Established in 1972, WIC is designed to improve the health and nutritional well-being of participants by providing nutritious supplemental foods, nutrition education, and referrals to health care services. The program is available in each state, the District of Columbia, 33 Indian tribal organizations, Puerto Rico, the U.S. Virgin Islands, American Samoa, and Guam. FCS administers the program in cooperation with state and local health departments and related agencies. The supplemental foods that WIC provides include milk, cheese, fruit and vegetable juices, iron-fortified adult and infant cereals, dried beans or peas, peanut butter, eggs, and infant formula. Special infant formulas are also available to meet unusual dietary or health-related conditions. Each state designates the types and amounts of foods that local WIC agencies can prescribe to meet each participant’s nutritional needs. The WIC food benefit (referred to as a food package) can be provided through local WIC health clinics or home delivery. More commonly, participants receive their food benefits in the form of a check or a voucher that is used to purchase the specific foods at authorized retail vendors. These vendors have been selected by the state to participate in the program for a period of time. FCS requires the states to operate a rebate program for infant formula. By negotiating rebates with infant formula manufacturers for each can of formula purchased through WIC, the states greatly reduce their average per person food costs so that more people can be served. In fiscal year 1996, infant formula rebates to all states totaled about $1.2 billion. Federal WIC appropriations totaled $3.47 billion in fiscal year 1995 and $3.73 billion annually in fiscal years 1996 and 1997. The program is primarily funded by federal appropriations; some states supplement the federal grant with their own funds. In fiscal years 1995 and 1996, the average monthly WIC participation nationwide was about 6.9 million and 7.2 million, respectively, and in fiscal year 1997, the average monthly participation was about 7.4 million through February 1997. Grants to the states are divided into food grants and nutrition services and administration grants. Food grants cover the costs of supplemental foods and are allocated to the states through a formula that is based on the number of individuals in each state who are eligible for WIC benefits because of their income. The nutrition services and administration grants are allocated to the states through a formula that is based on factors such as the state’s number of projected program participants and WIC salary costs. Nutrition services and administration grants cover costs for program administration, start-up, monitoring, auditing, the development of and accountability for food delivery systems, nutrition education, breast-feeding promotion and support, outreach, certification, and developing and printing food vouchers. State WIC agencies establish program eligibility criteria that are based on federal guidelines. To qualify for the program, WIC applicants must show evidence of nutritional risk that is medically verified by a health professional. In addition, participants may not have incomes that exceed 185 percent of the poverty guidelines that are established annually by the U.S. Department of Health and Human Services. In 1997, for example, the annual WIC income limit for a family of four is $29,693 in the 48 contiguous states and the District of Columbia. Federal regulations allow the states to individually determine their income documentation requirements for applicants seeking to participate in WIC. The states are also required by federal regulations to automatically certify as income eligible those individuals who document their participation in the Food Stamp Program, Medicaid, and the Temporary Assistance for Needy Families Program. Approximately two-thirds of all WIC participants were enrolled in one or more of these programs in fiscal year 1994, the last year for which complete data were available at the time of our review. In addition, WIC participants are required by federal regulations to reside in the jurisdiction of the state where they receive benefits, and the states are required to check the identification of all participants when they seek certification for program participation and when they receive their vouchers. Although the applicants who meet the program’s health and nutrition, income, and residency requirements may be certified as eligible to participate in WIC, the number of participants that are actually served each year primarily depends on the total amount of funds available to the states. According to FCS’ estimates, about 75 percent of the eligible women, infants, and children actually participated in WIC during fiscal year 1995. States’ initiatives to control food costs by limiting the types and package sizes of WIC foods and by more carefully selecting and regulating vendors have reduced the program’s costs by millions of dollars. These practices could be expanded in the states that have already implemented them and could be adopted by other states. However, the National Association of WIC Directors and some WIC directors we spoke with are concerned that, among other things, the program’s regulations can constrain a state’s ability to effectively use the additional funds that become available as a result of cost containment initiatives. Two practices that some states are using to contain food costs are reported by state WIC directors to be saving millions of dollars. These two practices include (1) contracting with manufacturers to obtain rebates on WIC foods in addition to infant formula and (2) limiting authorized food selections by, for example, requiring participants to select brands of foods that have the lowest cost. In fiscal year 1996, nine state agencies received rebates for two WIC-approved foods—infant cereal and/or infant fruit juices. Table 1 shows the states that were receiving rebates during fiscal year 1996 from the expanded use of rebates through individual or multistate contracts. The cost savings resulting from these infant cereal and juice rebates are relatively small in comparison with the savings resulting from infant formula rebates. As shown by the figures in table 1, the rebates for infant cereal and juices represented about 1 percent of the total rebates received in these nine states in fiscal year 1996. The $6.2 million in infant cereal and juice rebates reduced total food costs in these states by about six-tenths of a percent in fiscal year 1996. Eleven states—Alaska, California, Delaware, the District of Columbia, Hawaii, Missouri, New Jersey, New York, Oklahoma, Rhode Island, and West Virginia—reported that their agencies were considering, or were in the process of, expanding their use of rebates to foods other than infant formula. In May 1997, Delaware joined the District of Columbia, Maryland, and West Virginia in a multistate rebate contract for infant cereal and juices. California was the first state to expand its rebate program to include adult juices, adding this option in March 1997. California currently spends about $65 million annually on adult juice purchases. California’s WIC director told us that the state expects to collect about $12 million in annual rebates on the adult juices, thereby allowing approximately 30,000 additional persons to participate in the program each month. According to FCS officials, there is the potential to reduce WIC costs further through the expanded use of rebates. They said that FCS has encouraged the states to examine and aggressively pursue rebates to stretch food dollars to serve a maximum number of eligible participants. In May 1997, FCS sent its regional directors a memorandum outlining a strategy to “manage, contain, and control” food costs using rebates on products such as special infant formula and other WIC foods in addition to infant formula. The officials told us that if federal funding for WIC remains constant or declines, more states may consider expanding the use of rebate contracts to provide funds for their WIC programs. FCS officials also told us that some states’ WIC agencies may not be expanding the use of rebates because other cost containment practices have proven effective in reducing food costs. For example, the states that have elected to use only store brand foods may be incurring lower costs than the states that receive rebates on national brand products. While these rebates reduce costs, the procurement process requires additional administrative effort by the states. The California WIC director and FCS officials told us that the process of entering into and monitoring rebate contracts can be complicated and time-consuming. In addition, FCS officials told us that bid protests filed by the manufacturers that are not awarded contracts impose additional administrative burdens on the states. The administrative burden associated with procuring and monitoring rebate contracts can be exacerbated if a state contracts with more than one manufacturer for rebates. For example, when California expanded its rebate program to include adult juices, the state requested bids on rebate contracts from juice companies for frozen and ready-to-drink apple, grape, orange, and pineapple juices that were available in all parts of the state and had to negotiate five separate contracts. The states also need to use additional resources to manage the rebate contracts. FCS officials told us that disagreements between the states and manufacturers occur over the rebate billings that the manufacturers are obligated to pay the states. They said that the states must therefore develop billing systems that track the amount of the manufacturers’ products selected by WIC clients using their vouchers. For example, the California WIC director told us that before the state implemented its adult juice rebate contracts, the state agency had to develop a system for determining the amount and quantity of each type of juice selected by WIC participants and a system for rebate billing that was acceptable to the juice manufacturers. FCS officials told us that the states could become increasingly dependent on the funds provided by their rebate contracts. Historically, the annual funds received by the states from their infant formula rebate contracts have continued to increase, but this source of funding may not always be reliable. If manufacturers begin offering lower rebates, the states could have insufficient funds to provide program benefits to their current level of WIC participants.