F.2d 602, 607 (2d Cir. 1975), cited for the view that Medicaid is intended to benefit patients, not providers

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 37-56 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

ADMINISTRATIVE LAW

Rulemaking — Medicaid Program Transmittal About Prescription of Brand-Name Drugs Falls Within "Internal Management" Exception to Definition of "Regulation" in Administrative Procedure Act

January 23, 1990

The Honorable Joel Chasnoff
Presiding Chairman
Joint Committee on Administrative, Executive, and Legislative Review

 The Committee has requested our opinion on whether the Maryland Medical Assistance Program's Physicians Transmittal No. 91, informing physicians of a new documentation requirement for prescriptions of brand-name drugs, constitutes a regulation subject to the adoption procedures of the Administrative Procedure Act ("APA").

 For the reasons stated below, we conclude that Physicians Transmittal No. 91 falls within the "internal management" exception to the definition of "regulation" in the APA. Therefore, it is not subject to the adoption procedures of the APA.

I

Medicaid Reimbursement for Prescription Drugs

A. Background

 Maryland's Medical Assistance Program, Medicaid, is a scheme of cooperative federalism founded in the Social Security Act. Title XIX of the Social Security Act provides for federal grants to participating states for medical assistance to certain low-income individuals. The program is administered by the states and funded jointly by the federal and state governments. "Within broad Federal rules, each State decides eligibility groups, types and ranges of services, payment levels for services, and administrative and operating procedures. Payments for services are made directly by the State to the individuals or entities that furnish the services." 42 C.F.R. §430.0.

 Maryland has elected to participate in the program and has enacted a statutory framework for its administration in Title 15, Subtitle 1 of the Health-General Article ("HG" Article).

 The Medicaid Program does not directly provide health care services to Medicaid recipients; rather, it "may contract for the provision of care under the Program" with health care providers. HG §15-103(c)(2). The Program has contracted with a variety of providers through what have been termed "reimbursement contracts."1 Under these contracts, DHMH agrees to pay, and the providers agree to accept, certain payments for "covered" services to individuals eligible for Medicaid.

 To participate in the program, physicians and pharmacists, the two categories of health care professionals involved in dispensing prescription drugs, must apply and be approved for participation in the program. COMAR 10.09.02.03A and B (physicians); COMAR 10.09.03.03B and C (pharmacies). Approval is manifested by a signed provider agreement.2 The provider agrees, among other things, "[t]o comply with all of the applicable requirements of the Maryland Medical Assistance Program ('Program') as well as any other applicable regulations, transmittals and guidelines issued by the Department." Provider Agreement for Participation in the Title XIX Program ¶1A.

B. Generic and Brand-Name Drugs

 Efforts to encourage the use of generic drugs in the Medicaid Program have a long history.

 In Chapter 410 of the Laws of Maryland 1969, the General Assembly provided as follows: "Unless the physician indicates otherwise on the form, it is understood that the generic form of the drug ... will be utilized in filling the prescription." Former Article 43, §42(a).3

 Under the Pharmacy Act in effect at the time, the pharmacist who substituted a generic drug for a brand-name drug was required to notify the prescriber in writing of the substitution. Former Article 43, §254A(b). In Chapter 881 of the Laws of Maryland 1975, the General Assembly amended former Article 43, §254A(b) to excuse pharmacists from this duty to notify the prescriber, in the case of Medicaid prescriptions.4

 Apparently concerned that physicians and pharmacists needed guidance about handling Medicaid prescriptions after the enactment of Chapter 881, DHMH issued Pharmacy Bulletin No. 13, dated July 7, 1975. This bulletin included the following language:

      In the case of a patient who, in the judgment of the prescriber based upon a medical reason, must have a particular brand of drug, the prescriber may indicate that no other brand may be dispensed, by personally writing on the face of the prescription, "Dispense as Written" or "Do Not Substitute" or some similarly worded phrase.

(Emphasis in original.)

 At about the same time, the federal government adopted a regulation in essence establishing the cost of a generic drug as the maximum for reimbursement, except for a brand-name drug "prescribed for a patient which the prescriber has certified in his own handwriting is medically necessary for that patient." 40 Fed. Reg. 32302 (July 31, 1975); 40 Fed. Reg. 36342 (Aug. 20, 1975) (corrected version) (codified formerly at 45 C.F.R. §19.3(a)(3)). The Secretary of what was then the Department of Health, Education and Welfare (now Health and Human Services) explained that "on the basis of a comparative medical judgment, prescribers will prescribe a particular brand of multi-source drug only when that brand of drug is better suited than the same drug from other sources to meet a patient's medical needs." 40 Fed. Reg. 32295. In response to criticism that the regulation failed to specify the exact form of certification, the Secretary of HEW commented that the regulation was merely "intended to be general in nature, outlining the basic requirements of the certification procedure." Id.

 On June 9, 1976, DHMH proposed various amendments to its Medicaid pharmacy services regulation, to "bring the Program into conformity with federal requirements governing pharmaceuticals and pharmacy services." 3:12 Md. Reg. 663. The provision on brand-name prescriptions largely tracked the federal regulation, providing that the cost of the generic version of certain multiple source drugs establishes the limit on reimbursement, with this exception: "When a prescriber certifies in his own handwriting that, in his judgment, a specific brand is medically necessary," reimbursement of that cost is allowable. This regulation was adopted on September 1, 1976 (3:18 Md. Reg. 981) and is now codified at COMAR 10.09.03.070(3).5

 After this regulation became effective, DHMH issued further transmittals detailing the procedures to be followed if a brand-name drug were medically necessary. For example, Pharmacy Bulletin No. 17, dated June 10, 1977, advised providers that a generic form of penicillin was to be used. However: "If a prescriber feels that in his/her medical judgment, it is necessary for the brand name product to be dispensed by the pharmacist, the prescriber must certify by writing the words 'BRAND NECESSARY' on the prescription. This must be in the prescribers [sic] own handwriting." (Emphasis in original.) See also, e.g., Pharmacy Guideline No. 7 (January 9, 1979), Pharmacy Guideline No. 18 (Sep. 27, 1979), and Pharmacy Guideline No. 36 (Nov. 19, 1980) (same language).

 Then, in 1987, the federal government revised and recodified its regulation on this subject. As currently worded, the federal regulation sets maximum payment levels for "multiple source drugs" linked to "the published price for the least costly therapeutic equivalent...." 42 C.F.R. §447.332(b). However, reimbursement for a more costly brand-name drug is permitted under the following conditions:

      (1) The upper limit for payment for multiple source drugs ... does not apply if a physician certifies in his or her own handwriting that a specific brand is medically necessary for a particular recipient.

      (2) The agency must decide what certification form and procedure are used.

      (3) A checkoff box on a form is not acceptable but a notation like "brand necessary" is allowable.

42 C.F.R. §447.331(c).

 This regulation merely repeats the long-established test for reimbursement of the cost of brand-name drugs: that the prescriber make the judgment that a brand-name drug is medically necessary and certify that judgment personally. The regulation forbids one form of certification of this judgment (a checkoff box), allows another (the words "brand necessary"), and generally leaves it to the states to decide the precise form of the certification. See 52 Fed. Reg. 28652 (July 31, 1987).

 The document that is the subject of the Committee's request, Physicians Transmittal No. 91, is but another in the series of nonregulations through which DHMH communicated to its providers its specific certification requirements concerning the judgment of medical necessity. Issued on February 23, 1989, the transmittal provides as follows in relevant part:

      Effective March 15, 1989, to comply with this regulation [i.e., COMAR 10.09.03.070(3)] when a specific brand-name drug is prescribed, the prescriber must write on the prescription 'Brand Medically Necessary' and also, the specific reason why a generic equivalent is not medically appropriate. Such reasons may include, but are not limited to, "adverse reaction to generic" or "considerable side-effect" etc. "Patient demand" for the brand-name drug is not an acceptable medical reason.

(Emphasis in original.)

 Finally, on May 16, 1989, DHMH issued Pharmacy Transmittal No. 85, which superseded Physicians Transmittal No. 91. Pharmacy Transmittal No. 85 includes the same requirements as Physicians Transmittal No. 91; however, it excludes certain drugs from the requirement that the prescriber state why a generic equivalent is not medically appropriate. See Section 1(B) of Pharmacy Transmittal No. 85. Our analysis and advice apply equally to Physicians Transmittal No. 91 and Pharmacy Transmittal No. 85.

II

History and Purpose of Administrative Procedure Legislation

 Administrative procedure legislation has its roots in the New Deal of the 1930's. As federal administrative agencies multiplied in size, both the public and the organized bar became concerned about the expanding power and authority of the federal bureaucracy. Several years of study and hearings (interrupted by the war) culminated in the federal Administrative Procedure Act of 1946, Pub. L. No. 404, 60 Stat. 237 (1946), now codified at 5 U.S.C. §551 et seq. The objective of the law, according to the United States Attorney General, was to achieve "reasonable uniformity and fairness in administrative procedures without at the same time interfering unduly with the efficient and economical operation of the Government." Attorney General's Manual on the Administrative Procedure Act 6 (1947).

 Parallel developments were taking place with respect to state administrative procedure legislation. In October 1946, following the enactment of the federal APA, the National Conference of Commissioners of Uniform State Laws adopted a "Model State Administrative Procedure Act." The Model Act was revised in 1961 and again in 1981. Today, more than half of the states have adopted administrative procedure acts based in whole or in part on the original or revised model acts.

 Maryland's APA, enacted in 1957, is based on the 1946 Model State APA. See 68 Opinions of the Attorney General 9, 11 (1983). It is now codified as Title 10 of the State Government Article ("SG" Article).

 The APA is not itself a grant of rulemaking authority. It does not give an agency the power to adopt a rule. Rather, the APA merely prescribes the procedures to be followed by an agency when it exercises the rulemaking authority given it by a substantive statute (unless, of course, the substantive statute provides exclusive or superceding rulemaking procedures). 68 Opinions of the Attorney General at 11; 62 Opinions of the Attorney General 36, 37 (1977).

 With the growing frequency and complexity of administrative rulemaking, the right of the people to participate in such quasi-legislating is increasingly important. One of the "basic purposes" of the federal APA was to "provide for public participation in the rule making process." [United States'] Attorney General's Manual on the Administrative Procedures Act 9. The same is true of Maryland's APA:

      The Maryland Administrative Procedure Act, with its requirement that rules be approved by the Attorney General, published in the Maryland Register, and laid before the AELR Committee, affords the public a significant opportunity to comment on or affect [agency] proposals and affords the [agency] the opportunity to detect any problems with such changes in policy.

64 Opinions of the Attorney General 208, 216-17 n. 12 (1979).

 Thus, the heart of an APA's rulemaking requirements is its public notice and comment procedures. Designed to assure fairness and mature consideration of rules of general application, these significant provisions serve the important twin functions of safeguarding public rights and educating the administrative lawmakers.

III

Applicability of Rulemaking Requirements

A. Introduction

 Maryland's APA applies to virtually every unit in the Executive Branch of State Government, SG §10-102(a), and prescribes a number of procedural requirements for the adoption of a regulation. For example, a proposed regulation must be submitted to the Administrator of the Division of State Documents, SG §10-112(a)(2); be filed with the Joint Committee on Administrative, Executive, and Legislative Review ("AELR Committee"), SG §10-112(a)(4); be submitted to the Attorney General for approval as to legality, SG §10-107; and be published in the Maryland Register at least 45 days prior to its adoption, SG §10-111(a).6

 In order to be published in the Maryland Register, a proposed regulation must be accompanied by a notice that states the proposal's estimated economic impact on the State and local governments and other groups, such as taxpayers. The notice must give interested persons an opportunity to comment on the proposal by either setting a date, time, and place for a public hearing or giving the information necessary for telephone and written comments. SG §10-112(a)(2).

 Once adopted, a regulation must be published first in the Maryland Register and ultimately in the Code of Maryland Regulations. SG §10-114.

 As both this office and the Secretary of State's Division of State Documents have previously pointed out, if an agency's action constitutes a regulation, as that term is defined by the APA, "the action may be taken only in accordance with the rulemaking procedures contained in the [APA]." 68 Opinions of the Attorney General at 11. See also 65 Opinions of the Attorney General at 404.

 Thus, if the agency fails to comply with the adoption requirements of the APA, the agency's action is void. See 57 Opinions of the Attorney General 478, 479-80 (1972) (Social Services Administration's AFDC eligibility requirement was invalid and unenforceable because it had never been adopted in accordance with APA requirements). See also letter from Robert J. Colburn, Jr., Administrator, Division of State Documents, Secretary of State's Office, to Executive Branch agency heads (February 6, 1987) ("[Agency] statements meeting the legal definition of 'regulation' but not adopted and promulgated as required by the APA have no legal standing in Maryland.").

 Indeed, Maryland's APA, like most, expressly provides that agency rules shall be declared invalid, on appropriate petition, if the court finds that the agency "failed to comply with statutory requirements for procedures prescribed by statute." SG §10-125(d)(3). Although Maryland's appellate courts have not yet had occasion to address the exercise of this authority, other courts have not hesitated to approve its use. See Chamber of Commerce of United States v. OSHA, 636 F.2d 464, 470 (D.C. Cir. 1980); Hatch v. United States, 212 F.2d 280, 283 (9th Cir. 1954); Herron v. Heckler, 576 F. Supp. 218, 232 (N.D. Calif. 1983); Senn Park Nursing Center v. Miller, 104 Ill. 2d 169, 470 N.E.2d 1029, 1035 (1984); Board of Education v. Cooperman, 209 N.J. Super. 174, 507 A.2d 253, 269 (1986);

B. Definition of "Regulation"

 The Maryland APA defines the term "regulation" quite broadly:

      (1) 'Regulation' means a statement or an amendment or repeal of a statement that:

           (i) has general application;

           (ii) has future effect;

           (iii) is adopted by a unit to:

                1. detail or carry out a law that the unit administers;
                2. govern organization of the unit;
                3. govern the procedure of the unit; or
                4. govern practice before the unit; and

           (iv) is in any form, including:

                1. a guideline;
                2. a rule;
                3. a standard;
                4. a statement of interpretation; or
                5. a statement of policy.

      (2) 'Regulation' does not include:

           (i) a statement that:

                1. concerns only internal management of the unit; and

                2. does not affect directly the rights of the public or the procedures available to the public.

SG §10-101(e).7

 As we wrote not long ago: "This office has consistently construed the definition of 'regulation' as broadly as its language and apparent underlying intent direct." 72 Opinions of the Attorney General 230, 233 (1987). See, e.g., 72 Opinions of the Attorney General 313 (1987) (Maryland Racing Commission's policy regarding Arabian racing); 70 Opinions of the Attorney General 208 (1985) (automatic waiver program as to certain tax penalties); 66 Opinions of the Attorney General 151 (1981) (Home Improvement Commission policy change); 65 Opinions of the Attorney General 396 (1980) (Racing Commission policy regarding Sunday racing); 64 Opinions of the Attorney General 208 (1979) (lottery prize structure); Opinion No. 75-099 (May 21, 1975) (Financial Disclosure Advisory Board procedures); Opinion No. 75-064 (May 22, 1975) (rules relating to state contracts); and Opinion 75-033 (March 4, 1975) (Central Collection Unit rules). Cf. 68 Opinions of the Attorney General 9 (1983) (narrow exception for proprietary price setting).

 Although there is no reported Maryland case construing this statutory definition, courts in other states have broadly construed similar APA definitions. See, e.g., Ex Parte Traylor Nursing Home, Inc., 543 So. 2d 1179, 1183 (Ala. 1988); Senn Park Nursing Center v. Miller, 118 Ill. App. 3d 504, 455 N.E.2d 153, 157 (1983), aff'd in part and rev'd in part on other grounds, 104 Ill. 2d 169, 470 N.E.2d 1029 (1984); Burke v. Children's Services Division, 552 P.2d 592 (Or. App. 1976) aff'd 607 P.2d 141 (1980). As one commentator states:

      [In a definition of the term "rule" or "regulation,"] the concept should be described in broadly inclusive terms (the word "statement" has been most popular). This has proved necessary to defeat the inclination shown by some agencies to label as "bulletins," "announcements," "guides," "interpretative bulletins," and the like, announcements which, in legal operation and effect, really amount to rules and then to assert that their promulgations are not technically rules but merely policy statements, and hence may be issued without observance of the procedures required in connection with the adoption of rules.

1 Cooper, State Administrative Law 108 (1965).

C. Applicability of Definition to Physicians Transmittal No. 91

 Transmittal No. 91 applies to every brand-name drug prescription written for a program beneficiary after a specified date.8 It potentially affects physicians, pharmacists, and the patients for whom drugs are prescribed.9 It was adopted by DHMH to detail and carry out the Medicaid Program, creating a new documentation requirement.

 Before the issuance of Transmittal No. 91, providers were not called upon to write a specific reason for prescribing a brand-name drug as a prerequisite to reimbursement at the brand-name cost. Since the effective date of the transmittal, a provider cannot be reimbursed at brand-name cost unless the prescriber has written on the prescription the specific reason for not prescribing a generic equivalent.

 Hence, Transmittal No. 91 meets the APA definition of "regulation" and therefore is subject to the APA's rulemaking requirements unless it is excluded from them either by another statutory provision or by case law.

D. Interpretative and Legislative Rules

 There are several well-recognized categories of administrative rules (or, as the Maryland APA now calls them, regulations):

      Some are legislative rules, which receive statutory force upon going into effect. Others are interpretative rules which only interpret the statute to guide the administrative agency in the performance of its duties until directed otherwise by decisions of the courts. Some rules are merely rules of procedure. Others implement the statute by stating the policy by which the agency will be governed in the exercise of its authority.

Comptroller v. M. E. Rockhill, Inc., 205 Md. 226, 234, 107 A.2d 93 (1954), quoted with continuing approval in Waverly Press, Inc. v. Department of Assessments and Taxation, 312 Md. 184, 191, 539 A.2d 223 (1988). These distinctions are important in determining whether an agency had the authority to issue a particular rule, as well as the legal effect of the rule.

 According to Professor Davis, "A legislative rule is the product of an exercise of delegated legislative power to make law through rules." 2 Davis, Administrative Law Treatise §7:8, at 36 (2d ed. 1979) ("Davis Treatise"). "[L]egislative rules are those which create new law, usually implementary to an existing law ..." Gibson Wine Co. v. Snyder, 194 F.2d 329, 331 (D.C. Cir. 1952). Consequently, "express statutory authority is necessary to promulgate 'legislative' rules ...." 62 Opinions of the Attorney General 36, 37 (1977).

 Because they are based on statutory authority, valid legislative rules have the force and effect of law. Maryland Port Administration v. Brawner Contracting Co., 303 Md. 44, 60, 492 A.2d 281 (1985). In one of its leading cases on the respective roles of agencies and courts, the Supreme Court wrote as follows: "[L]egislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 844 (1984).10 Professor Davis puts the point this way:

      Valid legislative rules have about the same effect as valid statutes; they are binding on courts. They are valid if (a) within the granted power, (b) issued pursuant to proper procedures, and (c) reasonable as a matter of due process.

2 Davis Treatise §7:8, at 36.

 By contrast, "interpretative rules' are an administrative construction of a statutory provision on a question of law reviewable in the courts." Herron v. Heckler, 576 F. Supp. at 231. An interpretative rule "interprets or clarifies the nature of the duties previously created by passage of a statute or promulgation of a legislative rule. It does not create new duties." Pierce, Shapiro, & Verkuil, Administrative Law and Process §6.4.4a, at 308 (1985). Therefore, statutory authority is not necessary for the issuance of a valid interpretative rule. 62 Opinions of the Attorney General at 37.

 The corollary is that interpretative rules do not bind courts in the way that legislative rules do: "Interpretative rules do not have the force of law and even though courts often defer to an agency's interpretative rule they are always free to choose otherwise." Joseph v. United States Civil Service Comm'n, 554 F.2d 1140, 1154 n.26 (D.C. Cir. 1977). See, e.g., Chrysler Corp. v. Brown, 441 U.S. 281, 301-03 (1979).11

 The Committee's request for our opinion indicates that DHMH and the Committee disagree on whether Physician's Transmittal No. 91 must be adopted as a regulation because of their respective views on whether the transmittal is interpretative or legislative. DHMH issued the transmittal without satisfying the adoption requirements of the APA because, acting on advice of counsel, it saw the transmittal as merely an interpretation of an existing regulation, and it understood that interpretations of this kind are not subject to those requirements. The AELR Committee views the transmittal as going beyond a mere interpretation and actually imposing a new substantive requirement, that is, as constituting a legislative rule.12 However, whether the transmittal is properly viewed as interpretative or legislative in character is of no consequence under the Maryland APA's adoption requirements.

 Unlike the federal APA, which exempts interpretative rules, general statements of policy, and rules of agency organization, procedure or practice from its notice and comment requirements, "the State APA and the State Documents Law make no distinction between legislative and interpretative rules." 62 Opinions of the Attorney General at 37. Rather, under Maryland's APA, a regulation can take any form, including a "statement of interpretation." SG §10-101(e)(1)(iv)4.13

 The prudence of this exceedingly broad definition certainly is debatable. Indeed, the 1981 Model State Administrative Procedure Act, like the federal Act, exempts interpretative rules from the mandatory advance notice and public participation requirements. Model State Administrative Procedure Act §3-109.14 "[S]ubstantially all of the state legislatures are in agreement with the concept of the Revised Model State Act, that rule making should be restricted to statements of a legislative nature and of general applicability." 1 Cooper, State Administrative Law 108.

 It may well be that the General Assembly should amend Maryland's APA to reflect the policy choice made by the federal government and the majority of other states. Nevertheless, unless and until the APA is amended, interpretative rules, like legislative rules, are subject to its adoption procedures.

IV

Criteria for Application of "Internal Management" Exception

A. Introduction

 Maryland's definition of "regulation" contains three express exclusions: one for statements concerning internal management, another for responses to petitions for the adoption of regulations, and a third for declaratory rulings. SG §10-101(e)(2). Transmittal No. 91 was neither a response to a petition for adoption of a regulation nor a declaratory ruling. Therefore, it is expressly excluded from the APA's definition of regulation only if it meets both parts of the internal management exclusion, that is, if it (1) "concerns only [the] internal management of [DHMH]" and (2) "does not directly affect the rights of the public or the procedures available to the public." SG §10-101(e)(2)(i).

B. Internal Management Only

 Ordinarily, a statement does not "concer[n] only internal management" if it is addressed to persons outside the agency. Certainly, the providers addressed by Transmittal No. 91 are not DHMH employees or agents simply because they participate in the Medicaid Program. Indeed, in the most important ways, the providers are wholly independent of DHMH. They decide on their own whether to participate in the program, not because DHMH orders them to do so; and they provide services to patients based on their own professional judgment, not because DHMH determines the needs of a particular patient.

 As a consequence, for many purposes, providers cannot rightly be viewed as part of the "internal management" of the Medicaid Program. See Senn Park Nursing Center v. Miller, 470 N.E.2d at 1035.

 However, when a provider agrees to participate in the program, he or she does enter into a contractual relationship with DHMH. See Part IA above. The contract expressly incorporates "all of the applicable requirements of the [program] as well as any other applicable regulations, transmittals and guidelines issued by [DHMH]." Provider Agreement ¶1A.

 Indeed, the regulations themselves indicate that some details of the relationship between providers and DHMH are embodied in documents outside the regulations. For example, the regulation describing reimbursement procedures for physician services includes the following:

      A. The provider shall submit the request for payment on the form designated by the Department.

      B. The Department reserves the right to return to the provider, before payment, all invoices not properly signed, completed and accompanied by properly completed forms required by the Department.

COMAR 10.09.02.07. See also COMAR 10.09.03.07D and E (comparable provision for pharmacists). When DHMH designs (or redesigns) a form and instructs providers to use it pursuant to these regulations, the instruction to the providers "concerns only the internal management" of the program, for it simply addresses providers in their capacity as contractors, to effectuate the details of a requirement that is already part of their contract.

 We are not suggesting that providers have agreed to abide by transmittals that are inconsistent with applicable regulations incorporated by reference in the contract. They have not. See DHMH v. Lions Manor Nursing Home, 281 Md. 425, 429, 378 A.2d 1351 (1977). However, the contractual incorporation of nonregulatory "transmittals and guidelines" must be given some meaning. This provision is best understood as a reference to nonregulatory documents that follow from, or give additional detail about, regulatory requirements. So long as such documents are limited in this way, they are part of the contractual agreement and therefore concern only the agency's "internal management" of its relationship to its contractors.

 As we see it, Transmittal No. 91 addresses providers about a detail of contract administration and therefore "concerns only ... internal management." As part of their contract, physicians agree to comply with the regulation that they certify medical necessity when they prescribe brand-name drugs. This requirement is set by federal law. The federal regulation leaves it to the State to decide exactly how a physician must document that he or she has complied with this requirement.

 In its regulation, DHMH has done little more than repeat the federal requirement. COMAR 10.09.03.070(3) states that a prescriber must certify that "a specific brand is medically necessary," but it does not state whether those words, "medically necessary," must appear on the prescription or whether some other form of words is necessary or permissible. Given the fact that a transmittal embodying precisely this level of detail was in existence at the time that the regulation was adopted, the regulation unsurprisingly did not address the question of what form of words suffices. See Part IB above.

 Physicians Transmittal No. 91, like its predecessors, supplies detail about the administration of this aspect of the provider's contract. It instructs physicians on a documentation requirement for reimbursement for brand-name drugs, just as certain other forms are a documentation requirement for reimbursement for physicians' services.

 Instructions of this kind to a provider, about the specific way in which the provider is to demonstrate that he or she has complied with a regulatory requirement incorporated into the contract, concern solely agency management of its contract.

C. Effect on Public

 As we wrote not long ago: "[W]hether a staff directive or other similar statement is exempt from rulemaking by virtue of the 'internal management' exception depends on the practical consequences for members of the public. The exception applies only if the internal guidance does not significantly affect either the procedural steps that interested persons must take in their dealings with an agency or the allocation of substantive benefits or burdens." 72 Opinions of the Attorney General 235-36 (1987) (State's smoking policy guidelines fall within "internal management" exception).

 Thus, we have distinguished between management directives that have little direct effect on the public, and those that have a direct, substantial effect. Examples of the former include instructions that merely "spell out operational details like what forms to fill out, what approvals to obtain, or what evidence to look at to determine whether an applicant meets a statutory standard." 72 Opinions of the Attorney General at 235. Instructions that have a greater effect on the public include those that impose application procedures, establish eligibility criteria not set forth in a statute, restrict access to a statutory benefit, or impose fees. Id.

 Cases from other states support our analysis of the exemption. For example, in Walker v. Commissioner, Dept. of Income Maintenance, 446 A.2d 822 (Conn. 1982), the Connecticut Supreme Court held that the state could not, on the basis of a prior approval policy that had never been adopted in accordance with that state's APA, deny public assistance to pay the moving expenses of an otherwise qualified applicant. The court rejected the agency's contention that the prior approval policy was within the "internal management" exception. According to the Connecticut court, a policy is not exempt under the "internal management" exception if it "has substantial impact on the rights and obligations of parties who may appear before the agency in the future." 446 A.2d at 822. Connecticut's prior approval policy denied assistance to an otherwise qualified applicant; therefore it was not within the exception. See also, e.g., Senn Park Nursing Center v. Miller, 455 N.E.2d at 1035.

 As our 1987 opinion on the Governor's smoking policy explained, however, "virtually every internal management directive will have at least some tangential effect on the public ...." 72 Opinions of the Attorney General at 235. The key in applying this part of the exemption, we wrote, "is to determine whether ... [a] management directive ... has significant direct effects on the public, as distinct from the inevitable indirect ones." Id.

 The "public" are those outside the agency whose situation is changed as a result of the agency's internal management statement. Transmittal No. 91 potentially affects three different "publics": physicians, pharmacists, and patients.15

 The rights of the physicians who participate in the program are defined by contract, which of course incorporates pertinent legal requirements. To be sure, DHMH may not unilaterally alter those rights by management directives. DHMH v. Lions Manor Nursing Home, 281 Md. at 429. Participating physicians have already agreed, however, to certify medical necessity when they prescribe brand-name drugs. They thus undertook an obligation: to evaluate the patient's condition in order to decide whether the requisite medical necessity is present.

 Transmittal No. 91 did not change that contractual obligation. Instead, it, like its predecessor transmittals, addresses a detail that is not addressed in the regulations, namely the precise way in which compliance with this obligation is to be documented.16 It adds to the required documentation, it is true, but DHMH did not bind itself to one particular documentation requirement.17

 Nor, for much the same reasons, are the rights of pharmacists impaired. The regulation applicable to pharmacists is the same as that applicable to physicians: It sets the reimbursement standard for brand-name drugs, medical necessity, without delineating the documentation that DHMH needs to establish compliance. COMAR 10.09.03.070(3). For pharmacists, too, transmittals that merely call for one or another form of documentation leave the pharmacists' right to reimbursement substantially unaffected.

 Finally, no right of program beneficiaries is detrimentally affected. Patients have a right to brand-name drugs only if those drugs are medically necessary. A requirement that a prescriber state why a brand-name drug is medically necessary does not affect that entitlement.18 Moreover, both physicians and pharmacists must agree, as a condition for participation in the program, that they will not seek payment from the patient if DHMH denies reimbursement of a service because it was not medically necessary. COMAR 10.09.02.031 and 10.09.03.03K. Thus, the patient will not bear the cost of a provider's failure to comply with the requirements of Transmittal No. 91.

D. Conclusion

 For these reasons, we conclude that both elements of the APA's "internal management" exception, SG §10-101(e)(2)(i), are satisfied. Accordingly, the exception applies to Transmittal No. 91.

V

Conclusion

 In summary, we conclude that Physicians Transmittal No. 91 falls within the "internal management" exception to the definition of "regulation" in the APA. Therefore, it is not subject to the notice and comment adoption procedures of the APA.

                                         Very truly yours,

                                         J. Joseph Curran, Jr.
                                         Attorney General

                                         Judson P. Garrett, Jr.
                                         Deputy Attorney General

                                         Jack Schwartz
                                         Chief Counsel
                                           Opinions & Advice

1
These contracts are not subject to the Procurement Law. §11-101(m)(2)(iii) of the State Finance and Procurement Article.

2
Under Medicaid regulations governing physicians' and pharmacy services, "provider" is defined as an individual or entity "who, through appropriate agreement with the Department, has been identified as a program provider by the issuance of an individual account number." COMAR 10.09.02.018(25) (physicians) and 10.09.03.018(25) (pharmacists) (emphasis added).

3
The General Assembly apparently intended to authorize a check-off box on the prescription form, because Chapter 410 required that the Medicaid prescription form "include the following statement: This prescription shall be filled by a generic equivalent... unless checked by the prescribing physician."

4
Chapter 881 also amended former Article 43, §42(a) so that it read as follows: "Unless the prescriber indicates otherwise on the form or on an attached certificate of need, it is understood that the generic form of the drug ... will be utilized in filling the prescription." The recodified version of this provision appears at HG §15-118(b).

5
DHMH has broad authority to adopt regulations for the Medicaid Program in general and for the pharmacy services component in particular. HG §§15-105(a) and 15-118(d).

6
Proposed emergency regulations are not subject to this requirement.

7
When Maryland's APA was recodified in 1984, the "word 'regulation' [was] substituted, as the defined term, for the former word 'rule,' to distinguish, to the extent possible, between regulations of executive units and rules of judicial and legislative units." Revisor's Note to SG Article §10-102(g). Because commentators and most courts use the term "rule," we use the two terms interchangeably in this opinion.

8
In fiscal year 1988 alone, there were an estimated 46,602 prescriptions written for such drugs.

9
In 72 Opinions of the Attorney General 230, 234 n.4 (1987), we suggested that when "a group of persons in a contractual relationship with a State agency [are] affected by agency directives authorized under the contract," those directives might not be of "general application" and hence might be outside the definition of "regulation" in the APA. That suggestion, however, did not have in mind directives under a complex program like Medicaid, having effects on a large group of providers and, potentially, on program beneficiaries as well. Thus, the better approach is to view Transmittal No. 91 as of "general applicability" and then analyze its effects in considering whether the internal management exception applies to it. See Part IV below.

10
The Supreme Court held that if a statute is ambiguous, "a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." 467 U.S. at 844.

11
The weight that a court will accord an interpretative rule "in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." Skidmore v. Swift & Co. 323 U.S. 134, 140 (1944). See also Comptroller v. M. E. Rockhill, Inc., 205 Md. at 233.

12
A similar issue was raised but not reached in Department of Health and Mental Hygiene v. Lion's Manor Nursing Home, 281 Md. 425, 378 A.2d 1351 (1977).

13
We note that although the definition of a regulation under Maryland's APA is very broad, not every piece of agency guidance about a statute is a regulation. For example, explanatory material that is merely informational would not require an agency to follow the APA's adoption procedures. See, e.g., Barry Laboratories v. Wisconsin State Board of Pharmacy, 132 N.W.2d 833, 838 (Wis. 1965) (applying an APA definition similar to Maryland's).

14
"[A]n Agency need not follow [the notice and comment requirements] in the adoption of a rule that only defines the meaning of a statute or other provision of law or precedent if the agency does not possess delegated authority to bind the courts to any extent with its definition."

15
A case currently pending before the United States Supreme Court involves the issue of whether the federal Medicaid Act was intended to benefit providers and so afford them a right of action under 42 U.S.C. §1983 to challenge aspects of a state's Medicaid plan. Baliles v. Virginia Hospital Ass'n, No. 88-2043. Maryland has joined 45 other states as amici, urging the Supreme Court to rule that providers do not have this right of action. In our view, the Medicaid program is intended to benefit poor people who need health care, not the providers of that care. See, e.g., Case v. Weinberger, 523 F.2d 602, 607 (2d Cir. 1975). In terms of the APA, the same reasoning might lead to the conclusion that, while providers have rights as contractors, they have no rights as members of the "public." However, given our conclusion that the providers' rights are in any case not significantly affected, we need not decide whether the term "public" in SG §10-101(e)(2)(i)2 includes providers.

16
The providers' agreement authorizes DHMH to issue new transmittals. "Even if [a] directive is not effective as a rule, the substance of the directive can still be effective as part of an agreement between the parties." Lions Manor Nursing Home, 281 Md. at 430 (emphasis in original).

17
We understand that some of the complaints about Transmittal No. 91 stem not so much from its content as from the design of the Medicaid prescription form itself, which leaves too little space for the required statement of medical reason. DHMH, we are told, is aware of the problem and is taking steps to correct it.

18
Certainly, no patient has a "right" to brand-name drugs that are in fact not medically necessary. One purpose of Transmittal No. 91 was to reduce instances in which physicians are coerced into prescribing brand-name drugs that the patient would later sell illegally.