oversight

Food Assistance: Potential to Serve More WIC Infants by Reducing Formula Cost

Published by the Government Accountability Office on 2003-02-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to Congressional Committees




February 2003
                FOOD ASSISTANCE
                Potential to Serve
                More WIC Infants by
                Reducing Formula
                Cost




GAO-03-331
                a
                                                February 2003


                                                FOOD ASSISTANCE

                                                Potential to Serve More WIC Infants by
Highlights of GAO-03-331, a report to the       Reducing Formula Cost
House and Senate Committees on
Appropriations, Subcomittees on
Agriculture




The Department of Agriculture’s                 As of February 2002, all 51 of the state WIC agencies included in our survey
Food and Nutrition Service (FNS)                had policies to restrict the use of noncontract standard formula. Three of
provided about $3 billion to state              the 51 agencies prohibited the use of this formula entirely. The other 48
agencies in fiscal year 2001 for food           agencies restricted its use to specific situations, such as if medically
assistance, including infant                    prescribed or if needed for religious reasons. Seven of these 48 agencies
formula, through its Special
Supplemental Nutrition Program
                                                also set percentage limits, such as 4 percent of all standard formula issued,
for Women, Infants and Children                 on the use of noncontract standard formula.
(WIC). Most infants receiving
formula are given a milk- or soy-               In fiscal year 2002, 3.3 percent of the infants using formula in the WIC
based standard formula. To stretch              program received a noncontract standard formula, while 90.3 percent
program dollars, each state WIC                 received the contract brand. The remaining 6.4 percent received a medically
agency contracts with a single                  prescribed nonstandard formula for special medical or dietary needs. There
company for purchases of that                   were wide variations between WIC agencies in the percentage of infants who
company’s standard formula for                  received noncontract standard formula, ranging from a low of zero, for the 3
which they receive rebates. These               agencies that prohibited its use, to 10.5 percent. Likewise, the percentage of
rebates totaled $1.4 billion in fiscal          infants receiving medically prescribed nonstandard formula ranged from 0.2
year 2001. Rebates do not apply to
other companies’ brands of
                                                percent to 27.7 percent. FNS has not routinely collected from WIC agencies
standard formula (noncontract                   the data that would allow it to monitor the effectiveness of these agencies in
standard formula) or to                         restricting the use of either noncontract standard or nonstandard infant
nonstandard formulas designed to                formula.
meet special medical or dietary
conditions. GAO was directed to                 Buying noncontract standard formula brands cost the WIC program an
examine the extent that WIC                     estimated $50.9 million in foregone rebates in fiscal year 2002. Although it
agencies have restricted the use of             may be neither feasible nor desirable to prohibit all purchases of
noncontract standard formula to                 noncontract standard formula, rebates would have increased by $13.8
lower cost of the WIC program.                  million if every state had a noncontract standard formula usage rate no
                                                higher than the average of 3.3 percent reported across all agencies.
                                                Ten State-Level WIC Agencies, Including Puerto Rico, with the Largest Numbers of Infants
GAO recommends several actions                  Receiving Formula and the Percentage of Infants Provided Noncontract Standard Formula,
                                                February 2002
that FNS take to assist some WIC
agencies to reduce their use of                 10    Percent
noncontract brands of standard                                                                                                                       8.9
                                                 9
formula and nonstandard formulas.
In comments on a draft of GAO’s                  8

report, FNS agreed with the                      7
recommendations and stated that it                                                           5.9                                         5.9
                                                 6
had recently started collecting data
that will facilitate the                         5       4.6
implementation of the                                                                                                                                        4.1
                                                 4                                                                3.7
recommendations.
                                                 3
                                                                                 2.3
                                                 2                                                      1.8
                                                                      1.4
www.gao.gov/cgi-bin/getrpt?GAO-03-331.           1                                                                           0.7

                                                 0
To view the full report, including the scope            Calif.       Tex.        N.Y.        Fla.       Ohio       Ill.      Ga.         Pa.         P.R.   Mich.
and methodology, click on the link above.                        National average for the percentage of infants using noncontract standard formula
For more information, contact Marnie Shaul at
                                                Source: GAO WIC agency survey data for February 2002.
(202) 512-7215 or shaulm@gao.gov.
Contents


Letter                                                                                      1
               Results in Brief                                                             4
               Background                                                                   5
               WIC Agencies Use Different Approaches to Restrict the Use of
                 Noncontract Standard Formula                                             10
               About 3 Percent of WIC Infants Receive Noncontract Standard
                 Formula, but Extent Varies Greatly Among WIC Agencies                    15
               No Research Found on Effects of Switching Brands of Standard
                 Infant Formula                                                           21
               Use of Noncontract Standard Formula Cost WIC about $51 Million
                 in Lost Rebates                                                          24
               Conclusions                                                                26
               Recommendations                                                            27
               Agency Comments                                                            27

Appendix I     Scope and Methodology                                                      29



Appendix II    Number of Infants That Received Contract Standard,
               Noncontract Standard, and Nonstandard Formula                              33



Appendix III   Estimate of Rebates Foregone by WIC Agency                                 35



Appendix IV    Estimate of Rebates Foregone Due to Above Average
               Use of Noncontract Standard Formula by
               WIC Agencies                                      37



Appendix V     Comments from the Department of Agriculture                                38



Appendix VI    GAO Contacts and Staff Acknowledgments                                     40
               Contacts                                                                   40
               Acknowledgments                                                            40




               Page i                      GAO-03-331 Reducing the Cost of WIC Infant Formula
Tables
          Table 1: Washington WIC Agency Example of the Per Can, Net Cost
                   of Contract Standard and Noncontract Standard 13 ounce
                   Concentrate Cans of Milk- and Soy-Based Formula, April
                   2002                                                               10
          Table 2: Methods Used by 51 WIC Agencies to Restrict the Use of
                   Noncontract Standard Infant Formula as of February 2002            11
          Table 3: Policies Setting Quantitative Limits on the Use of
                   Noncontract Standard Formula at Seven WIC Agencies as
                   of February 2002                                                   13
          Table 4: Number of Infants Issued Vouchers for Contract Standard,
                   Noncontract Standard, and Nonstandard Formula as a
                   Percentage of All Infants Receiving Formula in February
                   2002 for 45 WIC Agencies                                           16
          Table 5: Percent of Noncontract Standard Formula Used for WIC
                   Agencies with Quantitative Limits on Noncontract
                   Standard Formula, February 2002                                    20
          Table 6: Number of Infants That Received Contract Standard,
                   Noncontract Standard, and Nonstandard Formula in
                   February 2002 for 45 WIC Agencies                                  33
          Table 7: Estimate of Rebates Foregone in February 2002 by 47 WIC
                   Agencies                                                           35
          Table 8: Estimates of Rebates Foregone in February 2002 by 19
                   WIC Agencies Due to the Use of Noncontract Standard
                   Infant Formula Exceeding the 3.3 Percent Average of All
                   Infants Receiving Formula                                          37


Figures
          Figure 1: Overview of Infant Formula Categories and Subcategories             8
          Figure 2: Infants Issued Contract Standard, Noncontract Standard,
                   and Nonstandard Formula as a Percentage of All Infants
                   Receiving Formula in February 2002 for 45 WIC Agencies             15




          Page ii                      GAO-03-331 Reducing the Cost of WIC Infant Formula
Abbreviations

FNS        Department of Agriculture’s Food and Nutrition Service
WIC        Special Supplemental Nutrition Program for Women, Infants, and
           Children




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Page iii                            GAO-03-331 Reducing the Cost of WIC Infant Formula
United States General Accounting Office
Washington, DC 20548




                                   February 12, 2003

                                   The Honorable Thad Cochran, Chairman
                                   The Honorable Herb Kohl, Ranking Minority Member
                                   Subcommittee on Agriculture, Rural Development, and Related Agencies
                                   Committee on Appropriations
                                   United States Senate

                                   The Honorable Henry Bonilla, Chairman
                                   The Honorable Marcy Kaptur, Ranking Minority Member
                                   Subcommittee on Agriculture, Rural Development, Food
                                    and Drug Administration, and Related Agencies
                                   Committee on Appropriations
                                   House of Representatives

                                   About half of all infant formula sold in the United States is purchased
                                   through the federally funded Special Supplemental Nutrition Program for
                                   Women, Infants, and Children (WIC). The U.S. Department of Agriculture’s
                                   Food and Nutrition Service (FNS) administers WIC in partnership with
                                   state-level WIC agencies. Federal WIC grants provided to WIC agencies for
                                   infant formula and other supplemental food were about $3 billion for fiscal
                                   year 2001, during which WIC served a monthly average of 7.3 million
                                   participants, including women, children (up to age 5), and 1.9 million
                                   infants. Participants generally receive this aid in the form of vouchers,
                                   which they can use to buy infant formula and other approved types of
                                   foods.

                                   Since 1989, federal law has required WIC agencies to take steps to contain
                                   the cost of infant formula purchased through the WIC program. All the
                                   competing brands of standard infant formula on the market are
                                   nutritionally identical because the federal government regulates their
                                   content and quality. To contain costs, WIC agencies have taken advantage
                                   of their substantial buying power by using a competitive-bid process. The
                                   agencies have entered into contracts giving one manufacturer the
                                   exclusive right to sell formula to all WIC participants whose infants (those
                                   less than 1 year old) can use standard formula (any cow’s milk-based or
                                   soy-based formula intended for feeding full-term, healthy infants). For
                                   each can of the contract manufacturer’s standard formula (called contract
                                   standard formula) that WIC participants purchase with their vouchers at
                                   retail stores, the WIC agency receives a rebate. The net effect for the WIC
                                   agency is a substantial reduction in the net retail cost—sometimes as


                                   Page 1                        GAO-03-331 Reducing the Cost of WIC Infant Formula
much as 80 percent. For the country as a whole, rebates totaled about $1.4
billion in fiscal year 2001. By reducing the cost of infant formula in this
way, such contracts leveraged the buying power of federal grants and
enabled the program to serve over 2 million additional participants during
the fiscal year.

To effectively leverage its purchasing power, a WIC agency must ensure
that WIC participants are issued vouchers for contract standard formula
with a rebate rather than vouchers for a standard formula produced by
another manufacturer that is not under contract and does not provide a
rebate—called noncontract standard formula. Generally, contract
standard formulas must be used unless medical documentation is obtained
or a religious reason cited to justify the use of another manufacturer’s
brand of formula.1 However, WIC participants may have other reasons why
they prefer not to purchase the contract standard formula. For example,
parents of newborns who receive noncontract standard formula at the
hospital and find that their infant is content with it may be reluctant to
switch to the contract brand. Similar concerns may surface if, in
negotiating a new contract, the WIC agency signs an agreement with a
different manufacturer. In this situation, some parents whose infants are
used to one brand may prefer not to switch brands and may request their
medical providers to document a need for another formula. In these
instances, WIC participants and prescribing medical providers may be
unaware of the large cost differences between the contract standard and
noncontract standard brands. This is because the differences come in the
form of rebates paid to WIC agencies, not to participants or medical
providers.

Concerned over selected aspects of infant formula cost containment
measures, the House Conference Report on Appropriations for the
Department of Agriculture for fiscal year 2002 directed us to examine the
following:

•   To what extent have WIC state agencies restricted the use of
    noncontract standard formula to help lower the overall cost of the WIC
    program?




1
 According to regulations, noncontract standard brand infant formulas may be issued
without medical documentation only to accommodate religious eating patterns, such as the
Judaic requirement for kosher infant formulas.




Page 2                             GAO-03-331 Reducing the Cost of WIC Infant Formula
•   To what extent do infants in the WIC program receive noncontract
    standard formula?

•   To what extent, according to available research, are normal, healthy
    infants adversely affected by switching to a different brand of formula?

•   What is the estimated dollar effect of using noncontract standard
    formula?

In conducting our work, we also obtained data on the use of nonstandard
infant formula and have included that data in this report.

To respond to this request, we developed a survey and sent it in June 2002
to 51 WIC agencies (48 states, the District of Columbia, the Navajo Nation
tribal organization, and Puerto Rico).2 We used a survey because the FNS
did not have data on the use of noncontract formula by WIC agencies. The
51 agencies in our survey collectively served over 97 percent of all WIC
infant participants in fiscal year 2001. All 51 agencies responded to our
survey, however, some agencies did not have the data needed to answer
all survey questions. We did not independently verify the accuracy of the
information these agencies reported to us. However, to verify the
correctness of the data they had provided we did contact several agencies
that reported very low or very high usage of either noncontract standard
or nonstandard formula (any formula that is not contract standard or
noncontract standard and that is designed to meet various medical and
dietary needs of infants that standard formulas will not satisfy). Several of
the agencies contacted provided us with revised formula usage data in
response to our inquiries.

In addition to conducting the survey, we discussed WIC infant formula use
with officials at WIC agencies and at FNS headquarters and regional
offices, and we reviewed relevant regulations and research. We also
performed an extended literature search on the issue of normal, healthy
infants being adversely affected by switching between brands of infant


2
 Our survey did not include the WIC agencies for two states—Mississippi and Vermont—
because they do not distribute infant formula through retail outlets but rather use direct
distribution and home delivery food distribution systems, respectively. Under direct
distribution, participants pick up standard formula from storage facilities operated by the
state or local agency; under home delivery, formula is delivered to the participant’s home.
Also, not included in our survey were 35 WIC agencies that were either exempt from
operating a cost containment system or judgmentally excluded from our survey due to their
small size.




Page 3                              GAO-03-331 Reducing the Cost of WIC Infant Formula
                   formula or showing a strong preference for the first standard formula
                   used, and we included a question on this issue in our survey sent to the
                   WIC agencies. We performed our work between May 2002 and December
                   2002 in accordance with generally accepted government auditing
                   standards. Appendix I further describes our scope and methodology.


                   As of February 2002, all 51 WIC agencies we surveyed had restrictions to
Results in Brief   limit the amount of noncontract standard infant formula provided under
                   the WIC program. The approach of 48 of the 51 WIC agencies was to adopt
                   the limitations in federal regulations, which restrict the use of noncontract
                   standard formula to specific situations, such as if medically prescribed or
                   if needed for religious reasons. Seven of the 48 WIC agencies also had
                   established quantitative limits on the overall percentage of noncontract
                   standard formula allowed. These limits typically ranged from 2 percent to
                   4 percent of all standard formula provided to infants by the agency. Three
                   additional WIC agencies—New Mexico, Tennessee, and Virginia—were
                   even more restrictive, prohibiting the purchase of noncontract standard
                   infant formula entirely.

                   Nationally, 3.3 percent of WIC infants using formula received noncontract
                   standard formula in February 2002, but 19 of the 45 agencies that had
                   these data reported percentages higher than this average. By comparison,
                   90.3 percent of all infants received contract standard formula, while 6.4
                   percent received nonstandard formulas, which are special formulas for
                   infants who cannot use standard formula. There was substantial variation
                   in these percentages from agency to agency. The 3 agencies with the most
                   restrictive policies that prohibited the use of noncontract standard
                   formula reported they did not use any of this formula. Seven agencies that
                   established quantitative limits on noncontract standard formula use had
                   mixed success in staying within their limits. Four of the 7 agencies that set
                   the highest limits stayed within their limits while the 3 agencies with the
                   lowest established limits exceeded their limits. Also, the 7 agencies, on
                   average, issued a somewhat greater portion of noncontract standard
                   formula than did the remaining 35 agencies that only restricted its use to
                   specific situations. Officials at selected WIC agencies reported that the use
                   of noncontract standard formula for religious reasons was very limited.

                   We found no research that directly addressed the question of whether
                   normal, healthy infants are adversely affected by switching to a different
                   standard formula brand, and no research that directly addressed whether
                   infants exhibit a strong preference for the first standard formula they use.
                   We identified two industry-sponsored studies that noted differences in


                   Page 4                        GAO-03-331 Reducing the Cost of WIC Infant Formula
             such things as stool characteristics from switching to a different standard
             formula, but neither study noted any adverse effect from making the
             switch. FNS has stated that almost all infants can be issued contract
             standard infant formula without compromising an infant’s nutritional
             needs and that noncontract standard formula should only be issued when
             medically necessary. Additionally, in 1995, FNS studied the issue of
             switching between formulas and found no scientific evidence to support
             that switching standard infant formulas should be accomplished gradually
             rather than immediately.

             On the basis of February 2002 data, we calculated that the purchase of
             noncontract standard infant formula cost the WIC program an estimated
             $50.9 million annually, an amount equal to about 3.7 percent of the rebates
             actually received. Because WIC regulations permit noncontract standard
             formula to be issued for medical or religious reasons, it may not be
             practical or desirable for all WIC agencies to prohibit the use of
             noncontract standard formula. However, an opportunity may exist for
             agencies with higher-than-average usage rates to curtail their use of
             noncontract standard formula, thereby increasing rebates. For example,
             we calculated that rebates could have been increased by an estimated
             $13.8 million in fiscal year 2002 if the 19 agencies with higher-than-average
             usage rates for noncontract standard formula had been able to lower their
             use of noncontract standard formula to the average of 3.3 percent reported
             by the 45 WIC agencies. This estimated $13.8 million could have been used
             to provide additional WIC benefits to women, infants, and children.

             The ability of some WIC agencies to operate a program with relatively low
             use of noncontract standard or nonstandard infant formula indicates that
             it is feasible to make the current program more efficient. Therefore, we are
             recommending several actions that FNS take to assist some WIC agencies
             to reduce their use of noncontract brands of standard formula and
             nonstandard formulas.


             The WIC program provides eligible women, infants, and children with
Background   nutritious foods to supplement their diets, nutrition education, and
             referrals to health care. FNS administers the program through a
             federal/state partnership in which FNS makes funds available in the form
             of grants to WIC agencies. FNS establishes regulations for the program,
             including the cost containment aspects, and provides guidance to the
             agencies. To measure overall compliance with program requirements, FNS
             regional offices conduct management evaluations at state-level WIC and
             local agencies. Each WIC agency is responsible for developing guidelines


             Page 5                        GAO-03-331 Reducing the Cost of WIC Infant Formula
to ensure that WIC benefits are effectively delivered to eligible
participants. WIC grants cover the costs of food grants, nutrition services,
and administration. Food grants are allocated to the WIC agencies through
a formula that is based on the number of individuals in each state who are
potentially eligible for WIC benefits. Nutrition services and administration
grants are allocated to the agencies through a formula that considers
factors such as an agency’s number of projected program participants and
a salary differential for local government employees.

In fiscal year 2001, FNS provided $4.1 billion in grants to WIC agencies to
fund all benefits and services, of which about $3.0 billion was for
supplemental food, including formula. On average, the program had about
7.3 million participants each month, including 1.9 million infants. WIC is a
discretionary grant program for which the Congress authorizes a specific
amount of funds each year, not an entitlement program. Therefore, eligible
individuals can enroll in the program only to the extent that funds are
available. FNS estimated that about 47 percent of all babies born in the
United States were served by WIC in fiscal year 2001. FNS also estimated
that about 19 percent of all potentially eligible women, infants, and
children were not participating in the program. At the state level, the
program is administered through 88 state-level WIC agencies3 and a
network of over 2,000 local agencies.

Eligible participants include pregnant or postpartum and breastfeeding
women, infants, and children up to age five who meet income guidelines, a
state residency requirement, and are individually determined to be at
“nutritional risk” by a health professional. The two major types of
nutritional risk are (1) medical-based risks such as anemic or underweight
infants, maternal age, history of pregnancy complications, or poor
pregnancy outcomes and (2) diet-based risks such as an inadequate diet
pattern. Infants are among those given highest priority for receiving WIC
benefits of those who have medical-based nutritional risk conditions.
Infants with dietary risk are lower priority than medically at risk infants.
For the first 6 months of life, breast milk or infant formula is the primary
food in a baby’s diet. WIC promotes breastfeeding as the best choice for
meeting an infant’s nutritional needs, but it also provides infant formula to
those who prefer to use it exclusively or as a supplement to their


3
 The 88 state-level WIC agencies, referred to as “WIC agencies” throughout this report,
include agencies in all 50 states, the District of Columbia, American Samoa, the
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, and 33 Indian Tribal
Organizations.




Page 6                              GAO-03-331 Reducing the Cost of WIC Infant Formula
breastfeeding. About half of all infant formula sold in the country is
purchased through the WIC program.

As defined in the Federal Food, Drug, and Cosmetic Act, infant formula
means a food that “purports to be or is represented for special dietary use
solely as a food for infants by reason of its simulation of human milk or its
suitability as a complete or partial substitute for human milk.”
Commercially available infant formulas can be described in two broad
categories: standard and nonstandard. (See fig. 1.) Standard infant formula
includes milk-based and soy-based infant formulas that meet the
nutritional needs of most full-term healthy infants less than one year old.
The Food and Drug Administration strictly regulates the content and
quality of standard infant formula for all brands. Therefore, all brands of
standard formula are nutritionally identical. In this report, we use two
categories of standard infant formula—contract and noncontract. Contract
standard formula is any standard infant formula that is provided to WIC
participants for which a WIC agency receives a rebate based on its
contractual arrangement with an infant formula manufacturer.
Noncontract standard formula is any standard infant formula that is not
eligible for a rebate from an infant formula manufacturer. Nonstandard
formula, as we use the term, is any formula that is not contract standard or
noncontract standard and that is designed to meet various medical and
dietary needs of infants that standard formulas will not satisfy. This
includes “exempt” formulas, which are defined in the Federal Food, Drug,
and Cosmetic Act as any infant formula which is represented and labeled
for use by an infant who has an inborn error of metabolism or a low birth
weight, or who otherwise has an unusual medical or dietary problem, and
other specialized but nonexempt infant formulas classified as WIC eligible
medical foods, which are specifically formulated to provide nutritional
support for infants with a diagnosed medical condition when the use of
conventional foods is precluded, restricted, or inadequate.




Page 7                        GAO-03-331 Reducing the Cost of WIC Infant Formula
Figure 1: Overview of Infant Formula Categories and Subcategories



                             Standard formula                                    Nonstandard formula
                        Milk- or soy-based formulas                                Specialized formulas
                       intended for feeding full-term                           designed to meet medical
                               healthy infants                                    and dietary needs that
                                                                                standard formulas will not
                                                                               satisfy (no rebate contracts)




       Contract standard                        Noncontract standard
             formula                                  formula
    Standard formula covered                     Standard formula not
    by a rebate contract with a                  covered by a rebate
     particular manufacturer                          contract


Source: GAO analysis of infant formula definitions.



Since 1989, WIC agencies have been required by law to implement
measures to contain the cost of infant formula. In most instances, this
means a state-level agency agrees, through a competitive contract awarded
to one manufacturer, to provide and deliver one brand of standard infant
formula to its participants through the existing retail outlet system and in
return receives money back, called a rebate, from the manufacturer for
each can of standard infant formula that is purchased by WIC participants
at retail stores. Rebates are not received for noncontract standard formula
and nonstandard infant formula, which is not covered by rebate contracts
as reported by the WIC agencies responding to our survey.4

Most WIC infant formula participants receive vouchers that they use to
purchase the contract standard infant formula at authorized retailers. The
WIC agency then reimburses the retailer for the full retail price of the
infant formula. The WIC agency or its financial institution then obtains a
reimbursement from the manufacturer for the rebate agreed to in the
contract. As a result, the actual cost of infant formula to the WIC program
equals the retail cost minus the amount of the manufacturer’s rebate. FNS


4
 In our survey, the WIC agencies reported all infants using formula that was under contract
for rebate. In addition, they reported all infants using formula for which no rebates were
received, and this no-rebate-received category was provided in two parts: noncontract
standard formula and nonstandard (or “special”) formula.




Page 8                                                GAO-03-331 Reducing the Cost of WIC Infant Formula
policy requires that during the grant year, any savings from cost
containment are to be used to provide food benefits to additional WIC
participants.

Even though a state-level WIC agency contracts to provide only one brand
of standard infant formula, federal WIC regulations permit the issuance of
noncontract standard formula provided medical documentation is
obtained or a religious reason is offered to justify its use for individual
participants. Medical documentation must be provided by a licensed
health care professional authorized to write medical prescriptions under
state law. According to regulations, there is just one exception to the
medical documentation requirement: noncontract standard brand infant
formulas may be issued without medical documentation to accommodate
religious eating patterns, such as the Judaic requirement for kosher infant
formulas. However, between February 2000 and February 2002, the three
infant formula manufacturers that WIC agencies used for their formula
rebate contracting (Mead Johnson, Ross, and Carnation) each provided a
soy-based, kosher infant formula, which minimizes the need for agencies
to provide noncontract standard formulas to accommodate Jewish infants’
religious eating patterns.

Because WIC agencies pay the retail price but do not receive rebates for
noncontract standard formula, an increase in the use of this formula will
increase a WIC agency’s total net payments for infant formula. Table 1
shows an example of the effect rebates had on the net cost of contract and
noncontract standard formula in the state of Washington in April 2002.




Page 9                       GAO-03-331 Reducing the Cost of WIC Infant Formula
                         Table 1: Washington WIC Agency Example of the Per Can, Net Cost of Contract
                         Standard and Noncontract Standard 13 ounce Concentrate Cans of Milk- and Soy-
                         Based Formula, April 2002

                                                                                Average retail                Net
                          Formula brand and type                                         cost    Rebate      cost
                          Contract standard formula:
                          Mead Johnson Enfamil with Iron [milk-based]                    $3.69     $2.97    $0.72
                          Mead Johnson Enfamil ProSobee [soy-based]                       3.66      3.10     0.56
                          Noncontract standard formula:
                          Ross Similac with Iron [milk-based]                             3.46      0.00      3.46
                          Ross Isomil with Iron [soy-based]                               3.75      0.00      3.75
                          Carnation Good Start [milk-based]                               2.86      0.00      2.86
                          Carnation Alsoy [soy-based]                                     2.68      0.00      2.68
                         Source: Washington WIC state agency.


                         As table 1 indicates, even though the retail cost of contact standard
                         formula and noncontract standard formula may be similar, rebates equal
                         to 80 percent or more of the average retail cost of contract formula can
                         lower its net cost for the WIC agency to 20 percent of the cost of
                         noncontract standard formula.


                         The 51 WIC agencies we surveyed all set some sort of restrictions designed
WIC Agencies Use         to limit the amount of noncontract standard infant formula provided under
Different Approaches     WIC. (See table 2.) The approach used by 48 WIC agencies in February
                         2002 was to adopt the restrictions contained in federal regulation, which
to Restrict the Use of   limit the use of noncontract standard formula to certain specific
Noncontract Standard     situations, such as if medically prescribed or if needed for religious
                         reasons. Seven of the 48 agencies also set quantitative limits on the
Formula                  amount of noncontract standard formula allowed. Three other agencies
                         were even more restrictive and prohibited noncontract standard formula
                         use entirely.




                         Page 10                                GAO-03-331 Reducing the Cost of WIC Infant Formula
Table 2: Methods Used by 51 WIC Agencies to Restrict the Use of Noncontract
Standard Infant Formula as of February 2002

                       Prohibits use,        Prohibits use, but with   Prohibits use
                          but with            exceptions and with         with no
WIC agency              exceptionsa            quantitative limits      exceptions
Alabama                      Xb
Alaska                       X
Arizona                      X
Arkansas                     X
California                                             X
Colorado                     X
Connecticut                  X
Delaware                     X
District of Columbia         X
Florida                      X
Georgia                      X
Hawaii                       X
Idaho                        X
Illinois                                               X
Indiana                                                X
Iowa                         X
Kansas                       X
Kentucky                     X
Louisiana                                              X
Maine                        X
Maryland                     X
Massachusetts                X
Michigan                     X
Minnesota                                              X
Missouri                     X
Montana                      X
Navajo Nation                X
Nebraska                     X
Nevada                       X
New Hampshire                X
New Jersey                   X
New Mexico                                                                   X
New York                     X
North Carolina               X
North Dakota                 X
Ohio                                                   X
Oklahoma                     X
Oregon                                                 X
                                b
Pennsylvania                X




Page 11                             GAO-03-331 Reducing the Cost of WIC Infant Formula
                                    Prohibits use,                Prohibits use, but with   Prohibits use
                                       but with                    exceptions and with         with no
    WIC agency                       exceptionsa                    quantitative limits      exceptions
    Puerto Rico                           X
    Rhode Island                          X
    South Carolina                        X
    South Dakota                          X
    Tennessee                                                                                    X
    Texas                                     X
    Utah                                      X
    Virginia                                                                                     X
    Washington                               X
    West Virginia                            X
    Wisconsin                                X
    Wyoming                                  X
    Total                                    41                             7                    3
Source: GAO’s analysis of survey data provided by WIC agencies.
a
 Exceptions to prohibiting the use of noncontract standard formula may be based on either medical
documentation or religious reasons, as allowed by federal regulations.
b
 As of March 2002, Alabama’s and Pennsylvania’s policies changed to prohibit the use of noncontract
standard formula without exception.


The 7 agencies that set quantitative limits on the use of noncontract
standard formula all differed to some degree in their approach, with the
maximum limit for noncontract formula usually set at 2 to 4 percent of all
infant formula or all standard infant formula issued. (See table 3.) For
example, the Oregon agency has two maximum usage rates for local
agencies: 4 percent for noncontract standard cow’s milk-based formula
and 8 percent for noncontract standard soy-based formula; and the
Louisiana agency requires that 96 percent of all standard formula be
contract formula which, in effect, sets the limit for noncontract standard
formula at 4 percent.




Page 12                                            GAO-03-331 Reducing the Cost of WIC Infant Formula
Table 3: Policies Setting Quantitative Limits on the Use of Noncontract Standard
Formula at Seven WIC Agencies as of February 2002

    WIC agency          Quantitative limit policy
    California          “A local agency’s noncontract [standard] formula issuance rate shall be
                        only 2 percent of total formula issuance.”
    Illinois            “Issuance of noncontract [standard] brands of iron-fortified milk-based,
                        lactose free and soy-based formula (on average) should not exceed 3
                        percent of the local agency’s infant formula enrollment.”
    Indiana             On January 30, 2002 the Indiana WIC agency changed its policy to “limit
                        standard infant formulas that are not covered under our Infant Formula
                        Rebate contract to an exception rate of 2%.” The agency’s previous
                        policy stated “No local agency may exceed a 4% noncontract [standard]
                        formula allowance without documented permission from the State WIC
                        Office.”
    Louisiana           “At least 96 percent of standard formulas issued to infants must be
                        standard contract formula.”
    Minnesota           “The maximum number of infants on noncontract [standard], iron-fortified
                        formula is 4 percent of the local agency infant caseload or five infants
                        whichever is greater.”
    Ohio                “Statewide, issuance of nonprimary [noncontract standard] formulas is
                        limited to 4 percent of the total participants receiving iron-fortified milk-
                        base or soy-based formula, not including special formulas. Each local
                        WIC project is assigned a maximum number of nonprimary formula
                        slots.”
    Oregon              “Local programs are expected to have a usage rate of no greater than 4
                        percent for non-bid [noncontract standard] cow’s milk-based formula and
                        8 percent for non-bid [noncontract standard] soy-based formula.”
Source: WIC agencies’ policies on noncontract standard infant formula use.


The Mississippi, New Mexico, Tennessee, and Virginia WIC agencies all
had policies prohibiting the use of noncontract standard formula and did
not issue any such formula in February of 2002.5 New Mexico and
Tennessee had such a policy in place since before February 2000, while
Virginia’s policy took effect in July 2001. In addition to these 3 WIC
agencies, Alabama and Pennsylvania both implemented policies
prohibiting the issuance of noncontract standard formula in March 2002,
although Alabama allowed WIC infants already receiving a noncontract
standard formula to continue doing so and Pennsylvania allowed existing
vouchers for noncontract standard formula to be used. The directors of


5
 Mississippi, one of two agencies not included in our survey because it does not purchase
formula through retail outlets, also prohibits the use of noncontract standard formula
without exception. According to a Mississippi WIC agency official, the agency receives a
discounted price for contract standard infant formula resulting from a competitively bid
contract with a single manufacturer. The formula is directly delivered by the manufacturer
to 94 food centers operated by state employees, where the agency’s WIC participants pick
it up.




Page 13                                             GAO-03-331 Reducing the Cost of WIC Infant Formula
the Alabama and Pennsylvania WIC agencies told us that the overall
implementation of the prohibition on noncontract standard formula had
gone smoothly and there were few complaints from WIC participants.

To obtain perspective from other states about a policy that would prohibit
the use of noncontract standard formula altogether, we asked officials of
the 4 WIC agencies providing formula to the largest number of infants
(California, Florida, New York, and Texas) whether they had considered
instituting a policy of prohibiting the issuance of noncontract standard
formula without exception, and what the overall effect of such a policy
would be on WIC participants in their states. Three (California, Florida,
and Texas) responded that their agencies had considered prohibiting the
issuance of noncontract standard formula but had decided not to do so.
Generally, the Texas and Florida agencies stated that if they prohibited the
use of noncontract standard formula the likely effect on infants receiving
noncontract standard formula would be (1) the larger portion of parents of
these infants would ask their doctors to prescribe nonstandard formulas,
which could cost the agency more than the noncontract standard formula,
(2) some parents would remove their infants from the WIC program; and
(3) few or no infants would be switched to the contract standard formula.
California WIC agency officials said that projecting the impact on WIC
families of prohibiting noncontract standard formula is speculative, but
that some families would probably switch to a contract standard formula,
others might drop out of the program, and some participants might ask
their doctor to put the infant on a more expensive nonstandard formula.

The New York WIC agency had not considered a policy of prohibiting the
use of noncontract standard formula. However, an agency official believed
such a prohibition would cause a majority of users of noncontract
standard formula to either switch to contract standard formula or seek
another party to pay for noncontract standard formula, such as U.S.
Department of Agriculture’s Commodity Supplemental Food Program,
Medicaid or food banks. The official does not believe that prohibiting
noncontract standard formula would lead to an increase in requests for
nonstandard formula.




Page 14                       GAO-03-331 Reducing the Cost of WIC Infant Formula
                       Nationally, 3.3 percent of WIC infants using formula received noncontract
About 3 Percent of     standard formula in February 2002, according to usage data reported by 45
WIC Infants Receive    WIC agencies that had these data. By comparison, 90.3 percent of all
                       infants received contract standard formula, while 6.4 percent received
Noncontract Standard   nonstandard formulas, which are special formulas for infants who cannot
Formula, but Extent    use standard formula. (See fig.2.) There was substantial variation in these
                       percentages from agency to agency. The 3 agencies with the most
Varies Greatly Among   restrictive policies that prohibited the use of noncontract standard
WIC Agencies           formula reported they did not use any of this formula. Seven agencies that
                       established quantitative limits on noncontract standard formula use had
                       mixed success in staying within their limits. Four of the 7 agencies that set
                       the highest limits stayed within their limits while the 3 agencies with the
                       lowest established limits exceeded their limits. Also, the 7 agencies, on
                       average, issued a somewhat greater portion of noncontract standard
                       formula than did the remaining 35 agencies that only restricted its use to
                       specific situations. Officials at selected WIC agencies reported that the use
                       of noncontract standard formula for religious reasons was very limited.

                       Figure 2: Infants Issued Contract Standard, Noncontract Standard, and
                       Nonstandard Formula as a Percentage of All Infants Receiving Formula in February
                       2002 for 45 WIC Agencies

                                                                                         3.3%
                                                                                         Noncontract standard formula:
                                                                                         not covered by a rebate

                                                                                         6.4%
                                                                                         Nonstandard formula: designed to meet
                                                                                         special needs, not covered by a rebate




                                                 90.3%                                   Contract standard formula: covered
                                                                                         by a rebate




                       Source: GAO's analysis of survey data provided by WIC agencies.




                       Page 15                                            GAO-03-331 Reducing the Cost of WIC Infant Formula
Agencies Showed Variation   The percentage of WIC infants receiving noncontract standard formula in
in Both Noncontract         February 2002 ranged from a low of zero to a high of 10.5 percent, as
Standard and Nonstandard    reported by the 45 agencies that provided this information. (See table 4.)
                            Four agencies (New Mexico, Tennessee, Virginia, and the Navajo Nation)
Formula Use                 reported issuing no noncontract standard formula in February 2002. Three
                            other agencies reported rates of less than 1 percent: Arkansas, Maryland,
                            and Georgia reported rates of 0.04, 0.6, and 0.7 percent, respectively. At
                            the other end of the spectrum, Utah issued vouchers for noncontract
                            standard formula to 8.5 percent of all WIC infants, Puerto Rico to 8.9
                            percent, and Wyoming to 10.5 percent. However, Wyoming and Utah are 2
                            of the smaller agencies in terms of number of WIC infants served, so
                            despite the high percentage figure, the number of infants issued vouchers
                            for noncontract standard formula by these agencies is relatively small
                            compared to other larger WIC agencies.

                            Table 4: Number of Infants Issued Vouchers for Contract Standard, Noncontract
                            Standard, and Nonstandard Formula as a Percentage of All Infants Receiving
                            Formula in February 2002 for 45 WIC Agencies

                            WIC agency             Contract standard Noncontract standard Nonstandard
                            Alabama                              89.0                  2.3           8.7
                            Alaska                               94.5                  3.2           2.3
                            Arizona                              80.2                  3.9          15.9
                            Arkansas                             91.1                 0.04           8.9
                            California                           94.4                  4.6           1.0
                            Colorado                             89.0                  6.8           4.2
                            Connecticut                          88.3                  3.3           8.4
                            Delaware                             86.0                  6.8           7.2
                            District of Columbia                 94.4                  4.7           0.9
                            Florida                              87.8                  5.9           6.2
                            Georgia                              90.9                  0.7           8.5
                            Hawaii                               95.1                  2.6           2.3
                            Illinois                             91.8                  3.7           4.5
                            Indiana                              86.0                  6.8           7.2
                            Iowa                                 93.1                  2.5           4.4
                            Kansas                               93.0                  3.0           4.0
                            Kentucky                             82.1                  7.9          10.0
                            Louisiana                            89.9                  2.4           7.7
                            Maine                                89.6                  2.9           7.5
                            Maryland                             93.7                  0.6           5.7
                            Massachusetts                        93.2                  1.4           5.4
                            Michigan                             93.4                  4.1           2.5
                            Minnesota                            90.9                  2.9           6.2
                            Navajo Nation                        95.6                  0.0           4.4




                            Page 16                         GAO-03-331 Reducing the Cost of WIC Infant Formula
                               Nebraska                                               86.7                    2.7              10.7
                               Nevada                                                 97.6                    2.1               0.2
                               New Jersey                                             95.7                    1.4               2.9
                               New Mexico                                             94.8                    0.0               5.2
                               New York                                               91.1                    2.3               6.5
                               Ohio                                                   78.3                    1.8              19.9
                               Oklahoma                                               92.5                    2.7               4.8
                               Oregon                                                 93.9                    3.8               2.3
                               Pennsylvania                                           90.6                    5.9               3.5
                               Puerto Rico                                            63.5                    8.9              27.7
                               Rhode Island                                           90.3                    3.1               6.5
                               South Carolina                                         90.0                    3.0               7.0
                               South Dakota                                           82.9                    7.2               9.9
                               Tennessee                                              92.7                    0.0               7.3
                               Texas                                                  95.3                    1.4               3.3
                               Utah                                                   85.8                    8.5               5.7
                               Virginia                                               91.0                    0.0               9.0
                               Washington                                             92.2                    4.5               3.2
                               West Virginia                                          87.7                    6.4               5.9
                               Wisconsin                                              92.0                    3.8               4.2
                               Wyoming                                                81.1                   10.5               8.4
                               Weighted average                                       90.3                    3.3               6.4
                              Source: GAO’s analysis of survey data provided by WIC agencies.

                              Note: Idaho, Missouri, Montana, New Hampshire, North Carolina, and North Dakota are excluded
                              from this table because they either did not provide or did not completely provide these data for our
                              survey.


                              The variation in the percentage of infants who received nonstandard
                              formula was even greater than the percentage that received noncontract
                              standard formula. The use of nonstandard formula ranged from 0.2
                              percent of all infants receiving WIC formula in Nevada and 0.9 percent in
                              the District of Columbia to 27.7 percent in Puerto Rico and 19.9 percent in
                              Ohio. Appendix II shows the number of infants using each type of formula,
                              by agency.


Reasons for Variations Not    Our survey was designed to gather basic information about noncontract
Fully Known, but              standard formula usage in the absence of any available information on this
Restrictiveness of Policies   issue. FNS is not routinely collecting from WIC agencies the data that
                              would allow it to monitor the effectiveness of these agencies in restricting
Plays a Role                  the use of noncontract standard formula. To provide some perspective on
                              why there was so much variation in noncontract standard formula usage
                              rates, we contacted certain agencies, especially those with the lowest
                              percentage usage and those with the largest programs. For agencies with



                              Page 17                                            GAO-03-331 Reducing the Cost of WIC Infant Formula
the lowest percentage of infants receiving noncontract standard formula,
the restrictiveness of the agency policy with regard to noncontract formula
is clearly a factor. Three of the 4 agencies reporting zero usage (New
Mexico, Tennessee, and Virginia) had policies in place prohibiting the use
of noncontract standard formula with no exceptions.

The 4 largest of the 48 agencies that allowed the use of noncontract
standard formula in specific situations (California, Florida, New York, and
Texas) varied considerably in the percentage of infants who received this
formula. Two of them, Texas and New York, issued vouchers for
noncontract standard formula to a smaller percentage of infants than the
average of 3.3 percent for all 45 agencies. Texas’s percentage was 1.4
percent, while New York’s was 2.3 percent. Texas and New York pointed
to policies and practices they regarded as restrictive as the reason for their
relatively low percentages. Officials at the Texas agency said their practice
for issuing vouchers for noncontract standard formula was restrictive
enough that they were a little concerned it may have shifted some infants
into nonstandard formula, which is more expensive than noncontract
standard formula. However, Texas’s rate of 3.3 percent for nonstandard
formula was also lower than the average reported by all agencies (6.4
percent). A New York agency official said the agency restricts the approval
of certain noncontract standard formulas and that is tantamount to
prohibiting the issuance of those particular formulas.

California and Florida, by contrast, reported noncontract standard rates
that were above the national average of 3.3 percent: California’s rate was
4.6 percent, while Florida’s was 5.9 percent. Our discussions with agency
officials about the possible reasons for their relatively high rates showed
that the factors contributing to such rates might vary considerably from
agency to agency. In California, for example, agency officials said they
grapple on a continuing basis with responding to parental requests for
noncontract standard formula because the infant received noncontract
standard formula in the hospital at birth. California officials have drafted a
new policy, which they designed to limit the use of noncontract standard




Page 18                        GAO-03-331 Reducing the Cost of WIC Infant Formula
                         formula.6 Florida officials said the use of noncontract standard formula in
                         their state, which had historically been less than 3 percent, increased
                         when a different manufacturer became the contract supplier. Florida’s
                         experience is discussed in more detail later in this report.


Agencies with Low        The 3 agencies that set a low quantitative limit (2 or 3 percent of all
Quantitative Limits on   formula used) on the use of noncontract standard formula exceeded that
Noncontract Standard     limit in February 2002. However, the 4 agencies that set a higher limit (4
                         percent) stayed below that limit. On average, the 7 agencies with policies
Formula Use Exceeded     setting quantitative limits actually issued a somewhat greater portion of
Them                     noncontract standard formula (4.0 percent of all formula issued) than did
                         35 WIC agencies that also granted exceptions but did not set quantitative
                         limits (3.3 percent).7 (See table 5.)




                         6
                          California’s proposed policy, which has been submitted to FNS for approval, would revise
                         its policy in three significant ways. First, the agency will only allow local staff to provide
                         noncontract standard formula to infants up to 6 months of age (compared to 12 months
                         now) with medical documentation from a physician. Noncontract standard formula will not
                         be issued after the infant is six months of age. Second, local staff will be required to
                         educate the parents of newborns about the adjustments the infant’s gastrointestinal tract
                         makes during the first three months so that—after about three months of age in most
                         cases—the infant will be able to tolerate the contract standard formula even if she or he
                         was not able to at an earlier age. At this point, the parents should begin to introduce the
                         contract standard product so that the transition is complete by 6 months of age. Third, if
                         after 6 months of age the infant still cannot tolerate the contract standard product, she or
                         he should receive a medical evaluation for possible transition to a medical (nonstandard)
                         formula for a more severe condition.
                         7
                          We were able to determine the portion of noncontract standard formula use for just 35
                         agencies because 6 of the 41 WIC agencies that only prohibited noncontract standard
                         formula use with some exceptions did not provide sufficient usage data in our survey.




                         Page 19                              GAO-03-331 Reducing the Cost of WIC Infant Formula
                           Table 5: Percent of Noncontract Standard Formula Used for WIC Agencies with
                           Quantitative Limits on Noncontract Standard Formula, February 2002

                                                           Established quantitative limit,          Noncontract standard infant
                            WIC agency                                   February 2002             formula used, February 2002
                            California                                                  2                                   4.6
                            Illinois                                                    3                                   3.7
                            Indiana                                                     2                                   6.8
                            Louisiana                                                   4                                   2.4
                            Minnesota                                                   4                                   2.9
                            Ohio                                                        4                                   1.8
                            Oregon                                                      4                                   3.8
                            Weighted average                                                                                4.0
                           Source: GAO’s analysis of data provided by WIC agencies.


Only Limited Issuance of   It does not appear that a substantial amount of the noncontract standard
Noncontract Standard       formula is issued for religious reasons. Religious concerns about contract
Formula for Religious      standard formula mainly involved the brands manufactured by a company,
                           whose formula contained ingredients or involved manufacturing processes
Reasons Identified         that did not meet some groups’ requirements. We contacted all five
                           agencies that had contracts with the company as of February 2002, and
                           officials from four of the five said they issued small amounts of
                           noncontract standard formula for religious reasons. For example, in New
                           Jersey, where the rate of noncontract formula is 1.4 percent, an agency
                           official said all of the noncontract standard formula was issued for
                           Orthodox Jewish infants whose parents do not find the soy-based, kosher
                           contract standard formula provided by the New Jersey agency to be
                           manufactured to strict enough standards to be acceptable. The agency
                           permits the issuance of noncontract standard soy-based, kosher formula,
                           which is made by other manufacturers and is acceptable to Orthodox
                           Jewish parents. The Kentucky WIC agency also issued a small amount on
                           noncontract standard formula to meet the kosher requirements of some
                           Jewish parents. Similarly, officials from the Florida and North Dakota
                           agencies said a very few Muslim participants received noncontract
                           standard formula because they find a pork enzyme used in the
                           manufacture of the milk-based contract standard formula to be
                           unacceptable and are unable or not required to use the soy-based standard
                           contract formula which does not contain the pork enzyme. We contacted 5
                           other agencies (Alabama, New Mexico, New York, Pennsylvania, and
                           Tennessee) that had contracts with other manufacturers, and none of
                           them reported issuing any noncontract standard formula for religious
                           reasons.




                           Page 20                                            GAO-03-331 Reducing the Cost of WIC Infant Formula
                      We found no research that directly addressed the question of whether
No Research Found     normal, healthy infants are adversely affected by switching to a different
on Effects of         standard formula brand, and no research that directly addressed whether
                      infants exhibit a strong preference for the first standard formula they use.
Switching Brands of   The studies we identified addressed such things as whether stool
Standard Infant       characteristics changed as a result of changing formula, but they did not
                      note any adverse effects from making the switch. In the past, FNS has also
Formula               studied the issue of switching between standard formulas and found no
                      scientific evidence to support the need for a gradual rather than immediate
                      switch. However, some WIC agencies report that when a switch in
                      contract standard formula occurs, use of noncontract standard formula
                      rises. Thirty-two of the WIC agencies we surveyed had entered into new
                      contracts resulting in a change of infant formula manufacturer and of
                      contract standard formula brand, and of these, 7 (22 percent) reported that
                      an increase in noncontract standard formula use occurred after changing
                      contract standard formula brands.


Research Identified   We identified two industry-sponsored studies that addressed how infants
Addresses Narrower    are affected by switching between brands of standard formula. These
Topics                studies were “Formula Tolerance in Postbreastfed and Exclusively
                      Formula-fed Infants” and “Effect of Infant Formula on Stool
                      Characteristics of Young Infants.”8 Two of the 51 agencies also informed
                      us of these studies. The two studies did not disclose any adverse affect for
                      normal, healthy infants from switching to a different brand of standard
                      formula but did note differences in such things as stool characteristics
                      from switching to a different formula brand.

                      •   The first article, supported by Ross Products Division, attempted to
                          measure infant tolerance in two standard milk-based formulas, Ross’s
                          Similac with iron powder and Mead Johnson’s Enfamil with iron
                          powder. Included were healthy, full-term infants, who were either
                          initially breastfed in one group or initially formula-fed Similac in
                          another group. In both groups, the results of intolerance measures,
                          such as the volume of formula intake, weight gain, and incidence of
                          spit-up or vomit did not differ between formulas. However, differences
                          were observed in stool characteristics, such as color, firmness, and


                      8
                       B. Lloyd et al., Ross Product Div., Abbot Laboratories, “Formula Tolerance in
                      Postbreastfed and Exclusively Formula-fed Infants”, Pediatrics Vol. 103 No. 1, January
                      (1999). J. S. Hyams et al., “Effect of Infant Formula on Stool Characteristics of Young
                      Infants”, Pediatrics 95: 50-54, (1995).




                      Page 21                             GAO-03-331 Reducing the Cost of WIC Infant Formula
                                frequency. The study concluded that one brand of formula produced
                                stool characteristics closer to that of infants who feed on breast milk,
                                and it made no mention of stool differences being adverse to an infant’s
                                health.

                            •   The second article, supported by Mead Johnson Nutritionals,
                                investigated the relationship among four types of Mead Johnson
                                formulas (Enfamil, Enfamil with Iron, ProSobee, and Nutramigen)
                                consumed and the stooling characteristics and gastrointestinal
                                symptoms of young infants. Among formula groups tested, there were
                                variations in stool frequency, consistency, and color. However, no
                                significant differences were noted in the severity of spitting, gas, and
                                crying between the four formula groups. The study concluded that
                                although true hypersensitivity to cow’s milk or soy protein may occur,
                                it is uncommon and many infants are often mislabeled as being
                                “allergic” to a particular formula when their symptoms such as loose
                                stools, gas, spitting, and crying probably fall within the normal range of
                                variability observed with all infant formulas. The study stressed the
                                importance of parental education in the interpretation of stooling
                                patterns and gastrointestinal symptoms during the administration of
                                various infant formulas, and it made no mention of differences in stool
                                characteristics being adverse to an infant’s health.

Prior FNS Review Found      FNS headquarters officials also were not aware of any research
No Evidence That Gradual    concluding that infants show a strong preference for the first standard
Shift in Standard Formula   formula used. However, FNS pointed out that because WIC state agencies
                            typically renegotiate rebate contracts every few years, many of the infants
Was Necessary               they serve are required to switch from receiving one brand of standard
                            infant formula to another. And on occasion, parents and caretakers
                            complained that their infants experienced problems tolerating the new
                            brand of formula and requested a noncontract standard substitute.
                            Because this situation has raised concern within the WIC community, in
                            1995 FNS explored whether scientific evidence exists to support the
                            suggestion that a change of standard formula should be gradually
                            introduced into an infant’s diet. FNS wanted to ascertain whether a
                            specific amount of time was needed to wean an infant from one formula to
                            another and if a particular proportion of old-to-new formula was
                            recommended.

                            In its research of this issue, FNS contacted the American Academy of
                            Pediatrics and the Infant Formula Council to solicit their advice and
                            recommendations on the proper methods to use when introducing an
                            infant to a change in formula. FNS reported that the American Academy of



                            Page 22                        GAO-03-331 Reducing the Cost of WIC Infant Formula
                         Pediatrics stated “scientific literature does not reveal any compelling
                         evidence for adopting a guideline suggesting the delayed introduction of
                         infant formula products for well babies.” Although the Infant Formula
                         Council did not directly reply to FNS’s inquiry, FNS reported that one of
                         the council’s members, Ross Products Division of Abbott Laboratories,
                         sent a letter stating that its staff physicians and researchers also
                         concluded “no scientific evidence or formal guidelines exist concerning
                         the introduction of a formula change.” As a result of its inquiry, FNS sent a
                         letter in June 1995, to FNS Regional Directors which stated that FNS was
                         “unaware of a medical basis for recommending any particular procedures
                         or methods which should be routinely followed when a well WIC infant is
                         switched from one standard infant formula to another.” Also, in August
                         2001, in responding to Senator Leahy regarding WIC’s issuance of
                         noncontract standard formula, FNS stated that almost all infants, except
                         those that are exclusively breastfed, can be issued contract standard infant
                         formula without compromising an infant’s nutritional needs and that
                         noncontract standard formula should only be issued in exceptional
                         situations.


Observations from Some   Considering the possibility that changing infant formula manufacturers
WIC Agencies on          might lead to an increase in the use of noncontract standard formula, we
Switching Contract       asked the WIC agencies we surveyed to consider how their most recent
                         change to a different infant formula manufacturer affected their use of
Standard Formulas        noncontract standard infant formula. Most agencies that had switched
                         between brands of standard formula for their rebate contract indicated
                         that the change had not been accompanied by an increase in noncontract
                         standard formula. In all, 32 of the WIC agencies we surveyed had made
                         such a change, and 25 of them (78 percent) said the use of noncontract
                         standard formula had not increased after their most recent contract
                         change to a different infant formula manufacturer.9

                         We did not follow up with all of the 7 other agencies that reported an
                         increase, but 1 of the 7 (Florida) was among the largest agencies where we




                         9
                          Four state WIC agencies said that, although they had changed manufacturers, they did not
                         have the data to determine whether noncontract standard formula use had been affected.
                         An additional 15 agencies said that they had always contracted with the same manufacturer
                         and therefore, their noncontract standard use had not been affected by a change of formula
                         manufacturer.




                         Page 23                            GAO-03-331 Reducing the Cost of WIC Infant Formula
                     focused part of our follow-up work.10 A state agency official said that use
                     of noncontract formula had traditionally been less than 3 percent of all
                     formula issued until February 1999, when the Florida WIC agency
                     switched its contract to a new infant formula manufacturer. The official
                     cited several reasons for the increase in noncontract standard formula use
                     after changing contractors. For example, some hospitals were not using
                     the new contractor’s products, so infants not exclusively breastfed were
                     started out on a noncontract formula rather than a contract formula. In
                     addition, the new contractor did not initially market its products to health
                     care professionals in Florida. However, Florida’s use of noncontract
                     standard formula has declined from 10.1 percent of all infants issued WIC
                     formula in February 2000 to 8.6 percent in February 2001 and 5.9 percent
                     in February 2002. In October 2002, the Florida agency official informed us
                     that there had been a steady decline in requests for noncontract standard
                     formulas since the new contractor deployed a medical marketing team in
                     Florida. He said the team had good success in some areas in gaining
                     physician acceptance and in persuading hospitals to provide their
                     products in nurseries to newborns and in pediatric units to infants who
                     may participate in the WIC program, although there were still some large
                     hospitals that did not offer the new contractor’s formulas.


                     Using February 2002 data, we estimated that the use of noncontract
Use of Noncontract   standard infant formula cost the WIC program $50.9 million annually in
Standard Formula     lost rebates, an amount equal to about 3.7 percent of the rebates actually
                     received. This calculation assumes all infants using noncontract standard
Cost WIC about $51   formula would instead use contract standard formula. Each WIC infant
Million in Lost      using noncontract standard formula instead of contract standard formula
                     results in the agency foregoing the rebate from the infant formula
Rebates              manufacturer. For February 2002, the sum of infant formula rebates
                     foregone by the 47 WIC agencies that provided data was an estimated
                     $4.25 million. Assuming that February’s total is representative of months
                     throughout the year, the annual total is an estimated $50.9 million.
                     Assuming the retail price of contract standard and noncontract standard
                     infant formula is the same, the foregone rebate is also the net cost to the
                     WIC agency. Amounts foregone for February 2002 ranged from zero at the
                     4 WIC agencies that reported issuing no noncontract standard formula to


                     10
                       Another of the large agencies we contacted, California, reported that while its contract
                     has remained with the same manufacturer for a number of years, it continues to grapple on
                     a continuing basis with parental requests to use noncontract standard formula because
                     their infant has started on a different formula before leaving the hospital.




                     Page 24                             GAO-03-331 Reducing the Cost of WIC Infant Formula
$781,370 for California, the largest WIC agency. (See appendix III for an
estimate of rebates foregone in February 2002 by each of 47 WIC agencies;
see appendix I for a description of the method we used to estimate the
amount of rebate dollars lost.)

Six WIC agencies—California, Florida, New York, Pennsylvania, Puerto
Rico, and Texas—accounted for over half of the estimated infant formula
rebates lost in 2002. All were among the 9 largest agencies in terms of the
number of infants provided infant formula. These agencies, however, did
not necessarily have above average percentages of infants receiving
noncontract standard formula. For example, as a percentage of all WIC
infants issued formula, Texas issued noncontract standard formula to only
1.4 percent of infants and New York to 2.3 percent of infants in February
2002. Nevertheless, the sheer size of their programs meant that even a
below average percentage of infants issued noncontract standard formula
could result in a substantial amount of rebates being foregone.

Six WIC state agencies—Alabama, Mississippi, New Mexico, Pennsylvania,
Tennessee, and Virginia—have implemented policies prohibiting the use of
noncontract standard formula entirely. Some state agencies may have
medical or dietary religious reasons for not entirely prohibiting the use of
noncontract standard formula. However, an opportunity exists for
agencies with higher-than-average usage rates to lower their use of
noncontract standard formula, thereby increasing rebates. If the 19
agencies with higher-than-average noncontract standard use were able to
lower their usage rates to 3.3 percent (the average for 45 WIC agencies in
2002) rebates could have been increased by an estimated $13.8 million in
2002 (about 1 percent of annual rebate savings). These rebates could have
been used to provide additional program benefits to women, infants, and
children. (See appendix IV for an estimate of rebates foregone by each of
19 WIC agencies due to noncontract standard formula use in excess of 3.3
percent of all formula issued in February 2002; see appendix I for a
description of the method we used to estimate the amount of these rebate
dollars foregone.)

Knowing the reasons for the widely varying usage rates among the WIC
agencies for nonstandard infant formula could also provide an opportunity
to lower the usage rate of the higher costing formula and result in cost
savings. FNS is not routinely collecting from WIC agencies the data that
would allow it to monitor the effectiveness of WIC agencies in restricting
the use of nonstandard infant formula. As shown in table 4, the usage rate
reported by the 45 WIC agencies for nonstandard infant formula varied
significantly. We did not examine the cause of this variation because our


Page 25                       GAO-03-331 Reducing the Cost of WIC Infant Formula
              study focused on the use and cost of noncontract standard formula.
              However, the usage rate reported for nonstandard formula (6.4 percent) is
              nearly double that of noncontract standard formula, and nonstandard
              formula can be, on average, twice as expensive as noncontract standard
              formula. For example, nonstandard formula issued in Montgomery
              County, Ohio in December 2001 cost, on average, $19.00 per can compared
              to $9.48 per can for noncontract standard formula. If this cost differential
              exists nationally, agencies may be spending nearly four times as much on
              nonstandard formula as they are on noncontract standard formula.
              Potential topics on which to focus future studies of cost savings
              opportunities in the WIC program may thus include examining why
              nonstandard formula use varied so widely between WIC agencies, and
              what policies and practices were used by agencies that kept their use of
              nonstandard formula at below-average levels.


              Federal law requires WIC state agencies to contain the cost of purchasing
Conclusions   infant formula. In fiscal year 2001, FNS received $1.4 billion in rebates
              from the use of contract standard formula by infants participating in the
              WIC program. The $1.4 billion permitted FNS and the WIC agencies to
              provide WIC benefits to about 2.0 million additional participants. In
              February 2002, we found that 3.3 percent of infants received noncontract
              standard formula and 6.4 percent received nonstandard infant formulas for
              which there were no rebates. FNS has stated that almost all healthy
              infants, except those that are exclusively breastfed, can be issued contract
              standard infant formula without compromising an infant’s nutritional
              needs and that noncontract standard formula should only be issued in
              exceptional situations. Six state-level WIC agencies that we contacted
              have found it feasible to prohibit noncontract standard formula entirely.

              FNS is not routinely collecting from WIC agencies the data that would
              allow it to monitor the effectiveness of WIC agencies in restricting the use
              of noncontract standard or nonstandard infant formula. The wide variation
              among WIC agencies in the percentage of noncontract standard formula
              used suggests that there is potential for the WIC agencies with above-
              average usage to reduce their use of noncontract standard formula and
              thereby increase rebates received from infant formula manufacturers. For
              example, if the 19 WIC state agencies with above-average usage had been
              able to reduce their noncontract standard usage to the average of 3.3
              percent reported in February 2002, infant formula rebates would have
              been an estimated $13.8 million greater in 2002, which would have allowed
              the program to serve additional participants. Beyond the issue of
              noncontract standard formula use, we observed wide variations in the use


              Page 26                       GAO-03-331 Reducing the Cost of WIC Infant Formula
                  of nonstandard formulas—those special formulas for infants whose health
                  or dietary needs cannot be met through standard formulas. The usage
                  rates reported by WIC agencies are nearly twice as great and vary even
                  more for nonstandard formulas than for noncontract standard formula,
                  and nonstandard formulas can be much more expensive.


                  To effectively monitor the economical purchase of infant formula, we
Recommendations   recommend the Secretary of Agriculture direct the Administrator of the
                  Food and Nutrition Service to (1) require that WIC agencies develop and
                  regularly submit data on their use of noncontract standard infant formula,
                  and (2) work with WIC agencies with above-average usage rates of
                  noncontract standard formula to implement the best policies and practices
                  for reducing the level of use. Additionally, the Administrator should (1)
                  require that WIC agencies develop and regularly submit data on their use
                  of nonstandard formula, and (2) work with WIC agencies with above-
                  average use of nonstandard formula to implement the best policies and
                  practices for reducing nonstandard formula use.


                  We provided a draft of this report to the Department of Agriculture. FNS
Agency Comments   provided a written response, which is included as appendix V of this
                  report. In addition, FNS provided technical comments, which we
                  incorporated where appropriate. In its letter, FNS agreed with the
                  recommendations in the report and stated that it had recently started
                  collecting data that will facilitate the implementation of the
                  recommendations. However, FNS expressed concern that GAO’s survey
                  instrument may have been misinterpreted by WIC state agencies because
                  we used terms to describe types of infant formula that are different from
                  FNS’s terms. FNS believes this difference in terminology, and in particular
                  our use of the term nonstandard formula, may have resulted in WIC state
                  agencies’ overreporting the volume of nonrebated, nonstandard infant
                  formula purchased by WIC participants.

                  We used the term “nonstandard formula” in our report because we wanted
                  to capture the different types of special formulas for which states did not
                  receive rebates, and this term encompassed all the types of special
                  formula not under contract that the WIC agencies used and reported to us
                  in our infant formula survey. Our definition of nonstandard formula
                  includes both the Food and Drug Administration exempt and the special
                  nonexempt formulas that the WIC agencies provided, neither of which
                  were covered by a rebate contract as reported by the states. We do not
                  believe that the WIC agencies had difficulty interpreting our survey terms.


                  Page 27                       GAO-03-331 Reducing the Cost of WIC Infant Formula
We pretested our survey with officials in three states, which included a
discussion of their understanding of the definitions we employed. In
addition, after our preliminary analysis of survey responses, we contacted
officials in four WIC agencies with particularly high usage of nonstandard
formula to verify the correctness of the data they had provided. In three of
the four instances, state officials chose not to make any changes to the
data. Although one of the agencies adjusted their nonstandard formula
usage downward, the adjustment was not required due to difficulty in
interpreting our infant formula descriptions, but rather was because
agency officials neglected to subtract exclusively breastfed infants in their
reported data.

Despite these efforts, it is possible that the amount of nonstandard
formula use reported by some WIC agencies included the use of
nonexempt infant formulas that should have been covered by the agencies’
infant formula rebate contracts. Whether such instances occurred cannot
be determined from our survey data. However, if such instances did
occur, as FNS believes, this only reinforces the importance of our
recommendation that FNS effectively monitor the use of both noncontract
standard and nonstandard formulas, including those that are categorized
as nonexempt and exempt. Such monitoring would help to identify any
nonstandard, nonexempt formulas manufactured by a WIC agency’s rebate
contractor that should be covered by the agency’s rebate contract but are
not.


We are sending copies of this report to the Honorable Ann M. Veneman,
Secretary of Agriculture; Roberto Salazar, FNS Administrator; appropriate
congressional committees; and other interested parties. Please call me at
(202) 512-7215 if you or your staffs have any questions about this report.
Key contacts and staff acknowledgements for this report are listed in
appendix VI.




Marnie S. Shaul
Director, Education, Workforce
 and Income Security Issues




Page 28                       GAO-03-331 Reducing the Cost of WIC Infant Formula
             Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


             At the state level, the WIC program is administered through 88 state-level
             WIC agencies and a network of over 2,000 local agencies. The 88 state-
             level WIC agencies, which received program funding in fiscal year 2001,
             include agencies in all 50 states, the District of Columbia, American
             Samoa, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands,
             and 33 Indian Tribal Organizations. We obtained most of the data used to
             address our report objectives from the responses to a survey on the use of
             infant formula we sent out in June 2002 to 51 WIC agencies (48 states, the
             District of Columbia, the Navajo Nation tribal organization, and Puerto
             Rico). These agencies collectively represented over 97 percent of the WIC
             infant participants in fiscal year 2001 and they primarily relied on the
             competitively bid rebate contracts with infant formula manufacturers to
             comply with federal cost containment requirements for infant formula. All
             51 WIC agencies receiving our survey responded. However, some agencies
             were unable to answer every survey question due to the unavailability of
             some data.

             Of the 88 WIC agencies that received program funding in fiscal year 2001,
             we excluded 37 agencies from our survey. Seventeen were excluded
             because they were exempted from continuously operating a cost
             containment system for infant formula that is implemented in accordance
             with 7 CFR 246.16a, Infant Formula Cost Containment. Two WIC agencies,
             Mississippi and Vermont, were exempted because they did not use retail
             stores for distributing infant formula to their WIC participants. Mississippi
             uses a direct distribution delivery system under which participants pick up
             formula from storage facilities operated by the state or local agency.
             Vermont uses a home delivery system under which formula is delivered to
             the participant’s home. Fifteen Indian tribal organizations were exempted
             because they served 1,000 or fewer WIC participants. Another 20 WIC
             agencies (Guam, Virgin Islands, American Samoa, and 17 other Indian
             tribal organizations) we judgmentally excluded from our survey because
             they served fewer infant participants in fiscal year 2001 than Wyoming, the
             smallest WIC state agency.

             Our survey was necessary because data on the use of contract standard,
             noncontract standard and nonstandard infant formula by WIC agency was
             not available from FNS. In addition, some of the WIC agencies did not
             account for the number of infants receiving each type of formula. As a
             result, 3 of the 51 agencies we surveyed were unable to provide any data
             on the number of infants using each type of infant formula in February of
             2000, 2001, or 2002. Another 9 agencies could provide only partial data. Of
             the agencies that provided data on the number of infants using each type
             of formula in each of the three years, some had to estimate the number of


             Page 29                             GAO-03-331 Reducing the Cost of WIC Infant Formula
Appendix I: Scope and Methodology




infants receiving each type of formula based on the number of cans of
formula issued and still other agencies had to make special analyses of
computerized data that took up to two months to complete. We did not
independently verify the accuracy of the information these agencies
reported to us and we did not examine the effectiveness of their policies
or practices. However, when we completed our analysis of agency data we
did contact several agencies that had very low or very high usage of either
noncontract standard or nonstandard formula to verify the correctness of
the data they had provided. Several of these agencies provided us with
revised formula usage data in response to our inquiries.

Our survey was designed to determine, for each responding WIC agency,
the amount of infant formula use for infant participants based on the
number of infants that were issued three categories of formula—contract
standard, noncontract standard or nonstandard formula during the month
of February for the years 2000, 2001, and 2002. The number of infants
receiving the three categories of formula was determined to be a
reasonable proxy for the extent that infant formula was being used and it
was a common measure that could be obtained from most WIC agencies.
Also, we limited the infant use data collected and the amount of rebate
dollars received to just one month for each year to minimize the work
required by WIC agencies responding to our survey. We used the month of
February because that was the most current month in 2002 we could use
and still expect to receive information on the amount of rebate dollars
received or billed for, considering the lag time typically required for WIC
agencies to determine the amount of rebate dollars they will receive for a
given month for contract standard formula purchased.

In determining what research says about the extent that infants are
adversely affected by switching to a different brand of standard infant
formula intended for normal healthy babies, we performed an extensive
literature search and we used a question in our survey of 51 WIC agencies
to ask if they were aware of any studies or research that have addressed
how switching standard formulas affects infants. Also, considering the
possibility that changing infant formula manufacturers might lead to an
increase in the use of noncontract standard formula, we used another
survey question to ask each responding WIC agency to describe how
changing its contract to the current infant formula manufacturer may have
affected their infant participants’ use of noncontract standard infant
formula. In addition to conducting the survey, we discussed WIC infant
formula use with officials at WIC agencies and at FNS headquarters and
regional offices, and we reviewed relevant regulations and research.



Page 30                             GAO-03-331 Reducing the Cost of WIC Infant Formula
Appendix I: Scope and Methodology




To determine whether WIC agencies restricted the use of noncontract
standard formula, we primarily relied on the answers to a survey question
which asked what the WIC agency’s current policy was on the use of
noncontract standard formula, and we also obtained copies of the WIC
agencies’ policies pertaining to the use of noncontract standard formula.
To determine the extent that infants in the WIC program receive
noncontract standard formula we relied on a survey question which asked,
during the month of February in each of the years 2000, 2001, and 2002,
how many infants each WIC state agency provided with each of the three
categories of formula. First, the WIC agencies reported all infant formula
used for which rebates were received. In addition, they reported all infant
formula used for which no rebates were received, and this no-rebate-
received category was provided in two parts: noncontract standard
formula and nonstandard formula. Therefore, we assumed all
nonstandard formula reported to be noncontract formula, that is, not
included in contracts for rebates from infant formula manufacturers.

 In estimating the dollar effect of using noncontract standard formula, we
assumed that all infants that used noncontract standard formula could and
would have used contract standard formula if noncontract standard
formula had been prohibited from use. Also, assuming that the retail price
of contract and noncontract standard infant formula was the same, the
rebate dollars foregone would equal the net cost to the WIC agencies. To
estimate the dollar effect of using noncontract standard formula, we
multiplied the number of infants provided noncontract standard formula in
February 2002 for each of the 47 WIC agencies that provided data times
the average rebate received per infant by that agency to obtain the amount
of rebate dollars forgone. Computations made to estimate the rebate
dollars foregone by each of 19 WIC agencies with noncontract standard
use in excess of the 3.3 percent average for all agencies that reported data
in February 2002, are as follows: (1) we multiplied the total infants
receiving formula by 0.033 to obtain the number of infants required to
attain a 3.3 percent noncontract standard formula usage rate, (2) we
subtracted the number of infants required to attain a 3.3 percent
noncontract standard formula usage rate from the total infants that
received such formula to obtain the number of infants receiving
noncontract standard formula in excess of the 3.3 percent rate, and (3) we
multiplied the number of infants receiving noncontract standard formula
in excess of 3.3 percent by the average monthly rebate received per infant
using contract standard formula to obtain the number of rebate dollars
foregone. The total of all rebate dollars foregone by each agency in
February was multiplied by 12 to obtain an estimated annual effect of
using noncontract standard formula. This a conservative estimate because


Page 31                             GAO-03-331 Reducing the Cost of WIC Infant Formula
Appendix I: Scope and Methodology




February is the shortest month of the year. Data for these calculations
were derived from responses to survey questions.




Page 32                             GAO-03-331 Reducing the Cost of WIC Infant Formula
                                       Appendix II: Number of Infants That Received
Appendix II: Number of Infants That    Contract Standard, Noncontract Standard,
                                       and Nonstandard Formula


Received Contract Standard, Noncontract
Standard, and Nonstandard Formula
Table 6: Number of Infants That Received Contract Standard, Noncontract Standard, and Nonstandard Formula in February
2002 for 45 WIC Agencies

WIC agency                  Contract standard    Noncontract standard                 Nonstandard                     Total
Alabama                                 27,262                     704                       2,665                   30,631
Alaska                                   3,923                     134                          95                    4,152
Arizona                                 28,949                   1,408                       5,739                   36,096
Arkansas                                20,093                       8                       1,957                   22,058
California                            229,914                   11,149                       2,532                  243,595
Colorado                                12,785                     970                         608                   14,363
Connecticut                             11,248                     421                       1,067                   12,736
Delaware                                 2,776                     220                         233                    3,229
District of Columbia                     4,188                     210                          40                    4,438
Florida                                 65,086                   4,394                       4,613                   74,093
Georgia                                 60,557                     443                       5,653                   66,653
Hawaii                                   6,606                     184                         160                    6,950
Illinois                                61,516                   2,477                       3,022                   67,015
Indiana                                 31,452                   2,470                       2,637                   36,559
Iowa                                    12,527                     338                         588                   13,453
Kansas                                   9,885                     322                         422                   10,629
Kentucky                                21,922                   2,109                       2,666                   26,697
Louisiana                               35,658                     938                       3,059                   39,655
Maine                                    4,219                     137                         354                    4,710
Maryland                                24,613                     165                       1,486                   26,264
Massachusetts                          23,110                      344                       1,337                   24,791
Michigan                                45,745                   2,029                       1,227                   49,001
Minnesota                               20,095                     640                       1,366                   22,101
Navajo Nation                            2,793                       0                         128                    2,921
Nebraska                                 7,690                     236                         948                    8,874
Nevada                                  10,273                     225                          25                   10,523
New Jersey                              32,218                     462                         992                   33,672
New Mexico                              10,191                       0                         555                   10,746
New York                              117,385                    3,012                       8,413                  128,810
Ohio                                    54,761                   1,268                      13,918                   69,947
Oklahoma                                22,326                     655                       1,152                   24,133
Oregon                                  15,188                     617                         375                   16,180
Pennsylvania                            45,226                   2,951                       1,754                   49,931
Puerto Rico                             31,240                   4,378                      13,613                   49,231
Rhode Island                             3,615                     126                         262                    4,003
South Carolina                          26,177                     873                       2,036                   29,086
South Dakota                             3,158                     274                         376                    3,808
Tennessee                               38,607                       0                       3,059                   41,666
Texas                                 176,227                    2,582                       6,113                  184,922
Utah                                     8,375                     832                         554                    9,761
Virginia                                29,281                       0                       2,896                   32,177




                                       Page 33                            GAO-03-331 Reducing the Cost of WIC Infant Formula
                                                 Appendix II: Number of Infants That Received
                                                 Contract Standard, Noncontract Standard,
                                                 and Nonstandard Formula




 WIC agency                           Contract standard      Noncontract standard                       Nonstandard                             Total
 Washington                                       28,266                    1,390                               990                            30,646
 West Virginia                                    10,008                      730                               671                            11,409
 Wisconsin                                        22,107                      913                             1,009                            24,029
 Wyoming                                           1,509                      196                               156                             1,861
 Totals                                       1,460,750                    53,934                           103,521                         1,618,205
Source: GAO survey of WIC agencies.

                                                 Note: Idaho, Missouri, Montana, New Hampshire, North Carolina, and North Dakota are excluded
                                                 from this table because they either did not provide or did not completely provide these data for our
                                                 survey.




                                                 Page 34                                  GAO-03-331 Reducing the Cost of WIC Infant Formula
                                       Appendix III: Estimate of Rebates Foregone
Appendix III: Estimate of Rebates Foregone
                                       by WIC Agency



by WIC Agency

Table 7: Estimate of Rebates Foregone in February 2002 by 47 WIC Agencies

                                Number of infants    Average monthly rebate received      Amount of rebate foregone due to
                            receiving noncontract          per WIC contract standard                    use of noncontract
WIC agency                       standard formula                      formula infant                    standard formulaa
Alabama                                        704                             $90.10                              $63,431
Alaska                                         134                              60.68                                8,131
Arizona                                      1,408                              76.43                              107,614
Arkansas                                         8                              83.47                                  668
California                                 11,149                               70.08                              781,370
Colorado                                       970                              93.13                               90,337
Connecticut                                    421                              80.09                               33,716
Delaware                                       220                             101.77                               22,390
District of Columbia                           210                              66.62                               13,991
Florida                                      4,394                              72.13                              316,932
Georgia                                        443                              70.33                               31,154
Hawaii                                         184                              76.58                               14,090
Illinois                                     2,477                              80.49                              199,369
Indiana                                      2,470                              74.51                              184,045
Iowa                                           338                              72.80                               24,606
Kansas                                         322                              85.87                               27,652
Kentucky                                     2,109                              51.75                              109,146
Louisiana                                      938                              82.06                               76,970
Maine                                          137                              62.71                                8,591
Maryland                                       165                              80.29                               13,249
Massachusetts                                  344                              77.06                               26,508
Michigan                                     2,029                              84.16                              170,770
Minnesota                                      640                              82.43                               52,757
Navajo Nation                                    0                              57.06                                    0
Nebraska                                       236                              72.05                               17,004
Nevada                                         225                              74.84                               16,839
New Jersey                                     462                              51.64                               23,857
New Mexico                                       0                              68.74                                    0
New York                                     3,012                              72.13                              217,241
North Carolina                               1,565                              79.71                              124,742
North Dakota                                   203                              52.56                               10,670
Ohio                                         1,268                              77.63                               98,433
Oklahoma                                       655                              62.75                               41,100
Oregon                                         617                              73.05                               45,070
Pennsylvania                                 2,951                              78.80                              232,551
Puerto Rico                                  4,378                              92.94                              406,903
Rhode Island                                   126                              93.06                               11,726
South Carolina                                 873                              79.09                               69,046
South Dakota                                   274                              78.72                               21,570
Tennessee                                        0                              71.18                                    0




                                       Page 35                            GAO-03-331 Reducing the Cost of WIC Infant Formula
                                                                 Appendix III: Estimate of Rebates Foregone
                                                                 by WIC Agency




                                                   Number of infants              Average monthly rebate received             Amount of rebate foregone due to
                                               receiving noncontract                    per WIC contract standard                           use of noncontract
 WIC agency                                         standard formula                                formula infant                           standard formulaa
 Texas                                                          2,582                                        84.67                                     218,626
 Utah                                                             832                                        88.79                                      73,869
 Virginia                                                           0                                        41.81                                           0
 Washington                                                     1,390                                        67.26                                      93,485
 West Virginia                                                    730                                        76.82                                      56,081
 Wisconsin                                                        913                                        78.41                                      71,590
 Wyoming                                                          196                                        87.65                                      17,179
 Total                                                        55,702                                                                                $4,245,072
Source: GAO’s analysis of survey data provided by WIC state agencies.

                                                                 Note: Idaho, Missouri, Montana, and New Hampshire are excluded from this table because they
                                                                 either did not provide or did not completely provide these data for our survey.
                                                                 a
                                                                  Individual agency totals may differ from the multiplication of the figures in the preceding two columns
                                                                 due to rounding of those figures.




                                                                 Page 36                                  GAO-03-331 Reducing the Cost of WIC Infant Formula
                                                                 Appendix IV: Estimate of Rebates Foregone
Appendix IV: Estimate of Rebates Foregone                        Due to Above Average Use of Noncontract
                                                                 Standard Formula by WIC Agencies


Due to Above Average Use of Noncontract
Standard Formula by WIC Agencies
Table 8: Estimates of Rebates Foregone in February 2002 by 19 WIC Agencies Due to the Use of Noncontract Standard Infant
Formula Exceeding the 3.3 Percent Average of All Infants Receiving Formula

                                                                                                                                                 Amount of rebate
                                                                                Number of infants                                                  foregone due to
                                                                            receiving noncontract         Average monthly rebate              noncontract standard
                                                                                 standard formula               received per WIC             formula use in excess
                                     Noncontract standard                       exceeding the 3.3              contract standard                 of the 3.3 percent
                                                                                                                                                                   a
 WIC agency                        formula usage (percent)                        percent average                  formula infant                          average
 Arizona                                               3.9                                     217                         $76.43                           $16,573
 California                                            4.6                                   3,110                          70.08                           217,988
 Colorado                                              6.8                                     496                          93.13                            46,195
 Delaware                                              6.8                                     113                         101.77                            11,546
 District of Columbia                                  4.7                                      64                          66.62                             4,234
 Florida                                               5.9                                   1,949                          72.13                           140,573
 Illinois                                              3.7                                     266                          80.49                            21,370
 Indiana                                               6.8                                   1,264                          74.51                            94,150
 Kentucky                                              7.9                                   1,228                          51.75                            63,552
 Michigan                                              4.1                                     412                          84.16                            34,673
 Oregon                                                3.8                                      83                          73.05                             6,067
 Pennsylvania                                          5.9                                   1,303                          78.80                           102,704
 Puerto Rico                                           8.9                                   2,753                          92.94                           255,906
 South Dakota                                          7.2                                     148                          78.72                            11,677
 Utah                                                  8.5                                     510                          88.79                            45,271
 Washington                                            4.5                                     379                          67.26                            25,468
 West Virginia                                         6.4                                     354                          76.82                            27,157
 Wisconsin                                             3.8                                     120                          78.41                             9,413
 Wyoming                                              10.5                                     135                          87.65                            11,796
 Total                                                                                     14,903b                                                       $1,146,313
Source: GAO’s analysis of survey data provided by WIC state agencies.
                                                                 a
                                                                  Individual agency totals may differ from the multiplication of the figures in the preceding two columns
                                                                 due to rounding of those figures.
                                                                 b
                                                                 Total differs from the sum of the numbers in the column due to the rounding of those numbers.




                                                                 Page 37                                  GAO-03-331 Reducing the Cost of WIC Infant Formula
             Appendix V: Comments from the Department of Agriculture
Appendix V: Comments from the Department
of Agriculture




             Page 38                           GAO-03-331 Reducing the Cost of WIC Infant Formula
Appendix V: Comments from the Department of Agriculture




Page 39                           GAO-03-331 Reducing the Cost of WIC Infant Formula
                  Appendix VI: GAO Contacts and Staff
Appendix VI: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  Kay E. Brown, (202) 512-3674
Contacts          Daniel C. Jacobsen, (206) 287-4797


                  In addition to those named above, Chuck Novak, Stan Stenersen, and Ron
Acknowledgments   Wood made key contributions to this report. Luann Moy provided
                  important consultation on methodological issues for the WIC agency
                  survey.




(130118)
                  Page 40                           GAO-03-331 Reducing the Cost of WIC Infant Formula
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