Health Officials Seek to Cut Cost of Program for Needy : Rebates on Infant Formula Asked

State health officials are asking the makers of infant formula to grant substantial rebates on formula provided to needy women and children through a nutrition program.

Their goal is to win up to $40 million for the Women, Infants and Children (WIC) Supplemental Food Program, a federally funded program administered by the state, said Jo Ann Wray, chief of the state Department of Health Services’ WIC branch in Sacramento.

The problem is that WIC for years has paid full retail prices for infant formula, which is made by only three U.S. manufacturers in what some have called a captive market. Meanwhile, formula prices have soared faster than inflation.

Now, California hopes to follow the lead of at least 10 other states that have negotiated rebates over the last two years in an effort to extend services by cutting food costs.

The California WIC program spends $64 million a year on infant formula--43% of its total food costs--and most of that money is spent in Los Angeles County, where 41% of its cases are located, Wray said. Statewide, the program buys 42 million cans of infant formula each year at an average price of $1.52 per 13-ounce can.

“Our goal is to spend less on baby formula and more on an expanded caseload,” Wray said. “In Los Angeles, they (WIC offices) are struggling because they have more people who need services than we have food for.”

The California program serves 300,000 women and children a month, which is 25% of those potentially eligible, Wray said. Infant formula prices have risen 60% in the last six years, while the overall cost-of-living index has risen 37% and milk prices have risen 9%, she said.

“I am incensed that the state has not moved more quickly to get our share of (infant formula) profits,” said state Sen. Art Torres (D-Los Angeles), who has discussed the issue of rebates with producers.

Because infant formula is considered vital to the health of some low-income children, Torres suggested that WIC may be able to save lives by extending its services.

Death Rate High

“The delay has been at the expense of children in Los Angeles and the state of California. . . . In some parts of Latino and black areas in Los Angeles County, 18 of every 1,000 babies born never live to see their first birthday.”

The nation’s three largest formula producers--Ross Laboratories, Mead Johnson Laboratories and Wyeth Laboratories Inc.--have attributed formula price hikes to costs associated with research. Beyond that, they generally oppose rebates as a threat to the free-market system.

“Our objection is this: Why is the formula industry the only industry singled out for this treatment when you have other elements in the WIC food basket such as cheese, cereal and milk?” asked Rolland Eckels, spokesman for Mead Johnson. “One of the reasons we suspect they do this is because we are a small industry that is easy to single out.”

Laurie True, food policy specialist with the California Rural Legal Assistance Foundation in San Francisco, disagreed.

“These companies have been making huge profits for years because WIC has paid full retail prices for formula,” True said. “But baby formula is basically powdered milk and very cheap to produce--it’s not that big a deal.”

Recent informal discussions between the companies, which control more than 99% of the $1.3-billion formula market in the United States, and state officials have focused on potential rebates that could could go into effect sometime this year, Wray said.

She added, however, that “I have had no offers in writing from any company.”

Meanwhile, Wray said her office also plans to allow competitive bidding for a WIC infant formula contract in 1989, which could be worth millions of dollars to the winning bidder.

Wray figures that money derived from rebates could enable WIC to serve as many as 46,000 additional participants each month. Competitive bidding, she added, “might enable us to serve an additional 100,000 participants.”

Congress created the WIC program in 1973 to reach pregnant women who face complications during pregnancy because of inadequate nutrition and young children in low-income families.

Under the program, women and children present retail grocers with vouchers for items ranging from iron-fortified cereal to infant formula. Store owners deposit the vouchers at local banks where they are processed and paid by the state controller’s office, Wray said.