[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Proposed Rules]
[Pages 43332-43335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14873]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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 

  Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / 
Proposed Rules  

[[Page 43332]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

RIN 0584-AD36


Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC): Miscellaneous Vendor-Related Provisions

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would amend the regulations governing the 
WIC Program to clarify issues that have arisen subsequent to the 
publication of the WIC Food Delivery Systems Final Rule on December 29, 
2000, and to strengthen further the requirements for State vendor 
management and infant formula cost-containment systems. The rule 
contains provisions that would prohibit a State agency from requiring 
an infant formula manufacturer to provide free formula, services, or 
other items in its infant formula cost-containment bid solicitation and 
contract; require that a State agency provide an abbreviated 
administrative review when a vendor receives a WIC civil money penalty 
as a result of a Food Stamp Program (FSP) disqualification; and expand 
the types of vendor information that a State agency may release for 
general program purposes.

DATES: To be assured of consideration, written comments must be 
postmarked on or before November 25, 2005.

ADDRESSES: The Food and Nutrition Service invites interested persons to 
submit comments on this proposed rule. Comments may be submitted by any 
of the following methods:
     Mail: Send comments to Patricia Daniels, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 528, Alexandria, Virginia 22302, (703) 
305-2746.
     Web site: Go to http://www.fns.usda.gov/wic. Follow the 
online instructions for submitting comments through the link at the 
Supplemental Food Programs Division Web site.
     E-Mail: Send comments to [email protected]. Include 
Docket ID Number 0584-AD36, Miscellaneous Vendor-Related Provisions 
Proposed Rule, in the subject line of the message.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    All comments submitted in response to this proposed rule will be 
included in the record and will be made available to the public. Please 
be advised that the substance of the comments and the identities of the 
individuals or entities submitting the comments will be subject to 
public disclosure. All written submissions will be available for public 
inspection at the address above during regular business hours (8:30 
a.m. to 5 p.m.), Monday through Friday.
    FNS also plans to make the comments publicly available by posting a 
copy of all comments on the FNS Web site at http://www.fns.usda.gov/wic.

FOR FURTHER INFORMATION CONTACT: Debra Whitford, Chief of the Policy 
and Program Development Branch, Supplemental Food Programs Division, at 
the address indicated above or at (703) 305-2746, during regular 
business hours (8:30 a.m.-5 p.m., Monday through Friday).

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

    This rule has been determined to be not significant and was not 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Roberto Salazar, 
Administrator, Food and Nutrition Service (FNS), has certified that 
this rule would not have a significant economic impact on a substantial 
number of small entities. This rule would modify language used in WIC 
infant formula rebate solicitations and contracts, as well as in vendor 
agreements. The effect of these changes would fall primarily on State 
agencies. Vendors authorized by the WIC Program to provide supplemental 
foods, some of which are small entities, could also be affected. 
However, the impact on small entities is expected to be minimal.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
FNS generally must prepare a written statement, including a cost 
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local or tribal 
governments, in the aggregate, or the private sector, of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of the UMRA generally requires FNS to identify and consider 
a reasonable number of regulatory alternatives and adopt the most cost-
effective or least burdensome alternative that achieves the objectives 
of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local and 
tribal governments or the private sector of $100 million or more in any 
one year. Thus, the rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Executive Order 12372

    The Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) is listed in the Catalog of Federal Domestic Assistance 
under 10.557. For the reasons set forth in the final rule in 7 CFR 
3015, Subpart V and related Notice (48 FR 29115), this program is 
included in the scope of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the following three 
categories called for under section (6)(b)(2)(B) of Executive Order 
13132.

[[Page 43333]]

Prior Consultation With State Officials

    Prior to drafting this rule, we consulted with State agencies at 
various times. Because the WIC Program is a State-administered, 
federally funded program, our regional offices have formal and informal 
discussions with State agencies on an ongoing basis regarding program 
implementation and policy issues. This arrangement allows State 
agencies to raise questions and provide comments that form the basis 
for discretionary decisions in this and other WIC Program rules. We 
have also received oral and written requests for policy guidance on the 
implications of the Food Delivery Systems Final Rule from State 
agencies that deliver WIC services. These questions have helped us make 
the rule responsive to concerns of State agencies.

Nature of Concerns and the Need To Issue This Rule

    The rule addresses the need to assure the soundness of infant 
formula rebate solicitations and contracts. With limited exceptions, 
all State agencies must continuously operate a cost containment system 
for infant formula. Some have also established similar cost containment 
measures for other supplemental foods, such as infant juice and cereal. 
As a result of these systems, State agencies receive over $1.5 billion 
annually in rebates on infant formula and other supplemental foods 
purchased by WIC participants. The rebates that State agencies receive 
allow them to maintain, and in some cases expand, program 
participation.
    Infant formula manufacturers have questioned the inclusion of 
requirements to provide free formula, services, or other items in 
infant formula bid solicitations. Receipt of free formula reduces the 
amount of formula that the State agency potentially could purchase 
under rebate contracts and may lower the level of rebate bids received. 
A lower rebate could lead to a reduction in the number of eligible 
persons that the WIC Program is able to serve. This rule would modify 
the requirements for rebate solicitations and contracts to address this 
issue and thereby promote the viability of infant formula cost 
containment systems.
    The rule also would address two issues affecting WIC vendors. 
First, State agencies have questioned the need to offer a full 
administrative review to vendors who receive a WIC civil money penalty 
as a result of FSP disqualification. State agencies are required to 
impose a civil money penalty when they determine that an authorized 
vendor that has been disqualified from the FSP is needed to ensure 
participant access to supplemental foods. In responding to this issue, 
the rule seeks to assure a vendor's right to due process while 
encouraging the most cost-effective use of State agency resources.
    In addition, while implementing the WIC Food Delivery Systems Final 
Rule, State agencies have sought approval to release basic vendor 
information that the rule designates as confidential. This proposed 
rule seeks to accommodate State agency requests to release such 
information, while preserving the overall confidentiality of vendor 
information.

Extent to Which We Will Meet Those Concerns

    The rule would substantially resolve the vendor management problems 
State agencies have identified. It increases a State agency's 
flexibility in conducting appeals of a civil money penalty imposed in 
lieu of reciprocal disqualification from the WIC Program, and in 
disclosing vendor information as part of sound program management. It 
also supports the integrity of State agency infant formula rebate 
systems by eliminating gratis provisions in infant formula cost-
containment contracts.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform, and is intended to have preemptive effect with respect 
to any State or local laws, regulations or policies which conflict with 
its provisions or which would otherwise impede its full implementation. 
This rule is not intended to have retroactive effect unless so 
specified in the EFFECTIVE DATE paragraph of the final rule. Prior to 
any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted.

Civil Rights Impact Analysis

    FNS has reviewed this proposed rule in accordance with Departmental 
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify and 
address any major civil rights impacts this rule might have on 
minorities, women, and persons with disabilities. All data available to 
FNS indicate that protected individuals have the same opportunity to 
participate in the WIC Program as non-protected individuals. FNS 
specifically prohibits State and local government agencies that 
administer the WIC Program from engaging in actions that discriminate 
based on race, color, national origin, sex, age or disability. 
Regulations at 7 CFR 246.8 specifically state that Department of 
Agriculture regulations on non-discrimination (7 CFR parts 15, 15a and 
15b) and FNS instructions ensure that no person shall on the grounds of 
race, color, national origin, age, sex, or disability be excluded from 
participation in, be denied benefits of, or be otherwise subjected to 
discrimination under the Program.
    Discrimination in any aspect of program administration is 
prohibited by these regulations, Department of Agriculture regulations 
on non-discrimination (7 CFR parts 15, 15a, and 15b), the Age 
Discrimination Act of 1975 (Pub. L. 94-135), the Rehabilitation Act of 
1973 (Pub. L. 93-112, section 504), and title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d). Enforcement action may be brought under 
any applicable Federal law. Title VI complaints shall be processed in 
accordance with 7 CFR part 15. Where State agencies have options, and 
they choose to implement a particular provision, they must implement it 
in such a way that it complies with the regulations at 7 CFR 246.8.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires that the Office of Management and Budget (OMB) approve 
all collections of information by a Federal agency from the public 
before they can be implemented. Respondents are not required to respond 
to any collection of information unless it displays a current valid OMB 
control number. This proposed rule contains no new information 
collection requirements that are subject to OMB approval. The existing 
recordkeeping and reporting requirements, which were approved under OMB 
control number 0584-0043, will not change as a result of this rule.

Government Paperwork Elimination Act

    FNS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies to provide 
the public the option of submitting information or transacting business 
electronically to the maximum extent possible.

Background on Vendor-Related Provisions

    On December 29, 2000, the WIC Food Delivery Systems Final Rule as 
published at 65 FR 83248, made major amendments to the WIC Program 
regulations in response to an increasing concern on the part of FNS, 
States, the

[[Page 43334]]

Office of the Inspector General, and Congressional reviewers that the 
WIC Program was vulnerable to abuse by vendors and participants. It was 
also believed that WIC could serve additional participants at no 
additional cost by eliminating the abuse. The WIC Food Delivery Systems 
Final Rule responded to this concern by providing detailed standards 
for effective vendor management systems, including mandatory selection 
criteria, training requirements, high-risk vendor identification 
criteria, and vendor monitoring requirements. As WIC State agencies 
consistently apply these standards, program accountability and 
efficiency in food delivery should increase.
    FNS postponed the implementation date of the rule from February 27, 
2002, to October 1, 2002, to give State agencies additional time to 
modify policies, procedures, and management information systems and to 
notify vendors and others affected by impending changes. Since that 
time, FNS has provided technical assistance and clarifications to State 
agencies regarding the rule's intent and requirements.
    This proposed regulation responds to vendor management issues that 
have arisen subsequent to the publication of the WIC Food Delivery 
Systems Final Rule. The limited provisions of this proposed rule are 
consistent with the objectives of the WIC Food Delivery Systems Final 
Rule. They promote sound vendor management practices and seek to 
maximize the funds available to State agencies for providing 
supplemental foods.

Background on Infant Formula Cost Containment

    In response to rising food costs in the 1980's and the desire to 
use their food grants more efficiently, several WIC State agencies 
initiated infant formula rebate systems. At the time, infant formula 
expenditures represented almost 40 percent of all WIC food costs, 
making infant formula rebates an important cost-containment strategy. 
Rebate savings amounted to just over $30 million in fiscal year 1988 
and grew to about $1.5 billion in fiscal year 2003. These rebate 
savings are a critical component of the WIC Program, allowing an 
additional two million participants (nearly one out of every four 
participants) to be served. Without these savings, millions of low-
income women, infants and children would not have the advantage of 
nutritious supplemental foods, nutrition education, and health care 
referrals provided by the WIC Program.
    Building on the success of voluntary State infant formula rebate 
systems, Public Law 100-460, the Department's fiscal year 1989 
appropriations act, required all WIC State agencies (except Indian 
State agencies with participation levels under 1,000) to explore the 
feasibility of cost-containment measures for infant formula and 
implement such measures where feasible. As a result of this mandatory 
legislative requirement, WIC State agencies with participation levels 
over 1,000 implemented infant formula cost-containment measures, 
primarily infant formula rebate systems.
    The passage of the Child Nutrition and WIC Reauthorization Act of 
1989 (section 123(a)(6) of Pub. L. 101-147) made this cost-containment 
requirement a permanent program feature. As a result, section 
17(h)(8)(A) of the Child Nutrition Act of 1966 (CNA), as amended (42 
U.S.C. 1786(h)(8)(A)), requires WIC State agencies to implement a 
competitive bidding system for the procurement of infant formula, or an 
alternate infant formula cost-containment measure that yields savings 
equal to or greater than savings generated by a competitive bidding 
system.
    Over time, infant formula cost-containment systems have changed 
considerably. Current rebate regulations were last updated through an 
interim rule published on August 23, 2000, at 65 FR 51213, which 
addressed a number of contracting issues and bid evaluation 
requirements. This proposed rule further strengthens the bid 
solicitation and contracting process for infant formula cost-
containment systems.

Gratis Provisions in Infant Formula Rebate Solicitations and Contracts 
(7 CFR 246.16a(j)(4))

    Over the past several years the Department has noticed an increase 
in the quantity of sample infant formula required in infant formula 
rebate solicitations and contracts. The Department is concerned not 
only with the increased quantity of sample infant formula required in 
rebate contracts, but also with contract requirements for other gratis 
items, such as educational materials, conference support, and supplies. 
Gratis provisions could have the effect of reducing rebate savings not 
only to individual State agencies, but also to the WIC Program 
nationally.
    Historically the Department has discouraged the inclusion of gratis 
provisions in infant formula rebate contracts, including requirements 
for free units of infant formula. We believe that such stipulations 
generate lower rebate bids, primarily because such extras are not 
``free''. Therefore, the proposed regulations at 7 CFR 246.16a(j)(4) 
would prohibit State agencies from issuing rebate bid solicitations or 
entering into rebate contracts that contain provisions requiring 
bidders to provide gratis products and services, such as sample infant 
formula.
    State agencies that provide sample infant formula to infants in 
limited situations, such as when trying to determine the specific 
infant formula to use to address a particular medical condition, may 
purchase reasonable quantities of sample formula for this purpose with 
WIC food funds.

Abbreviated Administrative Reviews (7 CFR 246.18(a)(1)(ii))

    The Department proposes to require a State agency to offer an 
abbreviated administrative review when a vendor appeals a WIC civil 
money penalty (CMP) imposed in lieu of a disqualification that stems 
from a FSP disqualification. Section 17(n) of the CNA and regulations 
at 7 CFR 246.12(l)(1)(vii) require a WIC State agency to disqualify a 
vendor who has been disqualified from the FSP, unless participant 
access would be jeopardized. The disqualification is not subject to 
administrative or judicial review under the WIC Program. If the State 
agency determines that the vendor is needed to ensure participant 
access to supplemental foods, the State agency must impose a CMP in 
lieu of a disqualification as provided in WIC regulations at 7 CFR 
246.12(l)(1)(ix). Under regulations at 7 CFR 246.18(a)(1)(i), the 
imposition of a CMP in lieu of disqualification is subject to a full 
administrative review.
    The Department believes that a CMP imposed in lieu of a reciprocal 
disqualification does not warrant a full administrative review. Rather, 
such action should be subject to an abbreviated administrative review 
because at issue are two factual questions only, namely, whether the 
vendor has been disqualified from the FSP and whether the State agency 
correctly calculated the amount of the CMP. Answers to these questions 
can easily be established within the context of an abbreviated review; 
thus, the expenditure of time and resources required to conduct a full 
administrative review is unwarranted. Offering an abbreviated review 
would be the more cost-effective means of honoring the vendor's due 
process protections.
    In addition to its cost-effectiveness, an abbreviated 
administrative review for a CMP based on a reciprocal WIC 
disqualification is consistent with the adverse actions for which WIC

[[Page 43335]]

regulations currently allow abbreviated reviews. Regulations at 7 CFR 
246.18(a)(1)(ii) identify adverse actions that are subject to 
abbreviated administrative reviews. This section specifies that the 
State agency must provide abbreviated administrative reviews to vendors 
who appeal a WIC disqualification that is based on a FSP CMP for 
hardship, as well as a WIC disqualification or CMP based on a mandatory 
sanction imposed by another WIC State agency. Imposition of a CMP in 
lieu of a reciprocal disqualification is similar to these adverse 
actions for which a State agency must provide an abbreviated review. 
Under the proposed revision, a State agency would retain the option to 
provide a full administrative review as stated in regulations at 7 CFR 
246.18(a)(1)(ii).

Confidentiality of Vendor Information (7 CFR 246.26(e))

    Regulations at 7 CFR 246.26(e) restrict the use or disclosure of 
information that individually identifies a vendor, except for the 
vendor's name, address and authorization status, to persons directly 
connected with the administration or enforcement of WIC or FSP; persons 
directly connected with the administration or enforcement of any 
Federal or State law; or vendors who are subject to an adverse action.
    This rule proposes to amend the regulations at 7 CFR 246.26(e) to 
expand the types of vendor information allowed for general release that 
would not be subject to confidentiality restrictions. This additional 
information would include a vendor's telephone number, Web site and e-
mail address, WIC identification number, and store type (e.g., retail, 
commissary, pharmacy, etc.). Allowing WIC State agencies to provide 
participants with vendors' telephone numbers and Web site and/or email 
addresses would assist participants with locating authorized vendors in 
their neighborhood or local service area. Knowing a vendor's store type 
also would enable participants to determine where to transact their 
food instruments.
    The proposed rule would also allow WIC State agencies to issue 
public notices of vendor disqualifications (including the length of 
disqualification and the reason for the disqualification) and to 
provide the information to authorized vendors and program participants. 
The FSP, which has such authority and periodically issues public 
notices on retailer disqualifications, has found that disclosing this 
information serves as a strong deterrent to retailer fraud and abuse. 
The Department believes that issuing public notices of WIC vendor 
disqualifications would deter vendor fraud and abuse in the WIC Program 
as well. Publicizing this information also would alert program 
participants when the WIC Program no longer authorizes a particular 
vendor.
    The Department considers this amendment to regulations at 7 CFR 
246.26(e) to be in the best interests of the Program. Notwithstanding 
this change, the Department continues to believe that limiting the use 
and disclosure of confidential vendor information encourages vendors to 
provide the information that State agencies need in order to authorize 
and monitor vendors and to maintain effective investigative techniques.

List of Subjects in 7 CFR Part 246

    Food assistance programs, Food donations, Grant programs--Social 
programs, Infants and children, Maternal and child health, Nutrition 
education, Public assistance programs, WIC, Women.

    Accordingly, 7 CFR part 246 is proposed to be amended as follows:

PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN

    1. The authority citation for Part 246 continues to read as 
follows:

    Authority: 42 U.S.C. 1786.

    2. In Sec.  246.16a:
    a. Amend paragraph (j)(2) by removing the word ``or'' at the end of 
the paragraph;
    b. Amend paragraph (j)(3) by removing the period at the end of the 
paragraph and adding in its place a semicolon followed by the word 
``or''; and
    c. Add paragraph (j)(4).
    The addition reads as follows:


Sec.  246.16a  Infant formula cost containment.

* * * * *
    (j) * * *
    (4) Require infant formula manufacturers to provide gratis infant 
formula, services, or other items.
* * * * *
    3. In Sec.  246.18, add a new paragraph (a)(1)(ii)(I) to read as 
follows:


Sec.  246.18  Administrative review of State agency actions.

    (a) * * *
    (1) * * *
    (ii) * * *
    (I) A civil money penalty imposed in lieu of disqualification based 
on a Food Stamp Program disqualification (Sec.  246.12(l)(i)(vii)).
* * * * *


Sec.  246.26  [Amended]

    4. In Sec.  246.26, amend the first sentence of the introductory 
text of paragraph (e) by removing the words ``and authorization 
status'' and by adding, in their place, the words ``, telephone number, 
website/email address, authorization status, WIC identification number, 
and disqualification information (including the length of the 
disqualification and the reason for the disqualification).''

    Dated: July 20, 2005.
Roberto Salazar,
Administrator, Food and Nutrition Service.
[FR Doc. 05-14873 Filed 7-26-05; 8:45 am]
BILLING CODE 3410-30-P