Special Supplemental Nutrition Program for Women, Infants and Children (WIC): Implementation of Nondiscretionary WIC Certification and General Administrative Provisions, 11305-11314 [E8-3880]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 73, Number 42 (Monday, March 3, 2008)]
[Rules and Regulations]
[Pages 11305-11314]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-3880]



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Federal Register / Vol. 73, No. 42 / Monday, March 3, 2008 / Rules 
and Regulations

[[Page 11305]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

RIN 0584-AD73
[FNS-2007-0009]


Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC): Implementation of Nondiscretionary WIC Certification 
and General Administrative Provisions

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim final rule.

-----------------------------------------------------------------------

SUMMARY: This interim final rule amends the regulations for the Special 
Supplemental Nutrition Program for Women, Infants and Children (WIC) by 
implementing most of the nondiscretionary provisions of the Child 
Nutrition and WIC Reauthorization Act of 2004 that address participant 
certification and general program administration in the WIC Program. It 
also implements the exclusions from income eligibility determinations 
set forth in the National Defense Authorization Act for Fiscal Year 
(FY) 2006 and in the National Flood Insurance Act of 1968, as amended, 
and clarifies an inconsistency related to fair hearings and notices of 
adverse actions that was inadvertently omitted in the publication of 
the Final WIC Miscellaneous Rule. Finally, this rulemaking includes 
technical amendments to correct the address and telephone numbers to 
which complaints alleging discrimination in the WIC Program should be 
directed, and to correct the address of the Western Regional Office of 
the Food and Nutrition Service (FNS).
    The provisions set forth in this rulemaking are nondiscretionary, 
i.e., the Department has not exercised any authority to interpret the 
statutory provisions beyond the language that is specifically provided 
in the legislation. However, the Department believes that at least one 
of the provisions in this rulemaking may generate additional questions 
or comments concerning its implementation. Therefore, the rule is being 
issued as an interim final rule, to afford the public the opportunity 
to comment on the possible implications of the provisions contained 
herein.

DATES: Effective Date: This rule will become effective on May 2, 2008.
    Implementation Date: State agencies must implement the provisions 
of this rule no later than April 2, 2008.
    Comment Date: To be considered, comments on this interim rule must 
be postmarked on or before June 2, 2008.

ADDRESSES: The Food and Nutrition Service (FNS) invites interested 
persons to submit comments on this interim rule. Comments may be 
submitted by any of the following methods:
     Federal eRulemaking Portal: Go to https://
www.regulations.gov. Under the ``Comment or Submission'' tab, enter 
Docket ID  FNS-2007-0009 to submit or view public comments and 
to view supporting and related materials available electronically. 
Information on using Regulations.gov, including instructions for 
accessing documents, submitting comments, and viewing the docket after 
the close of the comment period, is available through the site's ``User 
Tips'' link.
     Mail: Send comments to Patricia N. Daniels, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 528, Alexandria, Virginia 22302, (703) 
305-2746.
    Comments submitted in response to this interim rule will be 
included in the record and will be made available to the public. Please 
be advised that the substance of the comments and the identities of the 
individuals or entities submitting the comments will be subject to 
public disclosure. FNS will make the comments publicly available on the 
Internet via https://www.regulations.gov. Information regarding the 
interim rule will be available on the FNS Web site at https://
www.fns.usda.gov/wic.

FOR FURTHER INFORMATION CONTACT: Debra R. Whitford, Chief, Policy and 
Program Development Branch, Supplemental Food Programs Division, Food 
and Nutrition Service, USDA, 3101 Park Center Drive, Room 528, 
Alexandria, VA 22302, (703) 305-2746, or Debbie.Whitford@fns.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

Regulatory Impact Analysis

    As required for all rules that have been designated as Significant 
by the Office of Management and Budget, a Regulatory Impact Analysis 
was developed for this rule. A complete copy of the Impact Analysis is 
available by contacting FNS as indicated in the ADDRESSES section of 
this Preamble.
    The following summarizes the conclusions of the regulatory impact 
analysis:

Need for Action

    This action is needed to implement the nondiscretionary provisions 
of the Child Nutrition and WIC Reauthorization Act of 2004, Public Law 
108-265, as well as several additional nondiscretionary legislative 
provisions affecting the WIC Program. The rule contains several 
nondiscretionary provisions related to certification, operation, and 
general administration in the WIC Program, including expanded 
definitions of ``nutrition education'' and ``supplemental foods''; new 
exclusions from WIC income eligibility determinations; a new assurance 
of nondiscrimination; new requirements affecting infant formula rebate 
contracts; additional exceptions to the physical presence requirement 
for certification; new requirements and stipulations regarding food 
delivery systems; and expanded allowances in the areas of funding and 
financial management.

Benefits

    FNS has already issued policy and guidance to State agencies on 
implementation of the legislative requirements addressed in this 
rulemaking, since all of the provisions of the Child Nutrition and WIC 
Reauthorization Act of 2004 were effective by law on either June 30, 
2004; July 1, 2004; or October 1, 2004. Consequently, FNS believes that 
the current rule will accomplish the goals of the Act concerning 
participant certification and general program

[[Page 11306]]

administration. Additionally, the rule has provisions that improve 
participant access and that give State agencies added flexibility.

Costs

    Overall, most of the provisions will result in little or no change 
in program costs.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-602). Although not required by 
the Act, Nancy Montanez Johner, Under Secretary, Food, Nutrition, and 
Consumer Services, hereby certifies that this rule will not have a 
significant impact upon a substantial number of small entities. The 
provisions implemented through this rulemaking apply to all State 
agencies administering the WIC Program, regardless of size. Further, 
several of the provisions contained in this rule represent options now 
available to WIC State agencies, rather than new requirements for the 
operation and administration of the Program.

Public Law 104-4, Unfunded Mandate Reform Act of 1995 (UMRA)

    Title II of the UMRA establishes requirements for Federal agencies 
to assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. Under Section 202 of the 
UMRA, FNS must generally prepare a written statement, including a cost-
benefit analysis, for proposed and interim final/final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
and tribal governments in the aggregate, or to the private sector, of 
$100 million or more in any one year. When such a statement is needed 
for a rule, Section 205 of the UMRA generally requires FNS to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments or the private sector of $100 million or more in any one 
year. This rule is therefore not subject to the requirements of 
Sections 202 and 205 of the UMRA.

Executive Order 12372

    The Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) is listed in the Catalog of Federal Domestic Assistance 
under No. 10.557. For the reasons set forth in the final rule in 7 CFR 
part 3015, Subpart V and related Notice (48 FR 29115), this program is 
included in the scope of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials.
    Prior to enactment of the Child Nutrition and WIC Reauthorization 
Act of 2004 (Pub. L. 108-265), the Department held listening sessions 
at selected locations throughout the country at which representatives 
of the WIC community had the opportunity to identify areas of interest 
and concern that they wanted the Reauthorization Act to address. Staff 
from FNS' headquarters and regional offices also had both formal and 
informal discussions with State and local officials on an ongoing basis 
regarding program operation and administration. All of these 
discussions allowed State and local WIC agencies, as well as other 
interested parties, to provide feedback that formed the basis for the 
nondiscretionary legislative provisions contained in Pub. L. 108-265 
and implemented through this rulemaking.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under Section 6(b)(2)(B) of Executive Order 13132. FNS has 
considered the impact of this rule on State and local governments and 
has determined that this rule does not have federalism implications. 
Therefore, under Section 6(b) of the Executive Order, a federalism 
summary impact statement is not required.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to local laws, regulations, or policies that conflict with its 
provisions or that would otherwise impede its full implementation. This 
rule is not intended to have retroactive effect unless so specified in 
the Dates or Background paragraphs of the preamble of this rule. Prior 
to any judicial challenge to the application of the provisions of this 
rule, all applicable administrative procedures must be exhausted.
    In the Special Supplemental Food Program for Women, Infants and 
Children (WIC), the administrative procedures that must be exhausted 
are as follows:
     State agency hearing procedures pursuant to 7 CFR 246.9 
must be exhausted for participants concerning denial of participation, 
disqualification, and claims;
     State agency hearing procedures pursuant to 7 CFR 
246.18(a)(1) must be exhausted for vendors concerning denial of 
authorization, termination of agreement, disqualification, civil money 
penalty or fine;
     The State agency process for providing the vendor an 
opportunity to justify or correct the food instrument pursuant to 7 CFR 
246.12(k)(3) must be exhausted for vendors concerning delaying payment 
for a food instrument or a claim;
     State agency hearing procedures pursuant to 7 CFR 
246.18(a)(3) must be exhausted for local agencies concerning denial of 
application, disqualification, or any other adverse action affecting 
participation;
     FNS hearing procedures pursuant to 7 CFR 246.22 must be 
exhausted for State agencies concerning sanctions imposed by FNS; and
     Administrative appeal to the extent required by 7 CFR 
3016.36 must be exhausted for vendors and local agencies concerning 
procurement decisions of State agencies.

Civil Rights Impact Analysis

    FNS has reviewed this rule in accordance with the Department 
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify and 
address any major civil rights impacts the rule might have on 
minorities, women, and persons with disabilities. FNS has determined 
that the rule's intent and provisions will not adversely affect access 
to WIC services by eligible persons. All data available to FNS indicate 
that protected individuals have the same opportunity to participate in 
the WIC Program as non-protected individuals. FNS specifically 
prohibits State and local governments that administer the WIC Program 
from engaging in actions that discriminate based on race, color, 
national origin, age, sex, or disability. Regulations at 7 CFR 246.8 
specifically state that Department of Agriculture regulations on non-
discrimination (7 CFR parts 15, 15a, and 15b) and FNS instructions 
ensure that no person shall on the basis of race, color, national 
origin, age, sex, or disability be excluded from participation in, be 
denied benefits of, or be otherwise subjected to discrimination under 
the Program.

[[Page 11307]]

    Discrimination in any aspect of program administration is 
prohibited by these regulations, Department of Agriculture regulations 
on non-discrimination (7 CFR parts 15, 15a, and 15b), the Age 
Discrimination Act of 1975 (Pub. L. 94-135), the Rehabilitation Act of 
1973 (Pub. L. 93-112, section 504), and title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d). Enforcement action may be brought under 
any applicable Federal law. Title VI complaints shall be processed in 
accordance with 7 CFR part 15. Where State agencies have options, and 
they choose to implement a particular provision of this rulemaking, 
they must implement it in such a way that it complies with the 
regulations at 7 CFR 246.8.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires that the Office of Management and Budget (OMB) approve 
all collections of information by a Federal agency from the public 
before such collection(s) may be implemented. Respondents are not 
required to respond to any collection of information unless it displays 
a current valid OMB control number. This interim rule contains no new 
information collection requirements that are subject to OMB approval. 
The existing recordkeeping and reporting requirements, which were 
approved under OMB control number 0584-0043, will not change as a 
result of this rule.

E-Government Act Compliance

    FNS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and other services, and for other purposes. State Plan amendments 
regarding the implementation of the provisions contained in this rule, 
as is the case with the entire State Plan, may be transmitted 
electronically by the State agency to FNS. Also, State agencies may 
provide vendor and infant formula rebate data, as well as their 
financial reports, to FNS electronically.

Public Participation

    This action is being finalized without prior notice or public 
comment under authority of 5 U.S.C. 553(b)(3)(A) and (B). The Child 
Nutrition and WIC Reauthorization Act of 2004, Public Law 108-265, 
contained provisions that must be implemented exactly as set forth in 
the legislation, with no discretion exercised by the Department 
regarding such implementation. Further, State agencies have already 
been informed that these nondiscretionary provisions must be 
implemented prior to the issuance of amendments to the program 
regulations. Therefore, Under Secretary Nancy Montanez Johner has 
determined, in accordance with 5 U.S.C. 553(b), that a Notice of 
Proposed Rulemaking and Opportunity for Public Comments is unnecessary 
and contrary to the public interest and, in accordance with 5 U.S.C. 
553(d), finds that good cause exists for making this rule effective 
without prior public comment.

Background

    The Child Nutrition and WIC Reauthorization Act of 2004 (Pub. L. 
108-265, also known as the Reauthorization Act), enacted on June 30, 
2004, contained a number of nondiscretionary provisions related to 
certification, operation, and general administration. These provisions 
include:
     Expanded definitions of ``nutrition education'' and 
``supplemental foods'';
     New requirements affecting infant formula rebate 
contracts;
     Additional exceptions to the physical presence requirement 
for certification;
     New requirements and stipulations regarding food delivery 
systems; and
     Expanded allowances in the areas of funding and financial 
management.
    FNS issued policy and guidance to State agencies on implementation 
of these nondiscretionary legislative requirements. All of the 
provisions of the Child Nutrition and WIC Reauthorization Act of 2004 
implemented by this rulemaking were effective by law as noted below. 
Effective dates for the provisions of the National Defense 
Authorization Act for Fiscal Year 2006, and amendments to the National 
Flood Insurance Act of 1968 which are being incorporated into the 
regulations are also indicated below. All subsequent references to 
Program regulatory provisions in this preamble are to title 7, Code of 
Federal Regulations, unless otherwise indicated.
    June 30, 2004 (date of enactment): Sec.  246.12(g)(4); Sec.  
246.14(e), Sec.  246.14(e)(1), Sec.  246.14(e)(3)(iii), Sec.  
246.14(e)(4), and Sec.  246.14(e)(5); and Sec.  246.16(b)(3)(ii)(A).
    July 1, 2004: Sec.  246.16a(c)(2).
    October 1, 2004: Sec.  246.2 (Definitions); Sec.  246.4(a)(22); 
Sec.  246.7(o)(2)(ii) and Sec.  246.7(o)(2)(iv); Sec.  246.12(r)(6); 
Sec.  246.16a(c)(6)(iii) through (c)(6)(iv); Sec.  246.16a(c)(1)(ii); 
Sec.  246.16a(k); and Sec.  246.16a(l)(3).
    June 23, 2005: Sec.  246.16a(m).
    September 20, 2005: Sec.  246.7(d)(2)(iv)(D)(34).
    December 2, 2005: Sec.  246.8(b).
    January 6, 2006 (date of enactment): Sec.  246.7(d)(2)(iv)(D)(33).
    Additionally, two legislative exclusions from consideration in 
determining income eligibility for the WIC Program are included in this 
rulemaking. Both of these exclusions were effective immediately upon 
the date of enactment of their respective laws.
    The clarification of an inadvertent inconsistency and omission 
related to fair hearings and notices of adverse actions as set forth at 
Sec.  246.9(g) will be effective immediately upon publication of this 
rule.
    Finally, two technical amendments are included in this rule. The 
first amendment applies specifically to Sec.  246.8, Nondiscrimination, 
and revises the address and telephone numbers to which complaints of 
alleged discrimination should be directed. The second amendment 
provides the new address for the FNS Western Region, as set forth in 
Sec.  246.27, Program information.
    For clarity, the discussions of the regulatory amendments related 
to each of these major issues are addressed by topic, rather than in 
strict regulatory sequential order.
1. Expanded Definitions of ``Nutrition Education'' and ``Supplemental 
Foods''
Nutrition Education (Sec.  246.2)
    Section 203(a)(1) of the Reauthorization Act amends Section 
17(b)(7) of the CNA by revising the definition of ``nutrition 
education'' to include a reference to physical activity. It also 
removes the term ``socioeconomic'' from the current definition. By law, 
these changes were effective October 1, 2004. This revision recognizes 
that physical activity is one of the key recommendations included in 
the Dietary Guidelines for Americans 2005 (DGA). The DGAs provide the 
foundation for WIC nutrition education. The promotion of the health 
benefits of regular physical activity as a component of nutrition 
education supports the development of lifelong habits for good health. 
This legislative provision does not change the principles or 
requirements previously set forth by the Department regarding the 
allowable costs of physical activity promotion as a component of 
nutrition education for WIC participants.
    Therefore, the definition of ``nutrition education'' in Sec.  246.2 
is amended to reflect the exact language set forth in Public Law 108-
265. Additionally, regulatory language related to nutrition education 
at Sec.  246.11(b) is modified to conform to the new definition.

[[Page 11308]]

Supplemental Foods (Sec.  246.2)
    Section 203(a)(2) of Public Law 108-265 amends Section 17(b)(14) of 
the CNA, effective October 1, 2004, by revising the definition of 
``supplemental foods'' to include foods that promote health as 
indicated by relevant nutrition science, public health concerns, and 
cultural eating patterns. This revision broadens the definition to 
acknowledge that the identification of supplemental foods provided by 
WIC should consider relevant nutrition science as well as current 
public health concerns and cultural eating patterns.
    Therefore, the definition of ``supplemental foods'' in Sec.  246.2 
is amended to reflect the exact language set forth in Public Law 108-
265.
2. New Requirements Affecting Infant Formula Rebate Contracts
a. Primary Contract Infant Formula (Sec. Sec.  246.2 and 246.16a)
    Section 203(a)(3) of the Reauthorization Act amends Section 17(b) 
of the CNA to add a definition of ``primary contract infant formula''. 
Although the term ``primary contract infant formula'' is used 
throughout Sec.  246.16a (Infant formula cost containment), program 
regulations do not currently include a specific definition of that 
term. Including a specific definition at Sec.  246.2 is intended to 
clarify the use of ``primary contract infant formula'' wherever it is 
used. The definition is the same language set forth in Public Law 108-
265.
    As of October 1, 2004, ``primary contact infant formula'' is used 
in the WIC Program to refer to the specific infant formula for which a 
manufacturer submits a bid to a State agency in response to a rebate 
solicitation and for which a contract is awarded by the State agency as 
a result of that bid.
    Section 203(e)(4) of the Reauthorization Act also amends Section 
17(h)(8)(A) of the CNA by adding language to clarify that the State 
agency is required to use the primary contract infant formula as the 
first choice of issuance for all WIC infants receiving infant formula 
in their prescribed food packages, with all other infant formulas 
issued as an alternative to the primary contract infant formula. 
Current regulations at Sec.  246.16a(c)(6) provide the State agency 
with the discretion to approve for issuance, in addition to the primary 
contract infant formula(s), none, some, or all of the winning bidder's 
other infant formulas. These other infant formulas from the winning 
bidder will be considered contract brand infant formulas. If a State 
agency issues separate (uncoupled) bid solicitations for milk-based and 
soy-based infant formula, the State agency will have two primary 
contract infant formulas, one for each contract. In addition, the State 
agency may require medical documentation before issuing any contract 
brand infant formula and must require medical documentation before 
issuing any non-contract brand infant formula, exempt infant formula, 
or WIC-eligible medical food.
    Effective for all bid solicitations issued on or after October 1, 
2004, the State agency must issue the primary contract infant formula, 
as defined in the Reauthorization Act, as the formula of first choice. 
The State agency may continue to issue contract brand and non-contract 
brand alternatives to the primary contract infant formula, if 
determined to be more appropriate.
b. State Alliance (Sec. Sec.  246.2, 246.16a)
    Section 203(a)(3) of Public Law 108-265 amends Section 17(b) of the 
CNA to include a definition of ``state alliance.'' While alliances have 
existed in practice, WIC Program regulations have not contained a 
specific definition for a State alliance. This rule defines ``State 
alliance'' in the same manner as set forth in Public Law 108-265.
    Section 203(e)(3) of the same law limits the size of State 
alliances, as defined at Sec.  246.2 of this interim rule, to 100,000 
infants served by the participating State agencies as of October 1, 
2003, or a subsequent date determined by the Secretary for which data 
is available.
    For many years, WIC State agencies have entered into partnerships 
to form an alliance for the purpose of promoting competitive bids and 
administrative simplification. However, an unintended consequence of 
large alliances is that competition is diminished because not all 
infant formula manufacturers may be able to compete for larger State 
alliance contracts due to production capacity. The Department believes 
that limiting the size of State alliances will help to maintain 
competition among infant formula manufacturers by ensuring all 
manufacturers can compete for rebate contracts.
    Section 203(e)(3) of Public Law 108-265 allows current State 
alliances that serve more than 100,000 infant participants to continue 
to exist, but prohibits them from adding new State agencies to such 
alliances, except under the following circumstances:
     A State alliance that serves more than 100,000 infants may 
expand to include additional State agencies if the State agency to be 
included is an Indian Tribal Organization that is also a WIC State 
agency or a State agency that serves less than 5,000 infants as of 
October 1, 2003, or a subsequent date determined by the Secretary for 
which data is available.
     Public Law 108-265 also allows the Secretary to grant a 
waiver to the State agency alliance requirements after submitting a 
written report to the Committee on Education and the Workforce of the 
House of Representatives and the Committee on Agriculture, Nutrition, 
and Forestry of the Senate that describes the cost-containment and 
competitive benefits of the proposed waiver.
    Therefore, Sec. Sec.  246.16a(c)(1)(ii) and 246.16a(c)(2) are 
amended to include these limitations and their corresponding 
exceptions. Also, Sec.  246.16a(k) is redesignated as Sec.  246.16a(l), 
and amended to reflect changes required in Public Law 108-265. This 
section addresses provisions for a national cost containment bid 
solicitation and selection.
c. Rebate Invoices (Sec.  246.16a(k))
    Section 203(e)(5) of Public Law 108-265 requires WIC State agencies 
to have a system that ensures that infant formula rebate invoices, 
under competitive bidding, provide a reasonable estimate or an actual 
count of the number of units (i.e., cans) of infant formula purchased 
by participants with food instruments.
    Manufacturers pay rebates to the State agency based on the number 
of units of contract brand infant formula indicated on monthly rebate 
invoices. Historically, State agencies have based their rebate invoices 
on the total number of units of formula authorized on redeemed food 
instruments. Because WIC participants do not always purchase the total 
amount of formula authorized, this method inadvertently bills 
manufacturers for units of formula that were not purchased. Therefore, 
a system that bases monthly rebate invoices on the number of units of 
formula authorized on redeemed food instruments may not be a reasonable 
estimate of the number of units purchased by participants.
    To implement this provision, the current Sec.  246.16a(k) is 
redesignated as Sec.  246.16a(l), and a new paragraph (k) is added that 
sets forth the requirements for infant formula rebate invoices.
    The Department recognizes the challenges some State agencies may 
face in implementing this requirement. However, over the past few 
years, many State agencies have worked collaboratively with infant 
formula manufacturers to develop methodologies that provide a close 
approximation or reasonable estimate of

[[Page 11309]]

the number of units of infant formula purchased with WIC food 
instruments. State agencies that have not yet developed such 
methodologies should seek information and advice from the Department, 
as well as from other WIC State agencies that currently have billing 
systems based on reasonable estimates or actual counts. In addition, 
the Department encourages State agencies to work together with 
manufacturers when developing an acceptable billing system.
    Over the past few years, many State agencies have worked 
collaboratively with infant formula manufacturers to develop 
methodologies that provide a close approximation or reasonable estimate 
of the number of units of infant formula purchased with WIC food 
instruments. State agencies that need further improvements to their 
methodologies should seek information and advice from the Department, 
as well as from other WIC State agencies that currently have billing 
systems based on reasonable estimates or actual counts. In addition, 
the Department encourages State agencies to work together with 
manufacturers when developing an acceptable billing system.
d. Uncoupling Milk-Based and Soy-Based Infant Formula Bids (Sec.  
246.16a(c)(1)(ii))
    Section 203(e)(6) of Public Law 108-265 requires any WIC State 
agency or State alliance that served a monthly average of more than 
100,000 infants during the preceding 12-month period to solicit 
separate bids for milk-based and soy-based infant formulas. This 
provision is implemented by its addition to the WIC Program regulations 
at Sec.  246.16a(c)(1)(ii).
    State agencies have always had the option to solicit separate bids 
for milk- and soy-based infant formulas. In practice, however, most 
State agencies do not exercise this option. When State agencies do 
solicit separate bids, competition is open to manufacturers that 
otherwise may not be able to bid if the infant formula types were 
coupled due to factors such as production capacity and/or distribution 
issues. The intent of this provision is to promote competition among 
infant formula manufacturers by ensuring all manufacturers are able to 
compete for rebate contracts. Separate bids for milk- and soy-based 
infant formulas may result in a State agency having two primary 
contract infant formulas, one for milk-based and one for soy-based 
formulas. This provision applies to bid solicitations issued on or 
after October 1, 2004.
e. Cent-for-Cent Adjustments (Sec.  246.16a(c)(6)(iv))
    Section 203(e)(7) of Public Law 108-265 requires State agencies to 
adjust for price increases and price decreases subsequent to the bid 
opening. This provision applies to bid solicitations issued on or after 
October 1, 2004.
    Current regulations state that bid solicitations must require 
manufacturers to adjust for price changes subsequent to the bid 
opening; however, it only mandates that manufacturers provide for cost 
adjustments as a result of any inflation in the wholesale prices of 
infant formula. It does not include a corresponding adjustment for 
decreases in wholesale prices. Section 246.16a(c)(6)(iv) reflects this 
new requirement of adjusting rebates to reflect both increases and 
decreases in infant formula prices.
f. Infant Formula Rebate Contracts and Civil Monetary Penalties (Sec.  
246.16a(l))
    This regulation also codifies, at Sec.  246.16a(m), a requirement 
mandated by Section 17(h)(8)(H) of the CNA. The CNA requires any legal 
entity (i.e., person, company, corporation), shall be ineligible to 
submit bids for up to 2 years if it discloses the bid amount or 
discloses the rebate or discount practices in advance of the bid 
opening. In addition, the legal entity shall be subject to a civil 
penalty of up to $100,000, as determined by the Secretary, to provide 
restitution to the program for harm done.
    The Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. 
L. 101-410, 28 U.S.C. 2461 note (the Act)) as amended, requires Federal 
agencies periodically to adjust certain civil monetary penalties (CMPs) 
for inflation. Under the Act, a CMP is defined as any penalty, fine, or 
other sanction for which a Federal statute specified a monetary amount, 
including a range of minimum and maximum amounts. Each Executive agency 
is responsible for adjusting, pursuant to the Act, all CMPs within the 
agency's jurisdiction.
    The Act requires each Executive agency to make an initial inflation 
adjustment for all applicable CMPs not later than 180 days after the 
date of enactment of the Debt Collection Improvement Act of 1996 (Pub. 
L. 104-134)--i.e., April 26, 1996--and subsequent inflation adjustments 
at least once every 4 years thereafter. USDA published its initial 
round of inflation adjustments in the Federal Register on July 31, 
1997, and those adjustments became effective on September 2, 1997 (62 
FR 40924, July 31, 1997). USDA's initial CMP adjustments are codified 
in subpart E of 7 CFR 3.91. Subsequently, 7 CFR 3.91(b) was amended to 
reflect a second round of inflation adjustments in the Federal Register 
on May 24, 2005, and those adjustments became effective June 23, 2005 
(70 FR 29573, May 24, 2005). As a result, when adjusted for inflation, 
the original $100,000,000 civil penalty increases to $132,000,000. This 
regulation refers to 7 CFR 3.91 when determining a CMP for any person, 
company, corporation, or legal entity for violations of Sec.  
246.16a(l).
    Although the provision for determining CMPs with the necessary 
adjustments for inflation is not contained in the Child Nutrition and 
WIC Reauthorization Act of 2004 (Pub. L. 108-265), it is 
nondiscretionary. Therefore, it is being included with this interim 
rule because this is the first appropriate rulemaking with implications 
for infant formula rebate contracts to be promulgated since the 
enactment of the second round of adjustments pursuant to the Debt 
Collection Improvement Act of 1996.
3. Additional Exceptions to the Physical Presence Requirement for 
Certification (Sec.  246.7(p)(2))
    Section 246.7(p)(2)(ii) of the current WIC Program regulations 
allows a State agency to exempt from being physically present at 
certification an infant or child who was present at his/her initial WIC 
certification and has documented ongoing health care from a health care 
provider other than the WIC local agency (as set forth in Sec.  
246.7(p)(1)), if being physically present would pose an unreasonable 
barrier.
    Section 203(b)(2) of the Reauthorization Act amends Section 
17(d)(3)(C)(ii) of the CNA to allow a State agency the option to waive 
the physical presence requirement for an infant or child who was 
present at his/her initial WIC certification and is receiving ongoing 
health care. In addition, the Reauthorization Act provides an 
additional exception from the physical presence requirement for an 
infant under 8 weeks of age who cannot be present at certification for 
a reason determined appropriate by the local agency, and for whom all 
necessary certification information is provided. These changes are 
intended to reduce the burden on WIC applicants and participants while 
maintaining program integrity.
    Thus, Sec.  246.7(p)(2)(ii) is revised in this rule to incorporate 
the legislative option for exemption from the physical presence 
requirement and applies to an infant or child receiving ongoing health 
care from any health care provider,

[[Page 11310]]

including the local WIC agency. The revised regulatory language also 
includes the new exemption from the physical presence requirement for 
infants under 8 weeks of age who cannot be present at the time of 
certification (for a reason determined appropriate by the local agency) 
and for whom all necessary certification information is provided.
4. New Requirements and Stipulations Regarding Food Delivery Systems 
(Sec.  246.12)
a. Participants Allowed To Receive Supplemental Foods From Any 
Authorized Vendor (Sec.  246.12(r))
    Section 203(c)(1)(A) of Public Law 108-265 amends Section 
17(f)(1)(C)(i) of the CNA to require WIC State agencies, effective 
October 1, 2004, to allow participants to receive supplemental foods 
from any authorized vendor in the State under retail food delivery 
systems.
    This is a new requirement for WIC State agencies. Previously, State 
agencies were permitted to implement retail food delivery systems in 
which the name of a specific authorized store, as designated by the 
participant, was printed on the WIC food instrument.
    State agencies are no longer allowed to operate such ``vendor-
specific'' retail food delivery systems, i.e., systems that specify the 
vendor on the food instrument or otherwise require transaction of the 
food instrument at a designated vendor, even if the participant is 
provided an opportunity to choose the vendor to be so designated. 
Therefore, Sec.  246.12(r) is revised to add a requirement that WIC 
State agencies must establish policy and revise their retail food 
delivery systems to ensure that WIC participants are allowed to 
transact their food instruments at any retail store authorized by the 
State agency.
b. Processing Vendor Applications Outside Established Timeframes (Sec.  
246.4)
    Section 203(c)(1) of the Reauthorization Act amends Section 
17(f)(1)(C) of the CNA by adding a new provision requiring State 
agencies to include in their State plans procedures for accepting and 
processing vendor applications outside the established timeframes if 
the State agency determines that there will otherwise be inadequate 
participant access to the WIC Program. This includes instances in which 
a previously authorized vendor sells a store under circumstances that 
do not permit timely notification to the State agency of the change in 
ownership. By law, this provision was effective October 1, 2004.
    Currently, Sec.  246.12(g)(7) of the WIC regulations requires the 
State agency to develop procedures for processing vendor applications 
outside of its established timeframes when it determines there will be 
inadequate participant access unless additional vendors are authorized, 
and Sec.  246.4(a)(14) requires a description of the participant access 
criteria to be included in the State Plan of Operations. Also, Sec.  
246.12(h)(3)(xvii) provides the State agency the discretion to 
determine the length of advance notice required for vendors reporting 
changes in ownership. Thus, all State Plans must currently describe 
participant access criteria, and many State Plans also address vendor 
application processing timeframes.
    This provision reinforces the existing regulatory provisions by 
adding the requirement for a description of these procedures as part of 
the State Plan to Sec.  246.4(a)(22).
c. Prohibition Against Imposition of EBT Costs on Vendors (Sec.  
246.12(g)(4))
    Section 203(e)(11) of Public Law 108-265 amended Section 17(h)(12) 
of the CNA, by replacing it with a new provision that prohibits the 
Secretary from imposing or allowing a State agency to impose the cost 
of electronic benefit transfer (EBT) equipment, systems, or processing 
on retail vendors as a condition for authorization or participation in 
the program. By law, this provision was effective June 30, 2004. Such 
costs include EBT equipment, systems, or processing which are directly 
attributable to a WIC EBT system and used solely for the WIC Program. 
Retailers may, however, continue to provide funding for WIC EBT on a 
voluntary basis, as a number of retailers have already done. WIC EBT is 
intended to improve program efficiency, and retailers may make a 
business decision to share in the costs of WIC EBT.
    EBT processing is the automated data processing in support of WIC 
EBT purchase transactions and the associated reimbursement to retailers 
for their daily WIC EBT business. These activities may be carried out 
by the State agency or a State agency's contracted EBT processor and/or 
payment processor.
    It is customary practice for commercial processors that support 
retailer credit, debit, and food stamp EBT transactions to charge 
processing fees. Banks also charge fees for automated credits to their 
customers' accounts. These types of processing fees result from 
specific retailer business decisions; thus, if a retailer decides to 
participate in a State EBT system, this cost would not be imposed by 
the State agency, but would result in a cost to the retailer as part of 
its commercial relationships.
    In response to the legislative provisions contained in Public Law 
108-265, Sec.  246.12(g) is amended to prohibit a State agency from 
imposing the costs of EBT equipment, systems, or processing on retail 
vendors.
5. Expanded Allowances in Funding and Financial Management (Sec. Sec.  
246.14(e) and 246.16(b))
a. Use of Local Agency Claims (Sec.  246.14(e))
    Section 203(c)(3) of Public Law 108-265 amended Section 17(f)(21) 
of the CNA to allow the WIC State agency to use funds collected through 
claims assessed against local agencies in the same manner that it uses 
claims collected from vendors and participants. WIC Program regulations 
at Sec.  246.14(e) allow the State agency to keep vendor and 
participant collections and use these funds in the fiscal year in which 
the initial obligation was made, in which the claim arose, in which the 
funds are collected, or after the funds are collected, provided certain 
conditions are met. Before the State agency may credit such recoveries, 
it must provide vendors and participants with a means to appeal the 
claim action. For vendor claims, the State agency must provide vendors 
with an opportunity to justify or correct the claim (Sec.  
246.12(k)(3)); for participant claims, the State agency must provide 
participants with an administrative hearing (Sec.  246.9). Because 
regulations at Sec.  246.18 do not require the State agency to provide 
the local agency with a full administrative review for local agency 
claims, unless a claim affects the local agency's participation, the 
State agency has the discretion to determine the level of review 
provided for local agency claims. The State agency's review process for 
local agency claims should be specified or referenced in its local 
agency agreement. Consequently, a paragraph was added to the 
regulations to permit the State agency to credit recoveries of local 
agency claims only after any administrative review requested by the 
local agency in accordance with the local agency agreement has been 
completed, making this provision consistent with the requirements for 
vendor and participant claims.
    In addition, the paragraphs in the regulations containing the 
reporting and

[[Page 11311]]

documentation requirements (Sec.  246.14(e)(4) through (e)(5)) for 
vendor and participant claims were revised to include local agency 
claims. Further guidance regarding State agency reporting of local 
agency collections is provided in the WIC Reporting Guide.
b. Spendforward Authority (Sec.  246.16(b))
    Section 203(f) of Public Law 108-265 amended Section 
17(i)(3)(A)(ii)(I) of the CNA to increase the State agency's 
spendforward authority for nutrition services and administration (NSA) 
funds from one percent to three percent of its total grant. Regulations 
at Sec.  246.16(b)(3)(ii) specify the requirements that a State agency 
must follow to spend forward NSA funds into the next fiscal year. This 
legislative provision simply increased the spendforward authority 
without altering any of the other requirements regarding spendforward 
funds. Consequently, the regulations prohibiting food fund conversions 
from being spent forward, as well as those allowing an additional one-
half of one percent to be spent forward for the development of 
management information and EBT systems, remain in effect.
6. Income Exclusions in Determining WIC Eligibility (Sec.  246.7(d))
a. Family Subsistence Supplemental Allowance (FSSA) Payments
    Public Law 108-375, the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005, excluded FSSA payments, which 
are provided to certain members of the Armed Forces and their families, 
as income in determining eligibility for a number of child nutrition 
programs, including the WIC program. This provision would have expired 
September 30, 2006. However, Public Law 109-163, the National Defense 
Authorization Act for Fiscal Year 2006, made the FSSA, and the 
exclusion of FSSA assistance from income under other programs, 
permanent. Therefore, the exclusion of FSSA payments as income for 
child nutrition programs, including the WIC Program, is also permanent. 
In determining income eligibility for the WIC Program, WIC State 
agencies must exclude the FSSA payment. FSSA payments have been made to 
certain members of the Armed Forces by the Department of Defense (DOD) 
since May 2001.
b. National Flood Insurance Program Payments
    Public Law 109-64, enacted September 20, 2005, which amends the 
National Flood Insurance Act of 1968, states that payments made under 
the National Flood Insurance Program for flood mitigation activities 
shall not be counted as income or resources of the owner of the 
property when determining eligibility for any Federal means-tested 
program. The Federal Emergency Management Agency awards grants to 
States and communities, which distribute the funds to individuals and 
businesses for activities that reduce the risk of repetitive flood 
damage. Therefore, in determining income eligibility for the WIC 
Program, State agencies must exclude payments received by property 
owners under the National Flood Insurance Program.
    These income exclusions are added to Sec.  246.7(d)(2)(iv)(D) as 
paragraphs (d)(2)(iv)(D)(33) and (d)(2)(iv)(D)(34), respectively.
7. Fair Hearings and Adverse Action Notification Requirements
    Prior to the publication of the WIC Miscellaneous Final Rule (71 FR 
56708, September 27, 2006), Sec.  246.9(g) of the WIC Program 
regulations required a participant to request a fair hearing within the 
15-day advance adverse action notification period in order to continue 
receiving WIC benefits pending the outcome of the hearing, or 
expiration of the certification period, whichever comes first. This 
requirement was inadvertently removed from the regulations when 
regulatory language was added to avoid the incorrect impression that a 
participant must always request a fair hearing within the 15-day 
advance notice period, instead of within the 60-day period required at 
Sec.  246.9(e).
    However, it was not the intention of the Department to rescind this 
requirement; as indicated in the preamble to the Miscellaneous Final 
Rule (71 FR 56718), the requirement continues to be in effect. A 
participant may request a fair hearing within 60 days of the 
notification of adverse action, but Sec.  246.9(g) should have stated 
in the Miscellaneous Final Rule that benefits will be continued only if 
the fair hearing is requested within the 15-day advance adverse action 
notice period. This rule clarifies the requirement concerning 
continuation of benefits during the fair hearing period by restoring 
the provision in question in this interim rule in Sec.  246.9(g).
8. Technical Amendments
a. Complaints Alleging Discrimination in the WIC Program
    Section 246.8(b) of the WIC regulations contains instructions on 
how discrimination complaints should be filed. The address and 
telephone numbers to which such complaints should be directed have been 
changed, and these changes have been included in this rule.
b. New Address for FNS Western Regional Office
    The FNS Western Regional Office was relocated in March of 2007. 
This regulatory amendment updates the contact information provided in 
Sec.  246.27(g) by providing the new address.

List of Subjects in 7 CFR Part 246

    Food assistance programs, Food donations, Grant programs--Social 
programs, Indians, Infants and children, Maternal and child health, 
Nondiscrimination, Nutrition education, Public assistance programs, 
WIC, Women.

0
Accordingly, the WIC Program regulations at 7 CFR part 246 are amended 
as follows:

PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN

0
1. The authority citation for part 246 continues to read as follows:

    Authority: 42 U.S.C. 1786.


0
2. In Sec.  246.2:
0
a. Revise the definitions of ``Nutrition education'' and ``Supplemental 
foods''; and
0
b. Add in alphabetical order the new definitions ``Primary contract 
infant formula'', and ``State alliance''.
    The additions and revisions read as follows:


Sec.  246.2  Definitions.

* * * * *
    Nutrition education means individual and group sessions and the 
provision of materials that are designed to improve health status and 
achieve positive change in dietary and physical activity habits, and 
that emphasize the relationship between nutrition, physical activity, 
and health, all in keeping with the personal and cultural preferences 
of the individual.
* * * * *
    Primary contract infant formula means the specific infant formula 
for which manufacturers submit a bid to a State agency in response to a 
rebate solicitation and for which a contract is awarded by the State 
agency as a result of that bid.
* * * * *
    State alliance means two or more State agencies that join together 
for the purpose of procuring infant formula

[[Page 11312]]

under the Program by soliciting competitive bids for infant formula.
* * * * *
    Supplemental foods means those foods containing nutrients 
determined by nutritional research to be lacking in the diets of 
pregnant, breastfeeding and postpartum women, infants, and children, 
and foods that promote the health of the population served by the WIC 
Program as indicated by relevant nutrition science, public health 
concerns, and cultural eating patterns, as prescribed by the Secretary 
in Sec.  246.10.
* * * * *

0
3. In Sec.  246.4, redesignate paragraphs (a)(15) through (a)(27) as 
paragraphs (a)(16) through (a)(28), and add a new paragraph (a)(15), to 
read as follows:


Sec.  246.4  State plan.

    (a) * * *
    (15) The State agency's procedures for accepting and processing 
vendor applications outside of its established timeframes if the State 
agency determines there will otherwise be inadequate participant access 
to the WIC Program.
* * * * *

0
4. In Sec.  246.7:
0
a. The word ``and'' is removed from the end of paragraph 
(d)(2)(iv)(D)(31);
0
b. Paragraph (d)(2)(iv)(D)(32) is amended by removing the period at the 
end of the paragraph and adding in its place a semicolon.
0
c. New paragraphs (d)(2)(iv)(D)(33) and (d)(2)(iv)(D)(34) are added;
0
d. Paragraph (o)(2)(ii) is revised; and
0
e. A new paragraph (o)(2)(iv) is added.
    The revision and additions read as follows:


Sec.  246.7  Certification of participants.

* * * * *
    (d) * * *
    (2) * * *
    (iv) * * *
    (D) * * *
    (33) Payments received by members of the Armed Forces and their 
families under the Family Supplemental Subsistence Allowance from the 
Department of Defense (Pub. L. 109-163, sec. 608); and
    (34) Payments received by property owners under the National Flood 
Insurance Program (Pub. L. 109-64).
* * * * *
    (o) * * *
    (2) * * *
    (ii) Receiving ongoing health care. The State agency may exempt 
from the physical presence requirement, if being physically present 
would pose an unreasonable barrier, an infant or child who was present 
at his/her initial WIC certification and is receiving ongoing health 
care.
* * * * *
    (iv) Infants under 8 weeks of age. The State agency may exempt from 
the physical presence requirement an infant under eight (8) weeks of 
age who cannot be present at certification for a reason determined 
appropriate by the local agency, and for whom all necessary 
certification information is provided.
* * * * *

0
5. In Sec.  246.8, the first sentence of paragraph (b) is revised to 
read as follows:


Sec.  246.8  Nondiscrimination.

* * * * *
    (b) * * * Persons seeking to file discrimination complaints should 
write to USDA, Director, Office of Adjudication and Compliance, 1400 
Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 795-
3272 (voice) or (202) 720-6382 (TTY). * * *
* * * * *

0
6. In 246.9, revise paragraph (g) to read as follows:


Sec.  246.9  Fair hearing procedures for participants.

* * * * *
    (g) Continuation of benefits. Participants who appeal the 
termination of benefits within the 15 days advance adverse action 
notice period provided by Sec.  246.7(j)(6) must continue to receive 
Program benefits until the hearing official reaches a decision or the 
certification period expires, whichever occurs first. This does not 
apply to applicants denied benefits at initial certification, 
participants whose certification periods have expired, or participants 
who become categorically ineligible for benefits. Applicants who are 
denied benefits at initial certification, participants whose 
certification periods have expired, or participants who become 
categorically ineligible during a certification period may appeal the 
denial or termination within the timeframes set by the State agency in 
accordance with paragraph (e) of this section, but must not receive 
benefits while awaiting the hearing or its results.
* * * * *
0
7. In Sec.  246.10:
0
 a. Amend paragraph (d)(2)(ii) by adding the words ``other than the 
primary contract infant formula'' immediately after the words ``any 
contract brand infant formula''; and
0
b. Revise the third sentence of paragraph (e)(1)(iii) to read as 
follows:


Sec.  246.10  Supplemental foods.

* * * * *
    (e) * * *
    (1) * * *
    (iii) * * * Except as specified in paragraph (d) of this section, 
local agencies must issue as the first choice of issuance the primary 
contract infant formula, as defined in Sec.  246.2, with all other 
infant formulas issued as an alternative to the primary contract infant 
formula.
* * * * *


Sec.  246.11  [Amended]

0
8. In Sec.  246.11:
0
a. Remove the word ``Stress'' in paragraph (b)(1), and add in its place 
the word ``Emphasize'';
0
b. Further amend paragraph (b)(1) by removing the words ``proper 
nutrition and good health'' in paragraph (b)(1), and adding in their 
place the words ``nutrition, physical activity and health''; and
0
c. In the first sentence of paragraph (b)(2), remove the words ``in 
achieving a positive change in food habits, resulting in improved 
nutritional status'', and add in their place the words ``in improving 
health status and achieving a positive change in dietary and physical 
activity habits,''.

0
9. In Sec.  246.12:
0
a. Redesignate paragraphs (g)(5) through (g)(9) as paragraphs (g)(6) 
through (g)(10);
0
b. Add a new paragraph (g)(5); and
0
c. Add a new paragraph (r)(6).
    The additions read as follows:


Sec.  246.12  Food delivery systems.

* * * * *
    (g) * * *
    (5) No imposition of EBT costs on retail vendors. The State agency 
may not impose the costs of EBT equipment, systems, or processing 
required for electronic benefit transfers on any retail store 
authorized to transact food instruments, as a condition for 
authorization or participation in the program. The State agency may 
allow retailers to contribute to such costs on a voluntary basis.
* * * * *
    (r) * * *
    (6) Any authorized vendor. Each State agency shall allow 
participants to receive supplemental foods from any vendor authorized 
by the State agency under retail delivery systems.
* * * * *

0
10. In Sec.  246.14:
0
a. Revise the heading to paragraph (e);
0
b. Revise the first sentence of paragraph (e)(1);
0
c. Remove the word ``or'' at the end of paragraph (e)(3)(i);

[[Page 11313]]

0
d. Remove the period at the end of paragraph (e)(3)(ii) and add in its 
place the word ``; or'';
0
e. Add paragraph (e)(3)(iii); and
0
f. Revise paragraphs (e)(4) and (e)(5).
    The revisions and addition read as follows:


Sec.  246.14  Program costs.

* * * * *
    (e) Use of funds recovered from vendors, participants, or local 
agencies. (1) The State agency may keep funds collected through the 
recovery of claims assessed against vendors, participants, or local 
agencies. * * *
* * * * *
    (3) * * *
    (iii) In the case of a local agency claim, any administrative 
review requested in accordance with the local agency agreement has been 
completed.
    (4) The State agency must report vendor, participant, and local 
agency recoveries to FNS through the normal reporting process;
    (5) The State agency must keep documentation supporting the amount 
and use of these vendor, participant, and local agency recoveries.

0
11. In Sec.  246.16, revise the first sentence of paragraph 
(b)(3)(ii)(A) to read as follows:


Sec.  246.16  Distribution of funds.

* * * * *
    (b) * * *
    (3) * * *
    (ii) * * *
    (A) The State agency may spend forward NSA funds up to an amount 
equal to three (3) percent of its total grant (NSA plus food grants) in 
any fiscal year. * * *
* * * * *

0
12. In Sec.  246.16a:
0
a. Remove the words ``primary contract brand infant formula'' wherever 
they appear and add in their place the words ``primary contract infant 
formula'';
0
b. Amend paragraph (c)(1)(i) by removing the reference ``(c)(5)'' in 
the 5th sentence and adding in its place the reference ``(c)(6)'';
0
c. Add a new sentence between the first and second sentences in 
paragraph (c)(1)(ii);
0
d. Redesignate paragraphs (c)(2) through (c)(6) as paragraphs (c)(3) 
through (c)(7);
0
e. Add a new paragraph (c)(2);
0
f. Amend newly redesignated paragraph (c)(3) by removing the reference 
``(c)(5)'' in the second sentence and adding in its place the reference 
``(c)(6)'';
0
g. Remove the last sentence of newly redesignated paragraph (c)(3);
0
h. Amend the introductory text of newly redesignated paragraph (c)(4) 
by removing the reference ``(c)(3)(ii)'' and adding in its place the 
reference ``(c)(4)(ii)'';
0
i. Amend newly redesignated paragraph (c)(4)(ii) by removing the 
reference ``(c)(3)(i)'' wherever it appears, and adding in its place 
the reference ``(c)(4)(i)'';
0
j. Amend the last sentence of newly redesignated paragraph (c)(4)(iii) 
by removing the reference ``(c)(4)'' and adding in its place the 
reference ``(c)(5)'';
0
k. Amend newly redesignated paragraph (c)(5) by removing the reference 
``(c)(3)'' in the first sentence and adding in its place the reference 
``(c)(4)'';
0
l. Revise newly redesignated paragraphs (c)(6)(iii) and (c)(6)(iv);
0
m. Revise newly redesignated paragraph (c)(7);
0
n. Add a new paragraph (c)(8);
0
o. Amend paragraph (d)(2)(i)(A) and (d)(2)(i)(B) by removing the 
reference ``(c)(3)'' wherever it appears and adding in its place the 
reference ``(c)(4)'';
0
p. Redesignate paragraph (k) as paragraph (l);
0
q. Add a new paragraph (k);
0
r. In newly redesignated paragraph (l):
0
(i) Remove the reference ``(k)'' wherever it appears and add in its 
place the reference ``(l)'';
0
(ii) Amend the last sentence of newly redesignated paragraph (l)(3) by 
removing the references ``(k)(2)(ii), (k)(2)(iii) and (k)(2)(iv)'' and 
adding in their places the references ``(l)(2)(ii), (l)(2)(iii) and 
(l)(2)(iv)'';
0
(iii) Amend the first sentence of newly redesignated paragraph (l)(4) 
by removing the references ``(k)(2) and (k)(3)'' and adding in their 
places the references ``(l)(2) and (l)(3)'';
0
(iv) Amend the second sentence of newly redesignated paragraph 
(l)(5)(iii) by removing the reference ``(k)(5)(iii),'' and adding in 
its place the reference ``(l)(5)(iii)'';
0
(v) Amend the second sentence of newly redesignated paragraph (l)(8) by 
removing the reference ``(k)(7)'' and adding in its place the reference 
``(l)(7)'';
0
(vi) Amend newly redesignated paragraph (l)(9) by removing the 
references ``(k)(7) and (k)(8)'' whenever they appear, and adding in 
their places the references ``(l)(7), and (l)(8)'';
0
(vii) Revise newly redesignated paragraph (l)(3); and
0
s. Add a new paragraph (m).
    The revisions and additions read as follows:


Sec.  246.16a  Infant formula cost containment.

* * * * *
    (c) * * *
    (1) * * *
    (ii) * * * Any State agency or alliance that served a monthly 
average of more than 100,000 infants during the preceding 12-month 
period shall issue separate bid solicitations for milk-based and soy-
based infant formula. * * *
    (2) What is the size limitation for a State alliance? A State 
alliance may exist among State agencies if the total number of infants 
served by States participating in the alliance as of October 1, 2003, 
or such subsequent date determined by the Secretary for which data is 
available, does not exceed 100,000. However, a State alliance that 
existed as of July 1, 2004, and serves over 100,000 infants may exceed 
this limit to include any State agency that served less than 5,000 
infants as of October 1, 2003, or such subsequent date determined by 
the Secretary for which data is available, and/or any Indian State 
agency. The Secretary may waive these requirements not earlier than 30 
days after submitting to the Committee on Education and the Workforce 
of the House of Representatives and the Committee on Agriculture, 
Nutrition, and Forestry of the Senate a written report that describes 
the cost-containment and competitive benefits of the proposed waiver.
* * * * *
    (6) * * *
    (iii) Calculation of rebates during contract term. The rebates 
resulting from the application of the percentage discount must remain 
the same throughout the contract period except for the cent-for-cent 
rebate adjustments required in paragraph (c)(6)(iv) of this section.
    (iv) Cent-for-cent rebate adjustments. Bid solicitations must 
require the manufacturer to adjust rebates for price changes subsequent 
to the bid opening. Price adjustments must reflect any increase and 
decrease, on a cent-for-cent basis, in the manufacturer's lowest 
national wholesale prices for a full truckload of infant formula.
    (7) What is the first choice of issuance for infant formula? The 
State agency must use the primary contract infant formula(s) as the 
first choice of issuance (by physical form), with all other infant 
formulas issued as an alternative (see Sec.  246.10(e)(1)(iii)).
    (8) Under what circumstances may the State agency issue other 
contract brand formulas? Except as required in paragraph (c)(7) of this 
section, the State agency may choose to approve for issuance some, 
none, or all of the winning bidder's other infant

[[Page 11314]]

formula(s). In addition, the State agency may require medical 
documentation before issuing any contract brand infant formula, except 
as provided in paragraph (c)(7) of this section (see Sec.  
246.10(c)(1)(i)) and must require medical documentation before issuing 
any WIC formula covered by Sec.  246.10(c)(1)(iii).
* * * * *
    (k) What are the requirements for infant formula rebate invoices? A 
State agency must have a system in place that ensures infant formula 
rebate invoices, under competitive bidding, provide a reasonable 
estimate or an actual count of the number of units purchased by 
participants in the program.
    (l) * * *
    (3) If FNS determines that the number of State agencies making the 
request provided for in paragraph (l)(2) of this section does not 
comply with the requirements of paragraph (c)(2) of this section, FNS 
shall, in consultation with such State agencies, divide such State 
agencies into more than one group and solicit bids for each group. 
These groups of State agencies are referred to as ``bid groups.'' In 
determining the size and composition of the bid groups, FNS will, to 
the extent practicable, take into account the need to maximize the 
number of potential bidders so as to increase competition among infant 
formula manufacturers and the similarities in the State agencies' 
procurement and contract requirements (as provided by the State