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PA Bulletin, Doc. No. 99-1176

RULES AND REGULATIONS

Title 28--HEALTH
AND SAFETY

DEPARTMENT OF HEALTH

[28 PA. CODE CHS. 8 AND 1101--1113]

Supplemental Nutrition Program for Women, Infants and Children (WIC Program)

[29 Pa.B. 3841]

A.  Introduction

   The Department of Health (Department), Bureau of Family Health, Division of WIC (WIC Program), submits as final rulemaking with proposed rulemaking omitted, regulations governing the authorization and management of stores participating in the WIC Program and regulations governing the procedures for administrative appeals of WIC applicants and participants, and local agencies and stores, in compliance with Federal regulations governing the WIC Program in 7 CFR Part 246 (relating to special supplemental nutrition program for women, infants and children). These State regulations add a new Part VIII (relating to supplemental nutrition program for women, infants and children). This rulemaking also deletes §§ 8.41--8.43, 8.51--8.62 and 8.71--8.74, the Department's current regulations pertaining to the WIC Program's administrative appeals. These additions and deletions are set forth in Annex A. The final-form State regulations have been submitted to the United States Department of Agriculture, Food and Nutrition Services (USDA-FNS), for review and approval for compliance with the Federal regulations. The USDA-FNS approved the regulations by letters dated April 5, 1999, April 12, 1999, and April 27, 1999. Copies of the letters are available to the public upon request.

   Under section 204(3) of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. § 1204(3)) (CDL), the Department is dispensing with notice of proposed rulemaking and the procedures for adopting final-form regulations, as specified in sections 201 and 202 of the CDL (45 P. S. §§ 1201 and 1202). The Department finds that those procedures are contrary to the public interest and impracticable.

   As a result of the Commonwealth Court decision in Giant Food Stores, Inc. v. Commonwealth of Pennsylvania, Department of Health, 713 A.2d 177 (1998), the Department was required to promulgate regulations governing the selection and management of grocery stores to participate in the WIC Program.

   The Department has mandates imposed by Federal regulations which require that at least once every 2 years the Department review the qualifications of all authorized food vendors participating in the WIC Program and make appropriate adjustments among participating food vendors. See 7 CFR 246.12(g) (relating to food delivery systems). These reviews must be completed by September 30, 1999, to stay compliant with Federal regulations. If the Department fails to do so, it faces audit exceptions and possible loss of Federal funding for the operation of the WIC Program until it complies with the Federal regulatory requirements. Loss or even suspension for a short period of time of Federal funding for the WIC Program would render the program inoperable, as 100% of the program's funds are Federal, or would place a difficult, if not impossible, financial burden upon the Commonwealth, shall the Commonwealth continue to operate the program in the absence of Federal funding.

   The WIC Program provides food benefits to approximately 260,000 women, infants and children who redeem, on an average daily basis, $500,000 worth of WIC checks at retail grocery stores located within this Commonwealth. An interruption in the funding of the Program would affect the receipt of necessary food benefits for the participants of the WIC Program, and interfere with the retail grocery business and the employment of personnel at the 25 local WIC agencies.

   The store reviews referenced previously were the subject of the Giant Commonwealth Court case wherein the Court found the criteria used to conduct the reviews shall be promulgated as regulations. Until the criteria are promulgated as regulations, the Department is unable to conduct further reviews. The Department will conduct approximately 1,400 reviews of stores before September 30, 1999. To require the Department to engage in the customary regulatory process, is impracticable and contrary to the public interest in ensuring proper nutrition for women, infants and children during critical periods of growth.

B.  Summary

   The regulations are presented in seven chapters: Chapter 1101 (relating to general provisions), Chapter 1103 (relating to authorization of stores), Chapter 1105 (relating to requirements of WIC authorized stores), Chapter 1107 (relating to sanctions), Chapter 1109 (relating to administrative appeals), Chapter 1111 (relating to applicant and participant appeals) and Chapter 1113 (relating to local agency and store appeals). Unless otherwise noted, the provisions of these regulations set forth in a regulatory format standards for the administration of the WIC Program, as they relate to design and operation requirements of the food delivery system, which have been in effect since 1986.

Chapter 1101. General Provisions.

   This chapter explains the general purpose of the WIC Program, defines terms used in the regulations, and provides information relating to the administration of the WIC Program by the Department and the local agencies with which the Department contracts to help it administer the WIC Program.

   Section 1101.1 (relating to background and scope) provides information on the Federal legislation authorizing the WIC Program and the purpose of that legislation. Through an amendment to the Child Nutrition Act of 1966 (42 U.S.C.A. §§ 1171--1791) (Federal act), Congress authorized the Supplemental Nutrition Program for Women, Infants and Children for the purpose of providing supplemental foods and nutrition education to pregnant, postpartum and breastfeeding women, infants and young children, from families with inadequate income, who are at special risk with respect to their physical and mental health by reason of inadequate nutrition or health care, or both. This section sets forth the purpose of the WIC Program, identifies the criteria persons need to satisfy to qualify as participants and the services that the WIC Program provides to participants.

   Subsection (b) sets forth the scope of the regulations contained in Part VIII. The regulations specify the design and operational requirements for the WIC Program's food delivery system, and prescribe procedures to be used by applicants, participants, local agencies and stores to appeal actions of the Department and local agencies that may adversely impact upon them. These procedures supplement or supersede 1 Pa. Code Part II (relating to General Rules of Administrative Practice and Procedure).

   Section 1101.2 (relating to definitions) provides definitions that are consistent with the Federal regulations governing the WIC Program found in 7 CFR Part 246. The section also provides definitions for some terms which are not defined or used in Federal regulations. Federal regulations governing the WIC Program found in 7 CFR 246.3(b) (relating to administration) delegate responsibilities for the effective and efficient administration of the WIC Program at the state level to state agencies. A ''state agency,'' as defined under Federal regulation, is the health department or comparable agency of each state. In this Commonwealth, the USDA-FNS contracts with the Department to carry out the responsibilities of the WIC Program.

   Section 1101.3 (relating to administration) sets forth, in general terms, the responsibilities of the Department in administering the WIC Program, as well as the responsibilities of the local agencies with which the Department contracts to carry out the WIC Program at the local level. The Department sets forth the requirements imposed upon local agencies, in greater detail, in its biennial contracts with the local agencies. Responsibilities of both the Department and the local agencies may also change as required by Federal statute or regulations.

Chapter 1103. Authorization of Stores.

   In accordance with the duties delegated to it by the Federal regulations, the Department is responsible for the fiscal management of and accountability for the WIC Program food delivery systems under its jurisdiction. See 7 CFR 246.12(a)(1) (relating to food delivery system). The Department has the option, under Federal regulations, to operate up to three different types of food delivery systems in this Commonwealth: a retail purchase system, a home delivery system or a direct distribution system. See 7 CFR 246.12(b). With the exception of special infant formulas for which the Department has chosen to use a direct distribution system, the Department has elected to use a retail purchase system for the delivery of food benefits to WIC participants

   This chapter explains the procedures the Department has established to select and authorize retail grocery stores to participate in the retail food delivery system of the WIC Program.

   Section 1103.1 (relating to certification and recertification reviews) establishes objective criteria for the selection of stores to participate in the WIC Program. As required by 7 CFR 246.12(e)(1), there shall be an onsite visit prior to, or at the time of, initial authorization of a new vendor. The procedures in the section are used to determine, through onsite reviews of stores, which stores meet the criteria to be authorized to participate in the WIC Program. The criteria used are found in § 1103.4 (relating to selection and limitation criteria; authorization process). The criteria ensure that each store is able to minimally meet the needs of participants who may choose to shop at the store for their WIC purchases.

   Subsection (a) sets forth an exception to the requirements that stores shall satisfy certain qualifications to be authorized. It permits an exception if the Department finds that there would be participant hardship if the store were not to receive authorization to participate in the WIC Program. This exception allows the Department to balance the needs of the participants against the shortcomings of the stores in meeting the criteria. It furthers the purpose of the Federal act, which is to provide supplemental food benefits to women, infants and children during critical periods of growth. This exception does not relieve the store from meeting its responsibilities. It requires corrective action by the store to ensure the criteria are met. This exception is discussed further in the discussion of § 1103.7 (relating to participant hardship).

   The Department's authorization of stores is not perpetual. Subsection (c) sets forth the duration of certification. Consistent with 7 CFR 246.12(f)(2)(xvi), it puts the store on notice that neither the Department nor the store have an obligation to renew the vendor agreement. At least once every 2 years, the Commonwealth is required, under 7 CFR 246.12(g), to review the qualifications of all authorized vendors in its jurisdiction. The Department's agreements with stores which have been selected to participate in the WIC Program are for no longer than 2 years duration. Based upon the results of the reviews, which are labeled in these regulations as certification or recertification reviews, the Department decides which stores are to be selected to participate in WIC Program and provides authorization. This procedure provides an equitable opportunity for all stores to compete for limited store authorizations, at least once every 2 years, and allows the Commonwealth to select and authorize stores which provide the best value to the Commonwealth. This, in turn, provides for the most efficient use of Federal grant funds and allows the Commonwealth to serve more participants.

   The Pennsylvania Food Merchants Association (PFMA) provided comment on the contract duration issue. The PFMA wants vendor agreements to be of indefinite length but subject to ongoing monitoring by the Department. The PFMA would have a contract endure until a store violates conditions of participation and does not correct problems following notice of the violations. The Department provided all of the PFMA's comments to the USDA. The USDA's response to the suggestion by PFMA was:

We believe that fixed period agreements enable the State to manage its vendor population on a periodic basis more easily and allows it to be more responsive to changing Program conditions and needs than is the case with open-ended agreements. The majority of geographic State agencies contract with vendors for 3 years or less, making fixed-period contracts and agreements the norm Nationwide.

   Subsection (d) establishes the Commonwealth procedures for the certification/recertification reviews and provides that these reviews shall be conducted at least once every 2 years. The establishment of these standards is mandated by 7 CFR 246.12(g).

   Section 1103.2 (relating to probationary certification) establishes procedures to authorize stores, on a probationary basis, which have not opened and do not have the frozen or dairy food sections stocked at the time of the certification review. This benefits both the stores and the WIC participants. It allows stores to be reviewed prior to opening and allows the participants to select these stores to make their WIC purchases as soon as the store is open for business.

   This section also establishes procedures for the Department to authorize stores that do not meet the selection and limitation criteria to participate in the WIC Program, on a probationary basis, if the denial or removal of the store's authorization would cause participant hardship. This section furthers the purpose of the Federal act by weighing the need of the participants and the Department in having stores to serve the participants in a particular area, against the problems demonstrated by that store in failing to meet such requirements or failing monitoring or compliance reviews which have been established to ensure the provision of WIC Program benefits to participants.

   Section 1103.3 (relating to authorization of store slots) establishes a formula for determining how many stores the Department will authorize to participate in the WIC Program. The number is based upon a participant to store ratio. This furthers the purpose of the Federal act by assuring an appropriate number and distribution of authorized stores for adequate participant access as required by 7 CFR 246.12(e)(1).

   Federal regulations permit a state to establish criteria to limit the number of stores it will authorize to participate in the WIC Program so that the state can effectively and efficiently manage review of all stores under its jurisdiction. See 7 CFR 246.12(e)(1). Under this section, the Department authorizes one store slot for every 160 participants in the area, except in Philadelphia. Because of the WIC population density in Philadelphia and the geographic density of grocery stores, one store slot is authorized for every 260 participants in Philadelphia.

   Pennsylvania's standard is more liberal than many other states in the Mid-Atlantic region. The regional average is one store slot authorized for every 192 participants, with some states/districts having averages as high as one store for every 548 participants. Only two states have lower ratios than the Commonwealth: West Virginia and Virginia. The demographics of those states differ quite significantly from this Commonwealth. For example, the number of WIC participants served by the states, 52,700 and 137,655 respectively, compare to Commonwealth's 242,551 participants. (Statistics are based upon figures provided for the First Quarter of FFY 1999.)

   The PFMA advised the Department that it opposes criteria to limit the number of stores to participate in the WIC Program; it wants the Department to eliminate the vendor to participant ratio and replace it with a ''WIC participant freedom to shop'' policy. The PFMA would have the Department allow any store interested in participating in the WIC Program to be approved so long as the store maintains proper health standards and adequate product inventory. The USDA's response to this was:

It is important to understand that the establishment of vendor limitation criteria can be a critical element in providing quality services to participants and promoting efficient use of the State agency's food grant. Furthermore, if the State agency reduced its selection criteria to the two suggested by the PFMA, all vendors meeting these criteria would be authorized regardless of the prices they charge. Since WIC is not an entitlement program, such as Food Stamps, with funding available to serve all eligible applicants, higher food costs result in lower number of participants served. We do not believe this would result in the best value possible for the Program.

   Section 1103.4 (relating to selection and limitation criteria; authorization process) sets forth the criteria the Department will use to select stores to participate in the WIC Program. The Department has established criteria which will ensure that the Department authorizes to participate in the WIC Program only those stores which are able to provide participants with the foods that meet Federal nutritional standards in 7 CFR 246.10 (relating to supplemental foods) and which are authorized by the Department. At the same time, the criteria ensures that the stores charge the Commonwealth reasonable prices for the foods which are purchased by the participants with WIC checks.

   Subsection (a) sets forth 12 criteria the Department will use to determine which stores to authorize for participation in the WIC Program. Subsection (a)(2) requires that a store serve a minimum of 25 participants. This number permits small stores to participate in the WIC Program, while ensuring that the expenditure of Federal dollars for administration and monitoring is not wasted on stores that conduct so little WIC business that their participation in the WIC Program would yield a poor return for the cost.

   Other criteria in this subsection have been developed to ensure that stores which are selected to participate in the WIC Program are:

   (1)  Able to properly maintain foods (subsection (a)(3)).

   (2)  Have minimum inventory of WIC authorized foods available at all times (subsection (a)(5)).

   (3)  Be open and available a reasonable number of hours and days for participants to shop (subsection (a)(7)).

   (4)  Not have stale dated foods on the sales floor (subsection (a)(4)).

   (5)  Have shelf prices of WIC authorized foods at less than the maximum allowable cost established for the two food packages most prescribed for WIC participants (subsection (a)(6)).

   To fulfill its responsibilities to exercise sound fiscal management over the operation of the State WIC Program (7 CFR 246.12(a)(1)), the Department has established pricing criteria as part of the process for selecting retail grocery stores (subsection (a)(6)). Stores shall have prices of WIC authorized food packages which are less than the maximum prices established by the Department. The maximum prices for WIC authorized food packages are no more than three standard deviations above the Statewide averages of food prices. These prices will be revised annually based upon changes in industry prices for the most widely used WIC food packages. Maximum allowable prices are necessary to ensure responsible administration of the WIC Program. By only authorizing stores that satisfy criteria for maximum prices, the Department is ensuring that there is no extreme markup in the prices of WIC authorized foods and that the Department is acting in a fiscally responsible manner. This will provide a savings to the Commonwealth which, in turn, will ensure that the greatest number of qualified women, infants and children will receive food benefits from the WIC Program.

   The PFMA has argued that any retail grocery store be authorized as a WIC vendor, irrespective of the prices it charges, as long as the store meets State health and food safety inspection standards and is willing to stock the full line of WIC allowable foods.

   The USDA's response to this comment was:

Although current Federal regulations do not include specific selection criteria State agencies must use in selecting stores for WIC authorization, this will soon change. The WIC Reauthorization Act of 1998 requires the Secretary of Agriculture to promulgate final regulations not later than March 1, 2000, which include the following mandate ''. . . a state agency shall, in selecting a retail store for participation in the Program, take into consideration the prices that the store charges for food under the Program compared to the prices that other stores charge for the foods.''

   With respect to the subsection (a)(4) requirement that the store not have stale dated allowable foods on its sales floor, this is particularly important as it relates to infant formula products when the infant's sole source of nutrition is infant formula. Out of date formula may present a potentially serious health threat to an infant.

   The PFMA believes that the selection and limitation criteria are arbitrary; that they are unrelated to participant need, quality of stores or the ability of stores to serve WIC customers, and that they are anticompetitive.

   The USDA's response to the PFMA's comment on this issue was:

Selection criteria are standards established by the State agency to ensure the systematic selection of the most qualified vendors for authorization. Although selection and limitation criteria may restrict the ability of particular stores to secure or retain WIC authorization, they are utilized to secure participant access and are a critical element in providing quality service to participants.

   The USDA further stated:

The WIC Program's role is to select vendors to service clients, not to set or ensure profit margins for participating vendors. Although vendors benefit from the considerable volume of food purchases made through WIC, as well as other foods purchased at the time of WIC redemption, it is of the utmost importance to remember that participants, not vendors, are the Program's clients.

   Subsection (b) delineates criteria which the Department will use to determine which stores should be authorized in areas when more stores meeting selection criteria are applying for authorization than the Department has determined it needs through the assignment of stores slots based upon participant population for the area. This criteria will only be used when more stores are applying than the Department has determined it can effectively and efficiently monitor. The underlying policy for limitation of stores was articulated in the discussion of § 1103.3 (relating to authorization of store slots).

   The USDA provided the following general comment:

We fully support the State agency's decision to utilize limitation criteria as a means of ensuring the provision of quality services to participants; reducing the possibility of vendor fraud; and promoting the efficient use of the State agency's food grant.

   Section 1103.5 (relating to minimum inventory) establishes minimum standards of WIC approved foods that each authorized store shall maintain. This criteria is necessary to ensure that WIC authorized foods are available to participants when they shop at the store for WIC purchases. In accordance with 7 CFR 246.12(e)(3), the Department considered the impact of authorization decisions on small businesses. To help small businesses, the Department has established minimum inventory standards that are sufficient to serve the needs of one to three participants. The inventory identified in this section meets the nutritional requirements in 7 CFR 246.10.

   Minor changes have been made to the minimum inventory requirements from those that the Department is currently using in its administration of the WIC Program. The change in the minimum inventory requirements corresponds to changes in the quantities of foods prescribed for WIC participants to purchase. Specifically, the changes increase the requirements of milk and soy based powdered formula from five to six cans, and increase the requirements of evaporated milk from ten to twelve cans.

   Subsection (c) provides that the WIC Program will publish annually in the Pennsylvania Bulletin the list of authorized foods and acceptable brand name products. This complies with the mandates of 7 CFR 246.12(h)(2) which requires that the State provide grocery stores with pertinent WIC Program information, including a list of acceptable brand name products. Revision of the list annually permits the Department to review new products, including store brands, and add them to the list if found to meet acceptable nutritional standards established by Federal regulation. This differs from how the program currently operates.

   Subsection (c) also provides that the Department will publish in the Pennsylvania Bulletin notice of the authorized foods and brand names by September 15 of each year. Currently, notice is provided annually by sending a copy of the WIC food list to each authorized store. It is the intent of the Department to continue the practice of sending the information to the stores. It will do this in addition to publishing the information in a notice in the Pennsylvania Bulletin.

   Subsections (d)--(f) identify the conditions under which the Department will grant to a store a waiver of the minimum inventory requirements (subsection (d)), the foods for which waivers may be granted (subsection (e)) and when the waivers will no longer be valid (subsection (f)). Waivers will be granted only for certain foods for which the Department has no documented WIC purchases at the store. A waiver granted to the store by the Department will no longer be valid when the store is presented a WIC check by a participant for the purchase of a WIC food for which a waiver was granted. In that event, the WIC authorized store will be required to provide the food item within 72 hours after presentation of a WIC check. This policy excuses a store from stocking foods that have not been purchased at the store, while safeguarding participants by requiring the store to make the prescribed food item available to the participant promptly after it is sought. The granting of waivers benefits a store by relieving the store from the unnecessary burden of maintaining inventory of certain WIC authorized foods when the Department has no documented purchases of the foods.

   Section 1103.6 (relating to waiting list) establishes a procedure which allows for the effective administration and management of stores seeking authorization to participate in the WIC Program. This procedure requires that the Department maintain a waiting list of stores seeking authorization when no store slots are available. When a store slot becomes available, the Department will be cognizant of the stores interested in being authorized and will be able to send authorization information to all on the list, thus ensuring that the Department provides a fair and equitable opportunity for all stores interested in seeking authorization.

   Section 1103.7 (relating to participant hardship) establishes criteria the Department will consider to justify authorizing a store in lieu of denying certification or recertification when the store fails to meet selection and limitation criteria. This criteria requires that there be a demonstration of hardship to participants if the store is denied certification or recertification by the Department. By authorizing a noncompliant store to participate in the WIC Program when there is a determination of participant hardship, the Department is furthering the purpose of the Federal act by ensuring that participants have reasonable access to stores. Additionally, this section allows the Department to provide for continuity of services to participants when the store changes ownership, if there is a finding of participant hardship as defined in subsection (b).

   Subsection (b)(1) permits the Department to make exceptions for stores that fail to meet selection and limitation criteria if they serve participants whose nationality, ethnicity or religious dietary needs cannot be properly served by another WIC authorized store within a certain and defined distance. For example, if a kosher grocery did not have the minimum inventory of whole milk available at the time a recertification review was conducted, and the next closest kosher grocery was more than 3 miles (for Philadelphia, the distance is 1 mile), the store would be placed on probation if ten or more participants who shop at the store require kosher products. The exception allows the Department to consider one type of the special need of WIC participants.

   Subsection (b)(5)--(7) identifies reasonable travel distances to an authorized store and declares that participant hardship exists when a specified number of participants would need to exceed that distance to travel to another WIC authorized store should the store they have selected be removed from the WIC Program. The distances vary according to the number of WIC participants who may be affected if the store were not authorized. As the number of participants affected increase, the distance to the next authorized store decreases for the purpose of determining participant hardship.

   This regulation reflects two changes from the current administration of the WIC Program. The first is the addition of 3/10 of 1 mile distance for determining participant hardship for stores serving 300 or more participants. Previously there was no delineated travel distance for stores serving 300 or more participants. The second change is the provision for the temporary authorization of a store which had changed ownership. Temporary authorization would be permitted when the Department has not received sufficient notice to arrange for alternate shopping accommodations for WIC participants. As stated earlier, Federal regulations specifically provide that authorizations of stores are null and void when operation of the store ceases or ownership changes. See 7 CFR 246.12(f)(2)(xix). Administratively, the provision for temporary authorization permits the Department to be responsive to the immediate needs of the participants for supplemental foods. It also enables the Department to remain compliant with Federal regulations, by providing for a temporary authorization of stores which have changed ownership rather than permitting continued WIC purchases to a store no longer certified. This temporary authorization is valid only until the WIC Program is able to conduct a complete certification review of that store, and any other store which may be seeking certification in that area.

Chapter 1105. Requirements of WIC authorized stores.

   Section 1105.1 (relating to training) establishes the type and frequency of training that the Department needs to provide to authorized vendors to satisfy the Federal regulations for training of authorized grocery stores. The training is intended to prevent WIC Program errors and abuse, and to improve WIC Program service as required by 7 CFR 246.12(h). Federal regulations require as a part of the vendor agreement, that the manager of a store or an authorized representative of a store accept training on program procedures and be responsible for training cashiers and other staff. The Federal regulations do not specifically mandate how this is to be accomplished. See 7 CFR 246.12(f)(2)(vii)--(ix).

   The Federal regulations do require, however, that food vendors be provided with pertinent program information and guidance. See 7 CFR 246.12(h). Subsection (a) pertains to initial training. It mandates that newly authorized stores receive training on WIC Program policies and procedures prior to actually accepting WIC checks. This ensures that management and cashiers understand their responsibilities related to the store's participation in the WIC Program before they participate in WIC transactions. This subsection requires that the local agency responsible for the area in which the store is located conduct the initial training within 30 days of the date of authorization to ensure that, once a store is authorized, it will be able to participate in the program as soon as administratively feasible. Requiring store personnel to be trained prior to the store accepting checks prevents WIC Program errors.

   Subsection (b) pertains to annual training. It provides for continued education, in recognition that retail food sales occur in an employment environment that experiences high turnover rates. The Department requires annual training of at least one person from each store who is responsible for training store personnel on WIC Program procedures. For the convenience of store personnel, the Department provides each store with two opportunities for it to have a satisfactory person attend the annual training. This subsection further provides for training within the county where the store is located or in an adjoining county so that the store representative will not be burdened by traveling long distances to attend the annual training. Annual training is designed to prevent WIC Program errors and improve WIC Program service by ensuring that authorized stores are provided continued education on the WIC Program and kept abreast of pertinent changes in the WIC Program operation. Annual training programs facilitate communication between authorized stores and WIC Program staff and allow the WIC Program staff to be responsive to issues affecting stores.

   Subsection (c) pertains to corrective training. It provides a means for the Department to aid stores in correcting violations identified during onsite reviews. Corrective training allows WIC Program staff to be responsive to problems documented during onsite visits to authorized stores. Corrective training ensures that the WIC Program has provided all possible assistance to stores in correcting problems prior to imposing sanctions against them as provided in § 1107.1 (relating to sanctions).

   Section 1105.2 (relating to overcharge recovery system) establishes procedures for the Department to detect overcharges on WIC participant purchases by stores redeeming WIC checks and provides for reimbursement to the WIC Program of overcharges, if found.

   Federal regulations require that the Department establish procedures to ensure the propriety of food instruments, which includes designing a system to review food instruments to detect suspected overcharges. See 7 CFR 246.12(r)(5). This section complies with that requirement. Subsection (a) requires authorized stores to submit to the Department, on a quarterly basis, prices for WIC authorized foods the Department designates. The store is required to provide the information on a ''Quarterly Price Report'' form provided by the Department. The regulation also permits vendors to file these forms by fax.

   Subsection (b) provides that the Department will compare the prices submitted by the store, against the actual prices charged by the store on redeemed food instruments, to determine if there have been overcharges. This system detects only the most egregious overcharges, because it uses the highest prices charged by the store during the reporting period. Therefore, notwithstanding that the store's prices may have fluctuated during the review period, the Department will be able to detect only those charges which exceed the maximum price that a store could have charged for a food package based upon the prices provided by the store.

   Federal regulations require the Department to seek reimbursement from the store for overcharges and require notice of the Department's intent to do so as part of the agreement between the Department and authorized store. See 7 CFR 246.12(f)(2)(iv). Subsection (f) requires the store to submit reimbursement to the Department within 20 days if the store if the store does not dispute the claim. This time period allows the store a reasonable opportunity to investigate the propriety of the overcharges claimed by the Department and arrange for payment.

   Subsection (g) provides a mechanism for vendors to dispute claims for overcharges if the store questions the propriety of the overcharges, if the store notifies the Department within 15 days of the date of the billing notice. Requiring that stores provide notice of a dispute within a defined time, provides for administrative efficiency by the Department and ensures prompt action by the store to identify and correct problems which may have caused the overcharges. Failure to reimburse the Department for overcharges when due will result in the imposition of a sanction under § 1107.1.

   Recovery of overcharges is not only required by Federal regulations, it also benefits the WIC Program by recapturing funds which the Department may recycle to provide food benefits to additional WIC participants.

   Section 1105.3 (relating to terms and conditions of participation) sets forth the terms and conditions under which stores will be authorized to participate in the WIC Program. Subsection (a) sets forth the responsibilities of stores generally, subsection (b) sets forth the responsibilities of stores with regard to participants and subsection (c) sets forth the terms and conditions of participation with regard to processing and redemption of WIC checks. Many of the requirements found in this section are specifically set forth in the Federal regulations. Other provisions have been added by the Department to ensure that the Department is able to carry out its responsibilities mandated by the Federal regulations and to carry out the purpose of the WIC Program.

   For instance, subsection (a)(4) require stores to maintain minimum inventory of allowable foods and subsection (a)(5) requires them to ensure that foods are properly store and refrigerated. This ensures that authorized stores are maintaining minimum levels of WIC authorized foods so that the foods are available for participants to make their WIC purchases when shopping at the store, and that foods are fresh and their nutritional content is not compromised. These provisions permit the Department to carry out its responsibility of providing nutritious, supplemental foods to participants of the WIC Program.

   Subsection (c), which pertains to the processing and redemption of WIC checks, establishes procedures for the stores to follow which protect the integrity of the WIC data and the integrity of the fiscal operation of the program.

   The only change to the terms and conditions of participation set forth in this section from the way the program has previously operated is to require stores to display current shelf prices of WIC authorized foods. This change will ensure that accurate food prices are collected during compliance and monitoring reviews and will help participants to shop wisely and utilize their benefits in a cost effective manner. The change takes into consideration the effect on small stores, by allowing stores the option of displaying the prices on a food list, easily located and clearly visible to participants.

   Section 1105.4(d) (relating to change of ownership of a WIC authorized store) puts stores on notice that the Department will not accept an application from a new owner if it appears that the change of ownership is a sham transaction used as a method of avoiding a sanction or disqualification.

   Section 1105.5 (relating to changes in availability or location of WIC authorized stores) sets forth Department notification requirements for stores which temporarily or permanently close or relocate. It further provides Department procedures for dealing with each circumstance. The purpose of the section is to ensure that the WIC Program will have sufficient time to notify participants when stores at which the participants are making WIC purchases will not be open or are relocating. Requiring the stores which are going to close or relocate to provide the Department with prior notification enables the Department to make alternate arrangements for participant shopping so that there will be as little inconvenience as possible for participants.

   Subsection (b) identifies relevant factors under which the Department may permit a store to temporarily close without imposing sanctions as required by § 1107.1.

   The regulations identify three situations in which the store will not lose its authorization or be sanctioned for temporary closings or minimal relocations. These exceptions were not previously granted.

   The first exception allows for a continued authorization of a store that temporarily closes due to natural disaster or death in the immediate family. This exception particularly benefits small business owners since many times those businesses are family owned and operated, and the loss of an immediate family member impacts upon the operation of the business.

   The second exception allows for temporary closing for remodeling up to 3 days without the loss of the store's authorization, if the owner notifies the Department 15 days in advance of the date the store is scheduled to close for remodeling. This temporary closing may inconvenience participants who shop at the store. However, if the Department is apprised of the temporary closure at least 15 days in advance, the Department will have sufficient opportunity to notify the participants so that temporary, alternate arrangements can be made for WIC participant shopping. The change also allows the Department to provide continuity in WIC services. Participants will be able to resume making WIC purchases at the store that temporarily closes when the store reopens, in lieu of having to permanently change stores, had the store lost its authorization to participate in the WIC Program and not be reauthorized when it reopens.

   The third exception allows for the continued authorization for stores which relocate less than 1 mile and are open for business at their new location less than 3-calendar days from the date the store closes at the prior location. The 3-day time limitation ensures that the closing is for a reasonable period of time and causes minimal inconvenience for participants. The limitation of 1 mile distance for relocation was selected because the store is anticipated to attract the same participants if it relocates this distance or less from its prior location. A relocation of greater distance may cause participants to choose other stores located closer to the store's prior location because of travel distance and inconvenience.

   Section 1105.6 (relating to monitoring of WIC authorized stores) sets forth the procedures the Department has developed to meet the mandates of Federal regulations for monitoring authorized stores. The purpose of monitoring authorized stores is to ensure compliance with applicable Federal and State regulations, to provide a mechanism to identify problems and assist stores in correcting these problems, and to provide the Department with the ability to take action against stores which fail to correct problems or which may be engaging in fraudulent or abusive activity. Monitoring of stores protects the financial integrity of the program and ensures effective and efficient program service to WIC participants.

   The Department is mandated by 7 CFR 246.12(i) to monitor food vendors within its jurisdiction. The Federal regulations require that the Department develop a system which identifies high-risk vendors and ensures onsite monitoring of WIC authorized stores. See 7 CFR 246.12(i)(1). The Department is responsible for designing a system to conduct onsite monitoring of at least 10% of authorized stores per year, to survey the types and levels of abuse and errors among authorized stores and to take corrective action as appropriate. See 7 CFR 246.12(i)(2). Furthermore, the Federal regulations provide the Department with the authority to conduct compliance purchases to collect evidence of improper vendor practices. See 7 CFR 246.12(i)(5).

   The Department has established three methods for conducting onsite monitoring reviews of WIC authorized stores: high-risk reviews, routine reviews and training buys. Each of the three types of review have distinct purposes. The types of problems suspected at the stores determine which type of monitoring the Department will conduct.

   Subsection (b) establishes procedures for monitoring high-risk stores. By definition, a ''high-risk store'' is one which is identified as a possible perpetrator of fraud or abuse. The Department will make the preliminary determination that a store is a high risk store based upon an analysis of redemption patterns of WIC checks or sales, through compliance buy violations or by participant or WIC Program staff complaint. Once a store has been identified as a high-risk store, the Department will use one of two methods for monitoring it to determine whether or not the store is, in fact, a perpetrator of fraud or abuse. The Department will either conduct a compliance investigation or an inventory audit of the store.

   A compliance investigation involves a series of at least two investigations of the store by an undercover investigator posing as a WIC participant or person authorized by the WIC Program to act on behalf of a WIC participant. The purpose of the investigation is to ensure compliance with WIC Program requirements. By authorizing a person to pose as a WIC participant, the Department is able to ascertain if store personnel are following WIC Program requirements in conducting WIC transactions. A report is completed following each review and the store will be notified by letter of any deficiencies noted during the review. This notice provides the store the opportunity to take corrective action. If compliance investigations indicate on two consecutive occasions problems in conducting WIC transactions, the Department will conduct mandatory corrective training for store personnel to assist the store in correcting problems identified during the compliance investigation and to provide every possible means to ensure the store's continued participation in the WIC Program. This section further provides that the Department will disqualify a store from further participation in the WIC Program if deficiencies are found during a third investigation following the mandatory corrective training.

   The Department will also use inventory audits to monitor high-risk stores. This procedure allows the Department to compare, over a specific period of time, the inventory levels of WIC authorized foods against the actual WIC sales of those same products during the same specific period of time. The Department will use inventory records to determine whether a store had adequate product inventory sufficient to satisfy claims made for WIC reimbursement. This method is a particularly useful tool for determining whether a store is trafficking in WIC checks.

   Under 7 CFR 246.12(i)(2), the Department has developed a procedure for monitoring at least 10% of authorized food vendors per year. This procedure is in subsection (c). The purpose of these types of reviews are to determine whether or not authorized stores remain in compliance with the selection and limitation criteria in § 1103.4(a) and (b) (relating to selection and limitation criteria; authorization process). This type of review is also used to determine whether stores continue to comply with the terms and conditions for participation in § 1105.3 (relating to terms and conditions of participation). The Department will provide corrective training for a store which fails two consecutive routine reviews. This is done in an effort to assist stores in correcting problems. If problems are identified during the third routine review of the store, the Department will proceed to impose sanctions against the store under § 1107.1.

   Subsection (d) establishes a procedure to monitor a store's check redemption practices. These reviews are conducted by Federal, State or local agency personnel. The same standards for routine monitoring reviews apply regarding mandatory corrective training following two consecutive reviews identifying problems in the check redemption procedure. Also provision is made for the imposition of sanctions against the store following problems noted during a third training buy.

   Subsection (e) puts stores on notice that the Department may utilize law enforcement agencies in the investigation of stores suspected of trafficking in WIC checks or suspected of other fraud or abuse of the WIC Program.

   Subsection (f) provides for the Department to seek reimbursement from a WIC authorized store that received funds improperly due to any violation of regulations governing the store's participation in the program which were discovered during monitoring reviews.

   After reviewing the Department's draft regulations, the PFMA requested that all references to high-risk reviews be eliminated. The PFMA also suggested that the regulations be amended so that retailers always have an opportunity to review and correct identified problems before any sanction is implemented.

   The USDA's comment to PFMA's request was:

High-risk review as described in Pennsylvania's regulation include compliance investigations and inventory audits. Such activities are required by Federal regulation 246.12(i) and therefore may not be eliminated.
An interpretation of Federal regulations 246.12(i) which we received from Supplemental Food Programs Division indicated that the opportunity to correct deficiencies was referring to deficiencies detected during onsite monitoring visits and not for more serious violations detected during covert compliance investigations or inventory audits.

   The PFMA suggested that regulators develop a distinction between willful violators and human error committed by well meaning employes.

   The USDA's response to this comment was:

It is our position that vendors should be held accountable for noncompliance and Program violations, whether they be deliberate attempts to abuse the Program or a chronic repetition of inadvertent errors, since both ultimately result in increased food costs and fewer participants being served. Not only is it extremely difficult for State agencies to ascertain the intent behind an action, whether inadvertent or deliberate such action has the same negative effect on the Program. Furthermore, we believe that the fact that errors were performed by nonmanagement employees does not relieve the vendor of the responsibility for that employee's actions. Removing an abusive employee does not mitigate the effects of chronic vendor error and mismanagement on Program costs and does not lessen the vendor's responsibility to provide effective oversight and appropriate employee training.

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