Infant Formula:

Cost Containment and Competition in the WIC Program

HRD-90-122: Published: Sep 27, 1990. Publicly Released: Sep 27, 1990.

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Pursuant to a congressional request, GAO provided information on infant formula cost-containment initiatives in the Special Supplemental Food Program for Women, Infants, and Children (WIC), focusing on the: (1) status of 86 WIC agencies' implementation of the initiatives; (2) effect of the initiatives on the cost of infant formula to the WIC program; and (3) structure of the infant formula industry and its effect on the initiatives.

GAO found that: (1) 61 WIC agencies contracted to obtain formula at a cost savings; (2) 57 WIC agencies implemented retail rebate contracts, of which 35 used the open-market rebate approach, 18 used the sole-source approach, 3 used the competitive multisource approach, and 1 used the preferred provider approach; (3) almost all agencies awarded their rebate contracts to one or both of the largest domestic infant formula manufacturers; (4) over fiscal year (FY) 1988 and FY 1989, infant formula rebates generated cumulative savings of about $326 million; (5) rebate savings supported an estimated 74,000 women, infants, and children per month in FY 1988 and an additional 400,000 WIC participants per month in 1989; (6) competitive bidding had the greatest effect on reducing after-rebate infant formula prices; (7) rebate amounts substantially varied over time and among agencies; and (8) to ensure that the three major domestic infant formula manufacturers don't coordinate pricing and marketing strategies, the Federal Trade Commission planned to conduct an inquiry focusing on pricing patterns in the infant formula industry.

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