Food Assistance: Potential to Serve More WIC Infants by Reducing 
Formula Cost (12-FEB-03, GAO-03-331).				 
                                                                 
The Department of Agriculture's Food and Nutrition Service (FNS) 
provided about $3 billion to state agencies in fiscal year 2001  
for food assistance, including infant formula, through its	 
Special Supplemental Nutrition Program for Women, Infants and	 
Children (WIC). Most infants receiving formula are given a milk- 
or soy-based standard formula. To stretch program dollars, each  
state WIC agency contracts with a single company for purchases of
that company's standard formula for which they receive rebates.  
These rebates totaled $1.4 billion in fiscal year 2001. Rebates  
do not apply to other companies' brands of standard formula	 
(noncontract standard formula) or to nonstandard formulas	 
designed to meet special medical or dietary conditions. GAO was  
directed to examine the extent that WIC agencies have restricted 
the use of noncontract standard formula to lower cost of the WIC 
program.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-331 					        
    ACCNO:   A06066						        
  TITLE:     Food Assistance: Potential to Serve More WIC Infants by  
Reducing Formula Cost						 
     DATE:   02/12/2003 
  SUBJECT:   Contracts						 
	     Food programs for children 			 
	     Food relief programs				 
	     Infants						 
	     Special Supplemental Nutrition Program		 
	     for Women, Infants and Children			 
                                                                 

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GAO-03-331

a

GAO United States General Accounting Office

Report to Congressional Committees

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

GAO- 03- 331

As of February 2002, all 51 of the state WIC agencies included in our
survey had policies to restrict the use of noncontract standard formula.
Three of the 51 agencies prohibited the use of this formula entirely. The
other 48 agencies restricted its use to specific situations, such as if
medically prescribed or if needed for religious reasons. Seven of these 48
agencies also set percentage limits, such as 4 percent of all standard
formula issued, on the use of noncontract standard formula.

fiscal year 2002, 3. 3 percent of the infants using formula in the WIC
program received a noncontract standard formula, while 90.3 percent
received the contract brand. The remaining 6.4 percent received a
medically prescribed nonstandard formula for special medical or dietary
needs. There

were wide variations between WIC agencies in the percentage of infants who
received noncontract standard formula, ranging from a low of zero, for the
3 agencies that prohibited its use, to 10. 5 percent. Likewise, the
percentage of infants receiving medically prescribed nonstandard formula
ranged from 0.2 percent to 27. 7 percent. FNS has not routinely collected
from WIC agencies the data that would allow it to monitor the
effectiveness of these agencies in

restricting the use of either noncontract standard or nonstandard infant
formula.

Buying noncontract standard formula brands cost the WIC program an
estimated $50.9 million in foregone rebates in fiscal year 2002. Although
it may be neither feasible nor desirable to prohibit all purchases of
noncontract standard formula, rebates would have increased by $13.8
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 Receiving Formula and the Percentage of Infants
Provided Noncontract Standard Formula, February 2002

National average for the percentage of infants using noncontract standard
formula

Percent

Source: GAO WIC agency survey data for February 2002.

0 1

2 3

4 5

6 7

8 9

10 Mich. P. R. Pa. Ga. Ill. Ohio Fla. N. Y. Tex. Calif.

4.6 1.4

2.3 5.9

1.8 3.7

0.7 5.9

8.9 4.1

FOOD ASSISTANCE

Potential to Serve More WIC Infants by Reducing Formula Cost

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 331. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Marnie Shaul at (202) 512- 7215 or shaulm@ gao. gov.
Highlights of GAO- 03- 331, a report to the

House and Senate Committees on Appropriations, Subcomittees on Agriculture

February 2003

The Department of Agriculture*s Food and Nutrition Service (FNS) provided
about $3 billion to state agencies in fiscal year 2001 for food

assistance, including infant formula, through its Special Supplemental
Nutrition Program for Women, Infants and Children (WIC). Most infants
receiving formula are given a milk- or soyIn based standard formula. To
stretch program dollars, each state WIC agency contracts with a single
company for purchases of that

company*s standard formula for which they receive rebates. These rebates
totaled $1.4 billion in fiscal year 2001. Rebates do not apply to other
companies* brands of standard formula (noncontract

standard formula) or to nonstandard formulas designed to meet special
medical or dietary conditions. GAO was directed to examine the extent that
WIC agencies have restricted the use of noncontract standard formula to

lower cost of the WIC program. GAO recommends several actions that FNS
take to assist some WIC agencies to reduce their use of noncontract brands
of standard formula and nonstandard formulas. In comments on a draft of
GAO*s report, FNS agreed with the

recommendations and stated that it had recently started collecting data
that will facilitate the

implementation of the recommendations.

Page i GAO- 03- 331 Reducing the Cost of WIC Infant Formula 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 Contents

Page ii 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 iii 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

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.

Page 1 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

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

United States General Accounting Office Washington, DC 20548

Page 2 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 3 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 4 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
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 Results in Brief

Page 5 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 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
Background

Page 6 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 agencies 3 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 7 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 8 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

Figure 1: Overview of Infant Formula Categories and Subcategories

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.

Source: GAO analysis of infant formula definitions.

Standard formula

Milk- or soy- based formulas intended for feeding full- term

healthy infants

Nonstandard formula

Specialized formulas designed to meet medical

and dietary needs that standard formulas will not satisfy (no rebate
contracts)

Contract standard formula

Standard formula covered by a rebate contract with a

particular manufacturer

Noncontract standard formula

Standard formula not covered by a rebate

contract

Page 9 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 10 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 SoyBased Formula, April 2002

Formula brand and type Average retail cost Rebate Net

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

to Restrict the Use of Noncontract Standard Formula

Page 11 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

WIC agency Prohibits use,

but with exceptions a Prohibits use, but with exceptions and with

quantitative limits Prohibits use

with no exceptions

Alabama X b 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 Pennsylvania X b

Page 12 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

WIC agency Prohibits use,

but with exceptions a Prohibits use, but with exceptions and with

quantitative limits Prohibits use

with no 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 13 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
milkbase 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 14 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 15 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

Nationally, 3. 3 percent of WIC infants using formula received noncontract
standard formula in February 2002, according to usage data reported by 45
WIC agencies that had these data. 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. (See fig. 2.) 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.

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

About 3 Percent of WIC Infants Receive Noncontract Standard Formula, but
Extent Varies Greatly Among WIC Agencies

90.3% Contract standard formula: covered by a rebate

6.4%

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

3.3%

Noncontract standard formula: not covered by a rebate

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

Page 16 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

The percentage of WIC infants receiving noncontract standard formula in
February 2002 ranged from a low of zero to a high of 10.5 percent, as
reported by the 45 agencies that provided this information. (See table 4.)
Four agencies (New Mexico, Tennessee, Virginia, and the Navajo Nation)
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

Agencies Showed Variation in Both Noncontract Standard and Nonstandard
Formula Use

Page 17 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. Our survey was designed to gather basic information about
noncontract standard formula usage in the absence of any available
information on this issue. FNS is not routinely collecting from WIC
agencies the data that

would allow it to monitor the effectiveness of these agencies in
restricting 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 Reasons for Variations Not

Fully Known, but Restrictiveness of Policies Plays a Role

Page 18 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 19 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.

The 3 agencies that set a low quantitative limit (2 or 3 percent of all
formula used) on the use of noncontract standard formula exceeded that
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
setting quantitative limits actually issued a somewhat greater portion of
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. Agencies with Low

Quantitative Limits on Noncontract Standard Formula Use Exceeded Them

Page 20 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

WIC agency Established quantitative limit, February 2002 Noncontract
standard infant 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.

It does not appear that a substantial amount of the noncontract standard
formula is issued for religious reasons. Religious concerns about contract
standard formula mainly involved the brands manufactured by a company,

whose formula contained ingredients or involved manufacturing processes
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.
Only Limited Issuance of

Noncontract Standard Formula for Religious Reasons Identified

Page 21 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

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. The studies we identified addressed such things as whether stool
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

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.

We identified two industry- sponsored studies that addressed how infants
are affected by switching between brands of standard formula. These
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). No Research Found

on Effects of Switching Brands of Standard Infant Formula

Research Identified Addresses Narrower Topics

Page 22 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.

FNS headquarters officials also were not aware of any research concluding
that infants show a strong preference for the first standard formula used.
However, FNS pointed out that because WIC state agencies typically
renegotiate rebate contracts every few years, many of the infants 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 Prior FNS
Review Found

No Evidence That Gradual Shift in Standard Formula Was Necessary

Page 23 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.

Considering the possibility that changing infant formula manufacturers
might lead to an increase in the use of noncontract standard formula, we
asked the WIC agencies we surveyed to consider how their most recent
change to a different infant formula manufacturer affected their use of
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. Observations from Some WIC Agencies on

Switching Contract Standard Formulas

Page 24 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
standard infant formula cost the WIC program $50.9 million annually in
lost rebates, an amount equal to about 3.7 percent of the rebates actually
received. This calculation assumes all infants using noncontract standard
formula would instead use contract standard formula. Each WIC infant

using noncontract standard formula instead of contract standard formula
results in the agency foregoing the rebate from the infant formula
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. Use of
Noncontract

Standard Formula Cost WIC about $51 Million in Lost Rebates

Page 25 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 26 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
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
aboveaverage 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 Conclusions

Page 27 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
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 aboveaverage
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
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.
Recommendations

Agency Comments

Page 28 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

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

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
statelevel 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
Appendix I: Scope and Methodology

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

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.

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

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-
rebatereceived 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

Appendix I: Scope and Methodology Page 32 GAO- 03- 331 Reducing the Cost
of WIC Infant Formula

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

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

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

Appendix II: Number of Infants That Received Contract Standard,
Noncontract Standard, and Nonstandard Formula Page 34 GAO- 03- 331
Reducing the Cost of WIC Infant 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.

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

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

Number of infants receiving noncontract

standard formula Average monthly rebate received

per WIC contract standard formula infant

Amount of rebate foregone due to use of noncontract standard formula a

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

Appendix III: Estimate of Rebates Foregone by WIC Agency

Appendix III: Estimate of Rebates Foregone by WIC Agency Page 36 GAO- 03-
331 Reducing the Cost of WIC Infant Formula

WIC agency Number of infants

receiving noncontract standard formula

Average monthly rebate received per WIC contract standard

formula infant Amount of rebate foregone due to use of noncontract

standard formula a

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.

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

Page 37 GAO- 03- 331 Reducing the Cost of WIC Infant Formula

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

WIC agency Noncontract standard formula usage (percent)

Number of infants receiving noncontract

standard formula exceeding the 3.3

percent average Average monthly rebate

received per WIC contract standard

formula infant Amount of rebate

foregone due to noncontract standard formula use in excess

of the 3.3 percent average a

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 14,903 b $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.

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

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

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 Acknowledgments

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

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

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

Acknowledgments Contacts Acknowledgments

(130118)

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