Trends in Infant Formula Rebate Contracts: Implications for the WIC Program

Abstract

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is the major purchaser of infant formula in the United States. To reduce the cost of infant formula to WIC, Federal law requires that WIC State agencies operate a costcontainment system for the purchase of infant formula. Typically, WIC State agencies obtain substantial discounts in the form of rebates from the infant formula manufacturers for each can of formula purchased through the program. Contracts are awarded to the manufacturer offering the WIC State agency the lowest net price (as determined by the manufacturer’s wholesale price minus the rebate). A previous Economic Research Service study based on data through 2008 found that net prices were increasing, raising concern that this trend, if it continued, could constrain WIC’s ability to serve all eligible applicants in the future. This study, based on data through February 2013, allays that concern. Real net prices for contracts in effect in February 2013 decreased by an average 43 percent (or 23 cents per 26 fluid ounces of reconstituted formula) from the previous contracts. As a result, WIC paid $107 million less for infant formula over the course of a year, holding retail markup constant.