WIC Program
More Detailed Price and Quantity Data Could Enhance Agriculture's Assessment of WIC Program Expenditures Gao ID: GAO-06-664 July 28, 2006The Special Supplemental Nutrition Program for Women, Infants and Children (WIC), authorizes retail grocers, called regular WIC vendors, to provide the food benefit. Recently, some states have seen an increase in vendors called WIC-only vendors, who stock only WIC food and accept only WIC vouchers. Both vendor types accept WIC vouchers in exchange for a cash payment, or redemption, from WIC state agencies with U.S. Department of Agriculture (USDA) grant funds. To determine what effect WIC-only vendors' growth would have on program expenditures, in the absence of recent cost containment legislation, Congress asked GAO (1) what is known about WIC-only vendors' growth and their share of the WIC market in recent years, (2) to what extent do WIC-only and regular WIC vendors differ, and (3) what would WIC-only vendors' contribution to WIC program expenditures have been, if their market share increased. GAO analyzed national WIC vendor data, interviewed WIC state officials about vendors' business practices, and analyzed redemption data from California, Texas and Florida.
The number of WIC-only vendors has tripled since 1999, with growth concentrated in a few states. However, WIC-only vendors' share of the national WIC market was relatively small compared to that of regular WIC vendors in 2004. Nationally, WIC-only vendors increased in number from 394 in 1999 to 1,180 in 2004, but 84 percent of these vendors are in California, Texas, and Florida. Despite their growth, WIC-only vendors accounted for 3 percent of all WIC vendors nationwide, and their market share, that is, their percentage of all WIC redemptions nationally, was on average 6 percent in 2004. Because of limitations in the data, we were unable to calculate annual growth rates or analyze changes in market share over time. WIC-only and regular WIC vendors generally employed different business and marketing practices, largely in response to the two different customer groups they served, according to WIC state agency officials. Because WIC participants are not required to consider retail prices, WIC-only vendors competed for participants' business by emphasizing customer service, which participants seemed to value. On the other hand, regular WIC vendors served non-WIC consumers as well as WIC participants. Because these non-WIC consumers are price sensitive, regular WIC vendors competed for their business based on price and competitors' behavior. An important difference in these approaches was that because WIC participants were not price sensitive, they might choose the service offered by WIC-only vendors, regardless of price. Finally, WIC-only and regular WIC vendors used similar food purchasing practices, because the cost of food purchased for resale is related more to the volume purchased than to the type of vendor purchasing the food. Both WIC-only and regular WIC vendors were able to lower the average cost of food purchased for resale when they bought in volume, according to WIC state agency officials. If WIC-only vendors' market share in 2004 had doubled in California, Texas, and Florida, either about 3 percent--about 136,000--fewer participants could have been served in each state, or program food expenditures would have increased about 3 percent--about $50 million--according to our scenario estimates. The average value of all vouchers redeemed by WIC-only vendors in 2004 was higher than the average value of all vouchers redeemed at regular WIC vendors. Thus, if the number of vouchers redeemed by WIC-only vendors had increased and state food expenditures remained at 2004 levels, fewer vouchers could have been issued, and fewer participants served. Conversely, if the number of vouchers issued remained at 2004 levels, the higher average value of vouchers redeemed at WIC-only vendors would have resulted in increased program expenditures. However, the price and quantity of the individual food items that make up the vouchers were not available to us; therefore we could not determine if the higher average value of vouchers meant that prices for individual food items were higher at WIC-only vendors. Making price comparisons would require food item price and quantity data for both WIC-only and regular WIC vendors, at a minimum.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-664, WIC Program: More Detailed Price and Quantity Data Could Enhance Agriculture's Assessment of WIC Program Expenditures
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
July 2006:
WIC Program:
More Detailed Price and Quantity Data Could Enhance Agriculture's
Assessment of WIC Program Expenditures:
WIC-Only Vendors:
GAO-06-664:
GAO Highlights:
Highlights of GAO-06-664, a report to congressional requesters
Why GAO Did This Study:
The Special Supplemental Nutrition Program for Women, Infants and
children (WIC), authorizes retail grocers, called regular WIC vendors,
to provide the food benefit. Recently, some states have seen an
increase in vendors called WIC-only vendors, who stock only WIC food
and accept only WIC vouchers. Both vendor types accept WIC vouchers in
exchange for a cash payment, or redemption, from WIC state agencies
with U.S. Department of Agriculture (USDA) grant funds. To determine
what effect WIC-only vendors‘ growth would have on program
expenditures, in the absence of recent cost containment legislation,
you asked GAO (1) what is known about WIC-only vendors‘ growth and
their share of the WIC market in recent years, (2) to what extent do
WIC-only and regular WIC vendors differ, and (3) what would WIC-only
vendors‘ contribution to WIC program expenditures have been, if their
market share increased. GAO analyzed national WIC vendor data,
interviewed WIC state officials about vendors‘ business practices, and
analyzed redemption data from California, Texas and Florida.
What GAO Found:
The number of WIC-only vendors has tripled since 1999, with growth
concentrated in a few states. However, WIC-only vendors‘ share of the
national WIC market was relatively small compared to that of regular
WIC vendors in 2004. Nationally, WIC-only vendors increased in number
from 394 in 1999 to 1,180 in 2004, but 84 percent of these vendors are
in California, Texas, and Florida. Despite their growth, WIC-only
vendors accounted for 3 percent of all WIC vendors nationwide, and
their market share, that is, their percentage of all WIC redemptions
nationally, was on average 6 percent in 2004. Because of limitations in
the data, we were unable to calculate annual growth rates or analyze
changes in market share over time.
WIC-only and regular WIC vendors generally employed different business
and marketing practices, largely in response to the two different
customer groups they served, according to WIC state agency officials.
Because WIC participants are not required to consider retail prices,
WIC-only vendors competed for participants‘ business by emphasizing
customer service, which participants seemed to value. On the other
hand, regular WIC vendors served non-WIC consumers as well as WIC
participants. Because these non-WIC consumers are price sensitive,
regular WIC vendors competed for their business based on price and
competitors‘ behavior. An important difference in these approaches was
that because WIC participants were not price sensitive, they might
choose the service offered by WIC-only vendors, regardless of price.
Finally, WIC-only and regular WIC vendors used similar food purchasing
practices, because the cost of food purchased for resale is related
more to the volume purchased than to the type of vendor purchasing the
food. Both WIC-only and regular WIC vendors were able to lower the
average cost of food purchased for resale when they bought in volume,
according to WIC state agency officials.
If WIC-only vendors‘ market share in 2004 had doubled in California,
Texas, and Florida, either about 3 percent”about 136,000”fewer
participants could have been served in each state, or program food
expenditures would have increased about 3 percent”about $50
million”according to our scenario estimates. The average value of all
vouchers redeemed by WIC-only vendors in 2004 was higher than the
average value of all vouchers redeemed at regular WIC vendors. Thus, if
the number of vouchers redeemed by WIC-only vendors had increased and
state food expenditures remained at 2004 levels, fewer vouchers could
have been issued, and fewer participants served. Conversely, if the
number of vouchers issued remained at 2004 levels, the higher average
value of vouchers redeemed at WIC-only vendors would have resulted in
increased program expenditures. However, the price and quantity of the
individual food items that make up the vouchers were not available to
us; therefore we could not determine if the higher average value of
vouchers meant that prices for individual food items were higher at WIC-
only vendors. Making price comparisons would require food item price
and quantity data for both WIC-only and regular WIC vendors, at a
minimum.
What GAO Recommends:
GAO recommends that the USDA Secretary require, if collecting detailed
information on WIC food purchases is cost-effective through electronic
benefits transfer, that WIC state agencies collect data on the price
and quantity of each food item purchased. USDA generally agreed with
our findings.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-664].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Cynthia Fagnoni at (202)
512-7215 or fagnonic@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
WIC-Only Vendors Increased in Number during Fiscal Years 1999-2004,
although Their Market Share Remained Relatively Small in Fiscal Year
2004:
WIC-Only Vendors and Regular WIC Vendors' Business and Marketing
Practices Differ in Their Approach to Customer Service and Price:
We Estimated That Program Participation Would Have Decreased by about
136,000 WIC Participants or Expenditures Would Have Increased by About
$50 Million if WIC-Only Vendors' Market Share Had Doubled in 2004:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Number of WIC-Only Vendors, Fiscal Years 1999-2004:
Appendix III: Average Monthly Redemptions per WIC-Only Vendor by State
in Fiscal Year 2004:
Appendix IV: WIC Vouchers Most Frequently Used at WIC-Only and Regular
WIC Vendors in California, Texas and Florida:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Number of WIC-Only Vendors by State, Fiscal Years 1999 and
2004:
Table 2: Estimated Change in the Number of Participants Served if WIC-
Only Vendors' Market Share Increased while Program Expenditures Were
Held Constant at Fiscal Year 2004 Levels:
Table 3: Difference between the Average Value of WIC-Only and Regular
WIC Vendor Food Vouchers in 2004 and the Market Share of WIC-Only
Vendors in California, Texas, and Florida:
Table 4: Change in Program Expenditures if WIC-Only Vendors' Market
Share Increases while Maintaining the Total Number of Food Vouchers at
Fiscal Year 2004 Levels:
Table 5: Time Periods Other than Monthly That WIC State Agencies Used
in Reporting Fiscal Year 2004 Redemption Data to FNS:
Table 6: Example of Application of Model to Actual Data for California:
Table 7: Example of Calculation of WIC-Only and Regular WIC Vendors'
Number and Average Value of Food Vouchers for California:
Table 8: Example Calculation of Decline in Number of Participants for
California:
Table 9: Results of the Calculation of WIC-Only and Regular WIC
Vendors' Number and Average Value of Food Vouchers for California,
Texas, and Florida:
Table 10: Results of the Calculation of Decline in Number of
Participants for California, Texas, and Florida:
Table 11: Results of Allowing Program Food Expenditures to Increase for
California, Texas, and Florida:
Figures:
Figure 1: Sample Voucher from California:
Figure 2: National Total of WIC-Only Vendors:
Figure 3: Share of Total WIC-Only Vendors Nationwide by State and the
Top Three Metropolitan Areas in 2004:
Figure 4: Percentage of Total WIC Vendors Represented by Each Vendor
Type, Nationwide and in Select States:
Figure 5: Average Monthly WIC Redemptions per Vendor in 2004, by Vendor
Type:
Figure 6: Share of Total Average Monthly WIC-Only Redemptions by State
in 2004:
Figure 7: Available WIC Food Items at WIC-Only Vendor in Texas:
Figure 8: Interior of WIC-Only Vendor in California:
Figure 9: Proximity of WIC-Only Vendor to WIC Clinic in Texas:
Figure 10: Sample WIC-Only Vendor Promotional Flyer:
Figure 11: Marquee of WIC-Only Vendor in Florida:
Figure 12: Example of the Average Value of Food Vouchers Redeemed by a
WIC-Only Vendor:
Figure 13: Example of Hypothetical Vouchers Specifying Price and
Quantity:
Figure 14: Average Monthly Redemptions per WIC-Only Vendor by State in
Fiscal Year 2004:
Figure 15: Most Frequently Used Vouchers for WIC-Only, Regular and
State Total for California, 2004:
Figure 16: Most Frequently Used Vouchers for WIC-Only, Regular and
State Total for Texas, 2004:
Figure 17: Most Frequently Used Vouchers for WIC-Only, Regular and
State Total for Florida, 2004:
Abbreviations:
EBT: electronic benefits transfer:
FNS: Food and Nutrition Service:
GIS: geographic information system:
IOM: Institute of Medicine:
ITO: Indian Tribal Organization:
MSA: metropolitan statistical area:
TIP: The Integrity Profile:
USDA: U.S. Department of Agriculture:
WIC: Special Supplemental Nutrition Program for Women,
Infants, and Children:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 28, 2006:
The Honorable Tom Harkin:
Ranking Democratic Member:
Committee on Agriculture, Nutrition and Forestry:
United States Senate:
The Honorable Herb Kohl:
Ranking Democratic Member:
Subcommittee on Agriculture, Rural Development and Related Agencies:
Committee on Appropriations:
United States Senate:
Each month, the Special Supplemental Nutrition Program for Women,
Infants, and Children, better known as WIC, provides nutritious food,
nutrition education, and referrals to health care to more than 8
million low-income women, infants, of Agriculture's (USDA) Food and
Nutrition Service (FNS) through WIC state and local agencies that
implement the program and manage the food delivery system. WIC is a
discretionary program, as Congress does not set aside funds to allow
every eligible individual to participate, and was funded at a level of
more than $5 billion in fiscal year 2005.
In most states, WIC participants receive vouchers to exchange for food
from authorized retail grocery stores that are known as WIC vendors in
the program.[Footnote 1] These vouchers provide participants with a
prescribed type and quantity of supplemental WIC foods tailored to
their health needs, such as infant formula, milk, and peanut butter.
Participants generally are not required by the federal WIC program to
obtain all items on a voucher. However, they may not use the voucher to
purchase items that are not listed on it. Because participants receive
food in exchange for their vouchers, without exchanging any cash, their
purchasing decisions are not price sensitive, that is, they do not need
to consider the prices WIC vendors charge for the items.[Footnote 2]
The vendors, which include independent stores as well as national and
local chains, accept the vouchers and exchange them for a cash payment,
or redemption, from the WIC state agency. Until recently, retail
grocery stores that commonly carry a variety of foods including
supplemental WIC foods--or regular WIC vendors, as they are referred to
in this report--represented 98 percent or more of the stores each WIC
state agency authorized as WIC vendors. However, beginning in about
fiscal year 2000, some WIC state agencies noticed an increase in
another type of authorized vendor in the WIC vendor market, one that
sells only WIC-authorized food items to program participants and
accepts only WIC vouchers. Prior to changes introduced by the Child
Nutrition and WIC Reauthorization Act of 2004, these vendors were
called WIC-only vendors.[Footnote 3] With data reported by the WIC
state agencies, FNS has tracked WIC-only vendors' redemptions since
1998, but little else is known at the national level about the
percentage of total WIC redemptions that WIC-only vendors are
receiving, that is, their market share, or about their business
practices.
Questions have been raised about whether WIC-only vendors charge higher
prices than other vendors and therefore will place a higher demand on
overall program expenditures over time. If so, the WIC program may need
to restrict program participation or seek additional funding. Concerned
about the potential consequences of increasing claims on program funds,
in fiscal year 2004, Congress established cost containment provisions
to ensure that the WIC program is not charged more for food items
obtained at WIC-only vendors than it would be for the same items at
regular WIC vendors.[Footnote 4] Also, in fiscal year 2005, Congress
prohibited the payment of administrative funds to any state agency that
authorized any new WIC-only vendors, unless deemed necessary to ensure
participant access, for 2 years.[Footnote 5] To determine what the
effect of WIC-only vendors' growth on WIC program expenditures would
have been without the recent cost containment changes and the
prohibition on authorizing new vendors, and to better understand how
they do business, you asked us (1) what is known about WIC-only
vendors' growth and their share of the WIC market in recent years, (2)
to what extent do the business and marketing practices of WIC-only and
regular WIC vendors differ, and (3) what would WIC-only vendors'
contribution to WIC program expenditures have been if their market
share increased.
To find out what is known about WIC-only vendors' growth and their
share of the WIC market in recent years, we analyzed data from FNS's
administrative data files on the national WIC vendor population--The
Integrity Profile (TIP)--for fiscal years 1999-2004 to determine the
number and distribution of WIC-only vendors. We focused exclusively on
data from the 50 states and the District of Columbia, and excluded from
our analysis any vendor type other than WIC-only vendors and regular
WIC vendors.[Footnote 6] To determine WIC-only vendors' share of the
WIC market, we analyzed redemption data for an average month in fiscal
year 2004 from FNS's regional office files.[Footnote 7] However,
because TIP does not record when vendors enter or exit the WIC program,
but instead records any vendor that participated in WIC during the
fiscal year, it may overstate the number of vendors in operation at any
point in time. As a result, we calculated the number of WIC-only
vendors in the program each year, but we were unable to determine
percentage-based growth from year to year. In addition, because
national redemption data for fiscal years 1999-2004 did not meet GAO's
data reliability standards, we could not use these data to analyze
changes in WIC-only vendors' share of the WIC market over time.
However, the fiscal year 1999-2004 TIP data on the number of vendors
and FNS regional office redemption data were sufficiently reliable for
our purposes.[Footnote 8]
To determine the difference in WIC-only vendors and regular WIC
vendors' business and marketing practices, we interviewed WIC state
agency officials in seven of the eight states that had authorized more
than 10 WIC-only vendors in fiscal year 2004: Alabama, Arkansas,
California, Florida, Georgia, North Carolina, and Texas.[Footnote 9] To
complement these telephone interviews, we visited 4 WIC-only vendors
and 4 regular WIC vendors in California, Texas, and Florida, for a
total of 24 site visits. Our vendor selection criteria included urban
and rural locations, years in operation, and redemption practices. WIC
state officials' accounts and the site visits to vendors provided
insight into the distinctions in WIC-only and regular WIC vendors'
business behavior, but were not quantifiable or applicable beyond the
states and vendors they represented.
To calculate the contribution of WIC-only vendors to WIC program
expenditures, we obtained administrative data from the California,
Texas, and Florida WIC state agencies on the redemption value for every
voucher redeemed in those states in fiscal year 2004. We selected these
three states because they represent more than 80 percent of the
national WIC-only vendor market. Because we needed data on both the
price and the quantity of WIC food items purchased from WIC-only and
regular WIC vendors to isolate the effect of WIC-only vendors' prices
on program expenditures, and both of those data elements were not
available from any existing data source, we developed a scenario
analysis that used redemption data.[Footnote 10] We used the redemption
data to determine the actual number of vouchers redeemed and to
calculate the average value of all vouchers redeemed in each of the
states by WIC-only and by regular WIC vendors. We applied the number of
vouchers redeemed and the average value of all vouchers redeemed to the
scenario analysis to estimate the effect on program participation and
expenditures of successive increases in WIC-only vendors' market share.
However, because redemption data do not break out the price and
quantity of the individual food items on each voucher, we could not
determine whether prices of individual food items were higher at WIC-
only vendors than at regular WIC vendors. Thus, even though we were
able to calculate the average value of all vouchers redeemed by both
types of vendors, we were not able to explain why the values may have
been different.
Appendix I provides a detailed description of our methodology and its
limitations. We conducted our work from April 2005 through June 2006 in
accordance with generally accepted government auditing standards.
Results in Brief:
The number of WIC-only vendors has grown substantially in recent years.
However, their location is concentrated in a few states, and their
share of the national WIC market remained small in 2004. The number of
WIC-only vendors in operation at any point during the fiscal year
increased from 394 in 1999 to 1,180 in 2004. WIC-only vendors are
concentrated geographically: in 2004, 84 percent of all WIC-only
vendors operated in California, Texas, or Florida, home to nearly a
third of all WIC participants. Moreover, nearly half were located
within three metropolitan areas: Los Angeles, California; Riverside,
California; and Miami, Florida. Notwithstanding the increase in WIC-
only vendors, in 2004 they represented only 3 percent of the
approximately 45,000 WIC vendors nationwide. Although we could not
determine the growth of WIC-only vendors' market share over time, WIC-
only vendors generated 6 percent of business in the WIC market on an
average monthly basis in 2004, compared to the 94 percent generated by
regular WIC vendors. However, on an individual store basis, WIC-only
vendors redeemed about twice the monthly average redemption value of
regular WIC vendors.
WIC-only and regular WIC vendors used different business models,
reflecting, for the most part, the different customer groups they
served, according to WIC state agency officials. Because WIC
participants are not price sensitive, WIC-only vendors competed for
their business by structuring their stores to emphasize customer
service, which participants seemed to value. For example, to simplify
the WIC food purchase, officials pointed out that WIC-only vendors
often gathered the food items listed on the voucher for WIC
participants from food maintained behind a counter. This practice
eliminated the stigma participants may feel because of backups in
regular WIC vendors' checkout lines when they select an unauthorized
food item. WIC-only vendors, we were told, also tended to locate near
WIC clinics, places that were very accessible to WIC participants.
However, regular WIC vendors, who served non-WIC consumers as well as
WIC participants, focused their businesses on their non-WIC customers,
state officials told us. Because these non-WIC consumers are price
sensitive, regular WIC vendors competed for their business based on
price and competitors' behavior. For example, regular WIC vendors made
location decisions based on their broader customer base and often used
price-based incentives, such as "buy-one-get-one-free" offers,
specials, or discount cards to appeal to their non-WIC, price sensitive
customers. An important difference in these approaches was that because
WIC participants were not price sensitive, they might take advantage of
the service offered by WIC-only vendors, even if their prices were
somewhat higher. In contrast to the vendors' different customer service
and marketing practices, state officials told us that both WIC-only and
regular WIC vendors are able to lower the average cost of food they
purchase for resale when they buy in volume, according to a majority of
WIC state agency officials interviewed, by expanding from one outlet to
a chain or forming consortia. However, we did not analyze the effect of
decreasing food-purchasing costs on WIC-only and regular WIC vendors'
food prices.
If WIC-only vendors' market share in 2004 had doubled in California,
Texas, and Florida, either program participation would have decreased
by about 3 percent--about 136,000 participants--or program food
expenditures would have increased about 3 percent--about $50 million--
according to our scenario estimates. Our estimates showed that the
average value of all vouchers redeemed by WIC-only vendors in 2004 was
higher than the average value of all food vouchers redeemed at regular
WIC vendors: $0.87 higher in California, $9.83 higher in Texas, and
$4.42 higher in Florida. As a result, if the number of food vouchers
redeemed by WIC-only stores had increased and total expenditures
remained fixed at 2004 levels, fewer vouchers could have been issued
and fewer participants could have been served. Conversely, if the total
number of vouchers issued to participants remained at the 2004 level,
the higher average value of vouchers redeemed at WIC-only vendors'
would have resulted in increased program expenditures. However, because
we used the average value of all food vouchers in our analysis without
knowing the price or quantity of the individual food items that made up
the vouchers, we could not determine if the higher average value meant
that prices for individual food items were higher at WIC-only vendors.
WIC-only vendors' higher average value of redeemed vouchers could mean
that they charge higher prices for WIC food but could also mean that
WIC-only vendors' customers are more likely to select all of the food
items on their vouchers. Making price comparisons would require both
food item price and quantity data for WIC-only and regular WIC vendors,
at a minimum.
To assist WIC state agencies in more effectively monitoring WIC
vendors' redemption practices, in implementing the new cost containment
requirements, and in analyzing program expenditures, we are
recommending that the Secretary of Agriculture require, if collection
of more detailed information on WIC food purchases is cost-effective
through electronic benefits transfer (EBT) implementation, that WIC
state agencies collect data on both the price and the quantity of each
WIC food item purchased, especially in each state that authorizes WIC-
only vendors. In oral comments on a draft of this report, FNS officials
generally agreed that our methodology was reasonable, given data
limitations, and did not dispute our findings. However, officials did
not believe that the small-scale study we recommended in the draft they
read would be cost-effective or necessary, because of the difficulty in
collecting price and quantity data under the current system and because
state agencies already are required to collect shelf price data and
redemption data from authorized vendors. We acknowledged that USDA's
research funds are limited and that its research agenda is full.
However, we maintained that because the cost containment provisions are
complex, it is important for FNS to monitor state agencies'
implementation of the provisions closely, to help ensure that program
expenditures are in fact contained. In response, we removed our
recommendation for further study and further clarified our
recommendation for collection of data on both the price and the
quantity of WIC food items purchased under a cost-effective EBT system.
Background:
WIC aims to protect the health of low-income women, infants, and young
children who are at nutritional risk by providing nutritious foods to
supplement diets, information on healthy eating, and referrals to
health care at no charge to participants. Permanently established in
1974, WIC serves more than 8 million participants each month, including
women who are pregnant, postpartum, or breastfeeding;
infants under the age of 1; and children under the age of 5, the
largest category of participants. To participate in the program,
eligible applicants must meet income guidelines, be deemed
nutritionally at risk by a health professional (e.g., having a poor
diet, low weight, or anemia), and must apply in the state in which they
reside.
In fiscal year 2005, the federal government spent over $5 billion on
WIC. WIC is not an entitlement program that allows every eligible
individual to participate; rather, it is a federal discretionary grant
program for which Congress authorizes a specific amount of funds each
year. At the federal level, WIC is administered by FNS, which provides
grants to WIC state agencies for food and for nutrition services and
administration. The nutrition services and administration grant covers
the cost of certifying participants and determining nutrition risks;
providing outreach and nutrition education services, including
breastfeeding promotion; and printing vouchers and administering the
food delivery system. FNS also determines WIC program policy and
guidance, provides technical assistance to the WIC state agencies and
sponsors research on program issues. In turn, WIC state agencies
operate the program through thousands of local agencies and clinic
sites. The 90 WIC state agencies include 50 state health departments,
as well as those of the District of Columbia, 34 Indian Tribal
Organizations, and five U.S. territories (Northern Mariana, American
Samoa, Guam, Puerto Rico, and the Virgin Islands).
How the Retail Food Delivery System Works:
In most WIC state agencies, WIC participants receive vouchers to
purchase supplemental food in appropriate amounts tailored to their
health needs from authorized retail stores, known as vendors in the WIC
program.[Footnote 11] Vouchers prescribe food that is high in nutrients
found to be lacking in a participant's diet, such as milk, cereal, and
eggs, and are adapted from a set of federally established food packages
that differ according to participant type (e.g., infants or pregnant
woman). Each WIC state agency designs its own vouchers and usually
issues vouchers that contain a combination of WIC food items. For
example, one frequently used voucher contains eggs, juice, cereal,
cheese, milk, and beans. However, some vouchers contain only one food
item, such as formula or cereal. (See app. IV.) Most participants
receive multiple vouchers each month for all of the food they are
prescribed. However they may not use the voucher to purchase items that
are not listed on it. Figure 1 shows a sample voucher for food items
from California's WIC state agency.
Figure 1: Sample Voucher from California:
[See PDF for image]
Source: California Department of Health.
[End of figure]
Unlike some other food assistance program models, WIC vouchers do not
provide an incentive for program participants to consider vendor prices
for supplemental foods. For example, the Food Stamp and WIC Farmers'
Market Nutrition Programs generally provide electronic benefits or
coupons that are used like cash at grocery stores or through farmers,
and which encourage participants to make cost-conscious decisions
regarding food choices. In contrast, because WIC participants purchase
supplemental foods with vouchers that prescribe the type and quantity
of foods a participant may receive, regardless of the prices charged by
vendors to the WIC program, WIC participants are not price sensitive,
that is, participants do not have an incentive to purchase their food
benefit from lower-priced vendors.[Footnote 12]
The approximately 45,000 vendors in the WIC program accept vouchers and
exchange them for cash payment--or redemption--from their WIC state
agency. Vendors are subject to price limitations, often in the form of
an overall maximum, not-to-exceed amount for each voucher, determined
by WIC state agencies. As shown in figure 1, a state may clearly print
the not-to-exceed amount for the total amount charged on the voucher.
Like other retail grocery stores, WIC vendors sell to participants
small quantities of food items that they typically purchase from
manufacturers, wholesalers, or, on occasion, other retailers. The
methods that grocery stores use to purchase food items are important
business practices, because the cost of buying goods for resale is the
largest single expense for an average grocery store, according to Food
Marketing Institute research.[Footnote 13]
How WIC Vendors Are Managed:
Through regulation and program guidance, FNS provides broad oversight
to WIC state agencies on cost containment and vendor management. FNS
provides the food grant that state agencies use to reimburse vendors
for redeemed vouchers, gathers program integrity data, supports
upgrades to states' management information systems, and sponsors
research on vendor management issues. Because federal legislation
grants primary responsibility for WIC vendor management to the WIC
state agencies, WIC state agencies have considerable flexibility in
designing and implementing their vendor management systems. FNS
regulations require that WIC state agencies' vendor management systems
include six areas of activity:
² authorization and reauthorization--The authorization process begins
with a vendor's application and an on-site visit by WIC state agency
staff to verify the information provided in the application. Authorized
vendors must enter into a written agreement, which may be reauthorized,
usually every 1-3 years.
² training--WIC state agencies train vendor staff on the purpose of the
WIC program and program procedures such as accepting vouchers from
participants at the point of sale.
² representative monitoring--State agencies are required to conduct
routine monitoring visits of at least 5 percent of their vendors
annually to observe vendor and participant transactions and collect
shelf prices to ensure they are within the required state limits.
² voucher review and redemption--State agencies are required to develop
and implement an edit system of the vouchers turned in for redemption
to detect noncompliance with program regulations. The redeemed-voucher
review includes checking that charges for food items do not go over the
not-to-exceed payment amount for vouchers, set by the state, and other
edits such as transactions or redemptions outside of valid dates.
² high-risk vendor monitoring--WIC state agencies identify high-risk
vendors through on-site monitoring visits or through the redemption
system and must investigate a minimum of 5 percent of vendors meeting
high-risk criteria, such as high rates of redemption at or near the not-
to-exceed payment amount for vouchers.
² sanctions--State agencies may impose sanctions ranging from fines to
disqualification on vendors that violate program requirements or may
impose a civil money penalty when a disqualification would result in
inadequate participant access. A temporarily disqualified vendor may
reapply after the disqualification period has expired.
How Vendor Management in the WIC Program Has Evolved:
In the past few years, the WIC program has initiated significant
changes in vendor management practices to contain costs and maximize
the number of eligible women, infants, and children that can receive
benefits. Prior to fiscal year 2004, FNS characterized authorized WIC
vendors that participate in the program as:
² retail grocery stores--vendors that commonly stock a variety of
foods, including supplemental WIC foods, and serve a wide variety of
customers, referred to as regular WIC vendors in this report;
² WIC-only vendors--vendors that stock only WIC-approved food and
accept only WIC vouchers;
² military commissaries--vendors located on military installations and
designed for military families;
and:
² pharmacies--vendors that only provide infant formula, exempt infant
formula, or WIC-eligible medical foods.[Footnote 14]
The Child Nutrition and WIC Reauthorization Act of 2004[Footnote 15]
established new cost containment provisions designed, in part, to
ensure that the WIC program is not charged more for the same
supplemental food items provided in exchange for vouchers that
participants might use at WIC-only vendors instead of at regular WIC
vendors. These cost containment provisions require state agencies to
implement a vendor peer group system that groups stores according to
similar characteristics, such as vendor size and geographic location,
in a manner that ensures that the WIC program pays all authorized
vendors competitive prices for supplemental foods. FNS expects to
complete certification of states' plans for cost containment by
September 2006.
One cost containment provision created a new category of vendors
referred to as above 50 percent vendors, which include any vendor whose
revenue from the sale of WIC supplemental food is more than half of its
annual revenue from food sales.[Footnote 16] In addition, the Act
prohibited above 50 percent vendors from providing any incentive items,
such as free diapers, detergent, baby strollers, or bicycles, to
participants unless the incentives are of nominal value or were
obtained at no cost. On November 29, 2005, USDA issued an interim rule,
effective on December 29, 2005, that incorporated the cost containment
provisions of the Act into program regulations that are applicable to
WIC state agencies.[Footnote 17] To help ensure that vendors' prices
are competitive, these regulations require states to collect and review
vendors' shelf prices at least every 6 months after authorization. The
regulations also require state agencies to compare the average cost of
each type of food instrument redeemed by WIC-only vendors against the
average cost of the same type of food instrument redeemed by regular
vendors.
In December of 2005, attorneys representing an association of WIC-only
vendors and three food companies, the plaintiffs, filed an action in
federal district court for the District of Columbia to stop
implementation of FNS's regulations. Arguing that the regulations were
contrary to the Act and to congressional intent, the plaintiffs
asserted that the cost containment provisions concerning above-50-
percent vendors would reduce their WIC reimbursements to a level that
would be unsustainable. In describing services that WIC-only vendors
offered WIC participants, the plaintiffs characterized WIC-only vendors
as small businesses and acknowledged that their cost of doing business
was higher than that of large stores, referred to as box stores, that
purchased food in high volume at discount prices. The plaintiffs
estimated that WIC-only vendors' prices were about 8 to 15 percent
higher than prices charged at box stores, on average. On February 23,
2006, the court dismissed the case, finding that the cost containment
provisions of the interim rule were consistent with the plain language
and purpose of the Act.[Footnote 18]
Recent initiatives suggest that more changes to the WIC program are
forthcoming. In 2003, FNS developed a plan to transform WIC from its
paper-based food benefit delivery system to an electronic benefits
transfer system. Through pilot projects in many states that are still
under way, FNS is working toward a national model that is both
technically and financially viable for implementation of EBT by 2008.
In addition, in 2004 the Institute of Medicine (IOM) began examining
WIC food packages to determine if modification could help participants
eat a healthier diet. In its 2005 report, IOM recommended revisions to
the food packages that match current dietary guidance for infants and
young children, encourage consumption of fruits and vegetables,
emphasize whole grains, lower saturated fat, and appeal to diverse
populations.[Footnote 19]
WIC-Only Vendors Increased in Number during Fiscal Years 1999-2004,
although Their Market Share Remained Relatively Small in Fiscal Year
2004:
Since 1999, WIC-only vendors have increased in number, with
concentrated growth in a few states, but their share of the national
WIC market stayed small in comparison to the share of regular WIC
vendors during an average month in 2004. The number of WIC-only vendors
nationwide tripled from 1999 to 2004, and the number of states with WIC-
only vendors also grew over this period. Notwithstanding these
increases, in 2004 the majority of WIC-only vendors were located in
California, Texas, and Florida, and nearly half of all WIC-only vendors
operated in a few metropolitan areas within these states. Nationwide,
WIC-only vendors still accounted for about 3 percent of all WIC vendors
in 2004 and generated about 6 percent of business in the WIC market
during an average month that year, compared to regular WIC vendors'
predominant market share. On a store-by-store basis, however, WIC-only
vendors' redemption value was greater, on average, than regular WIC
vendors' during this period.
WIC-Only Vendors Tripled from Fiscal Year 1999 to Fiscal Year 2004, and
They Are Highly Concentrated Geographically:
The 1,180 WIC-only vendors in operation at any point during 2004 were
three times the number in business at any point in 1999 (see fig.
2).[Footnote 20]
Figure 2: National Total of WIC-Only Vendors:
[See PDF for image]
Source: GAO analysis of FNS 199-2004 TIP files.
Note: Vendor counts include any vendor in operation at some point
during the fiscal year.
[End of figure]
Just as the total number of WIC-only vendors has increased, the number
of states with WIC-only vendors has grown in recent years. Of the 50
states and the District of Columbia, 15 had WIC-only vendors in 2004,
an increase from 12 in 1999 (see table 1).[Footnote 21]
Table 1: Number of WIC-Only Vendors by State, Fiscal Years 1999 and
2004:
State: California;
1999: 235;
2004: 715.
State: Texas;
1999: 69;
2004: 162.
State: Florida;
1999: 57;
2004: 109.
State: North Carolina;
1999: 2;
2004: 72.
State: Arkansas;
1999: 4;
2004: 42.
State: Georgia;
1999: 0;
2004: 22.
State: Alabama;
1999: 0;
2004: 19.
State: Louisiana;
1999: 4;
2004: 11.
State: Oklahoma;
1999: 5;
2004: 8.
State: New Mexico;
1999: 4;
2004: 7.
State: Virginia;
1999: 5;
2004: 6.
State: Kansas;
1999: 0;
2004: 3.
State: Utah;
1999: 2;
2004: 2.
State: District of Columbia;
1999: 0;
2004: 1.
State: Tennessee;
1999: 2;
2004: 1.
State: Oregon;
1999: 5;
2004: 0.
State: Total;
1999: 394;
2004: 1,180.
Source: GAO analysis of FNS 1999 and 2004 TIP data.
Note: Vendor counts include any vendor in operation at some point
during the fiscal year. Any state not listed had no WIC-only vendors
authorized during either fiscal year.
[End of table]
Even with the increase in recent years in both total WIC-only vendors
and the number of states with such vendors, in 2004 most WIC-only
vendors were located in three states, and nearly half operated in three
metropolitan areas. Figure 3 shows that, at the national level, 84
percent of all WIC-only vendors operated in California, Texas, or
Florida. Moreover, approximately one out of every two WIC-only vendors
nationwide operated in Los Angeles, California; Riverside, California;
or Miami, Florida. In contrast, each of the remaining states with WIC-
only vendors accounted for less than 7 percent of total WIC-only
vendors in 2004.
Figure 3: Share of Total WIC-Only Vendors Nationwide by State and the
Top Three Metropolitan Areas in 2004:
[See PDF for image]
Source: GAO analysis of FNS 2004 TIP file.
Note: Vendor counts include any vendor in operation at some point
during the fiscal year. All figures have been rounded to the nearest
whole number except for states that accounted for less than 0.5 percent
of all WIC-only vendors, which are marked as "
