[00:00] Bryan Hyde: Welcome to the Health Policy Podcast. I'm Brian Hyde, and today I'm joined by Mackenzie Richards. She is a health policy fellow with the Cicero Institute. Mackenzie, welcome to the program. Would you take just a moment to tell us a little bit about who you are, as well as what you do? [00:13] McKenzie Richards: Hi, Brian. Thanks for having me on. Yep, that's right. I'm a healthcare policy fellow at the Cicero Institute. I focus on healthcare issues, but in particular, I'm interested in issues that affect mothers and infants. And in particular, I've recently developed this infant formula competition paper. [00:35] Bryan Hyde: Yeah, I, you know, I mentioned this to you off the air, but it's been a while since my kids were small enough that, you know, we were preparing a bottle for them. And so if you don't have babies or you don't know someone who has babies, maybe, you know, infant formula is just off your radar screen. But specifically, you're talking about restoring competition to the infant formula market. How do we set the stage for this? I know that there are some problems, some challenges, but you also have some solutions that you're wishing to bring forward. [01:04] McKenzie Richards: Yeah, that's right. So, you know, I first became interested in this issue because I have, you know, 3 little kids. When I went to my pediatrician with my second, I had recently been looking at, you know, food labels and getting really interested in trying to improve my diet and my husband's. And so naturally, I was looking at infant formulas, and I couldn't find an infant formula that didn't have corn syrup and didn't have some harmful seed oils or added sugars and different additives. And so when my pediatrician said, hey, we need you to put her on infant formula, she's not gaining weight fast enough, I said to her, I would be happy to put her on infant formula if you could find me an option that didn't have corn syrup and these added oils. And she said, oh, infant formula doesn't have corn syrup, it doesn't have these added sugars. So I said, okay, I know you have samples in the back. If you could go just get me a sample and come back, I'd be happy to feed it to my baby right now. She was gone for about 45 minutes. And by the time she came back, she asked me, she goes, why do we have corn syrup? I didn't even look at the oils, but why do we have corn syrup in all these infant formulas? And I said, I don't know, doctor, you tell me. And so we had that conversation, and luckily I was able to breastfeed with the rest of my time. But then a few months later, then we had the infant formula shortage crisis in 2022. And I was working at another policy group at the time and really started thinking about What were the things that drove this formula shortage? If you don't remember, there was a huge infant formula shortage and crisis. Parents couldn't get access to their foods for these infants. And if you think about it, this is— that was a public health crisis. You know, only 24.9% of American mothers are able to exclusively breastfeed. So that means two-thirds of our— [02:54] Bryan Hyde: Wow. [02:56] McKenzie Richards: Sorry, what is it? Yes, 3/4 of all American families that they're able to, you know, they need to have formula. And so when you had this crisis, there were vulnerable babies that weren't able to get the food they needed. And so in thinking through this, I wanted to understand kind of what drove that shortage, why there was corn syrup. I wanted to be able to answer the doctor why that was happening, and then maybe some potential solutions for it. [03:22] Bryan Hyde: So, you know, I'm looking through this paper that you've written on this, and you have a map in there that tells a really interesting story. And that is when it comes to suppliers of baby formula, there are shockingly few. I think I'm seeing 3 total, but of those 3, it sounds like 2 really dominate it. Help me understand why there is, I'm just gonna call it a monopoly, when it comes to producing There is a monopoly, and it's because of the way the government contracts for infant formula. [03:55] McKenzie Richards: So back in, I think it was in the 1980s, the government, we decided that we needed to be able to provide infant formula for low-income families. Fantastic. As a way to keep the costs down, they introduced a single-buyer rebate program. And so the idea of that was each state would be able to contract with just one manufacturer for all infant formula that they needed. [04:18] Bryan Hyde: Wow. [04:20] McKenzie Richards: products. So, you know, you go to the store, you buy infant formula, there might be 12 different products. You know, there's, there's lots of milk-based, soy-based, all of those. And so that one single manufacturer has to be able to provide all 12 to 24 types of formula for an infant. And so the idea of this program was by contracting with a single manufacturer, in exchange the manufacturer would be the only company that would be able to provide that formula to WIC participants in the state. And then in exchange, the infant formula manufacturers would help. They would give a rebate to the states to help keep those costs down. But what the problem is, is when you have it where only one manufacturer can do that, you could only allow large manufacturers to provide that because only large manufacturers have capacity to do milk-based, soy-based, you know, pre-made powder, all of the different varieties of infant formula. Only the large companies have the ability to provide that. And so what ends up happening is there's only a couple of companies that are— that have that capacity to manufacture. And as we've seen through time, it's actually consolidating. So back in 2015, you know, there were 3 companies that kind of was more balanced. And now it's not only consolidated pretty much with just 2 companies, it's also geographically consolidated. And so you see most of the West Coast has their— their contract is with Abbott, and then a lot of the Deep South and then, you know, northeastern is with Mead Johnson, and only one state has Nestlé. And so as it continues to consolidate, you know, as we see in other markets, when you have less competition and more consolidation, many, many other problems begin to pop up in those markets. [06:22] Bryan Hyde: Okay, so forgive me if I'm oversimplifying, but it sounds like part of the problem here is there's too much government intervention in the infant formula market, and that is skewing, you know, how it is manufactured as well as, you know, the ingredients that go into it. Talk to me a little bit about— I know you say there are 3 problems specifically? And then let's talk about some of the solutions that could help to bring some balance back into this. [06:51] McKenzie Richards: Yeah, that's right. I mean, I think a lot of well-intentioned policies end up going askew. And so we got to go back and reimagine those. But the 3 main problems that we see with this consolidation in the government contracting for infant formula is it affects the safety first and foremost. If you think back to the 2022 infant formula shortage, there were families who just couldn't get the formula that they needed. I was living in California at the time. I was one of those families. Granted, I wasn't exclusively breastfeeding and I was just a partial substitute, but I remember being scared and not being able to get access to the formula. And so Let's say that there is a manufacturing issue. These companies, 40% of all infants in the United States are covered by WIC. And so that's 40% of the people with infants in a geographic region who are not able to get access to those formulas if something happens to the manufacturing plant. And granted, the non-WIC contract could step in. So say, for example, you're on the West Coast and something happens to Abbott's manufacturing plant, heaven forbid, Mead Johnson could step in. But because they're so geographically far, the supply chains are not set up to be able to bring in the formula to those families in a timely enough manner. Something else to remember too is, okay, yes, this is 40% of the market and the contract exists. It ends up having spillover effects. So it affects about 70 to 80% of the market according to a government accountability Office report from 2025. And so without those supply chains, and when there's something that breaks, that's potentially affecting 70 to 80% of people in that state of being able to get the formula that they need for their child. [08:52] Bryan Hyde: Wow. Talk to me about some of the places you begin to solve a problem like this. And I say that with the understanding that if it involves government, particularly the federal government, it seems like quick, easy fixes are kind of off the table. But where do you start in addressing a problem like this? [09:09] McKenzie Richards: Yeah. So one of the things that's really interesting is that, you know, states are required to do a single buyer contract program. But in the federal code, there's also a provision that says that they can adopt an alternative cost containment program. So basically, they could try something new. Any state could try something new as long as it's budget-neutral. And so what I helped design is some ideas on those alternative cost containment programs of what states can adopt to help keep those costs down in ways that inject competition into the market. And so one of those ideas is to allow split contracts. So instead of awarding the contract to just one manufacturer, You could just say, let's do a milk-based, you know, contract with, you know, this other smaller manufacturer that might not have the capacity to make all the different kinds, but this one manufacturer, they, they make milk-based, they're based in maybe that state, and they can provide it for a lot at a more affordable price. Um, it would lead to maybe like the main manufacturer might not want to provide as much of a rebate, you know, as much of a, you know, paying back the WIC for the cost of the formula. But Kansas did this quite a few years ago, and actually the rebates became more competitive because there are so few large manufacturers. When there is more competition in who's bidding for the contracts, they'll actually try and lower the— give a more generous rebate overall. [10:58] Bryan Hyde: Okay. [10:59] McKenzie Richards: So, which is super interesting. Another solution would be a cash value benefit voucher. So what this means is just basically you would just keep the contract the same with the state, would just keep their same contract. But if someone like a WIC participant decides, you know, this is great, you know, Enfamil, Similac, they're offered, but that's not what I want for my baby, I want to be able to buy this. [11:24] Bryan Hyde: Yeah. [11:25] McKenzie Richards: The WIC would give the participant a voucher that is the same amount of that rebate, and then the WIC participant would just pay the difference, you know, $5 to $10 to be able to buy the formula that they actually wanted. And that's something, in talking to a lot of fellow moms that I know that are on WIC programs, that's something that they really desire and hope to have, but just don't have the ability to do yet. Yeah. [11:52] Bryan Hyde: So tell me a little bit about the Formula Freedom for Families Act. What— where does that come from? What's the thinking behind it? [12:01] McKenzie Richards: Yeah. So those were— those are 2— the Formula Freedoms for Families Act is if a state legislature were to adopt this, they could pick from, you know, those 2 options or potentially come up with an alternative cost containment program themselves. But it provides a legislative pathway to put pressure on the agency and require them to do an alternative cost containment program, which is allowed by federal law. And of course, it would only be with FDA-approved formulas. We're not talking about doing something that would be— it would all have to be formula already on the market and approved by the FDA. But what it would do is it would just allow states to experiment with this and potentially even lower costs of the infant formula market overall in their state. And put pressure on the market to provide better options. [12:54] Bryan Hyde: What's the major obstacle to new infant formula companies starting up? [13:02] McKenzie Richards: Yeah, I mean, I mentioned earlier that when an infant formula company wins a contract in a state, the spillover effects is usually they're taking about 70% to 80% of the market. And so that's pretty hard to enter. And then the remaining 10% to 20% is with the other major company, you know, that has those other contracts. And so it's hard to get that shelf space. And so by, by doing this, it kind of opens up that pathway for these smaller manufacturers to be able to enter, provide, you know, different options to families, um, you know, with, with better ingredients or different ingredients. Um, you know, maybe, maybe the babies would respond better to it. Uh, also, you know, with different costs. Um, You know, and gives more safety too, as well in the case of a supply chain issue. [13:56] Bryan Hyde: Is there any possibility whatsoever that the WIC program could be either scaled back or for that matter eliminated? Or is it so— has it become something that so many people depend on that right now, you know, it would be akin to, you know, political suicide for any politician who tried to forward that kind of of policy? [14:19] McKenzie Richards: Yeah. So, I mean, with the WIC program, it is federally funded and it is also really important to make sure that vulnerable mothers and children have the food that they need. And I— so I think that getting rid of it probably is not, you know, I, I wouldn't, I wouldn't think that that's the best approach or anything like that. But I do think that there are ways in which we can be more cost effective. And I think also one piece of feedback we've gotten before from different WIC agencies is that a policy like this can be administratively burdensome. You know, it's easier to be able to have a simple contract with just one company. But I think it's important to remember, you know, one way to help with this as well would be to have like an online program. [15:15] Bryan Hyde: Right. [15:16] McKenzie Richards: and have everything stored in one warehouse. So like if you think of an Amazon model, if you have all of the infant formula located in one place and then mail it directly to the mothers, as opposed to the mothers having to go and figure out the cash value benefit voucher, having the retailers having to figure that out. If you did an online model, that would be administratively much easier for both the WIC agency. The patients, the manufacturers, and the retailers. So, I mean, that hasn't been updated in a long time, but doing kind of like an online pilot program would, would help with that, I think. [15:52] Bryan Hyde: And at the risk of sounding cold-hearted or, or just, you know, overly pragmatic, um, is there any scenario in which the government footprint over, you know, managing or, or dispensing, you know, this formula could be, could be decreased? I mean, it wasn't always this way. And I wonder if they painted themselves into a corner of sorts. [16:16] McKenzie Richards: Yeah. I mean, I think at the end of the day, when, when a program begins, when the government starts providing something, it's really difficult to, to remove, to remove those programs. But I do think that The way we have— okay, so rebates operate as a retrospective discount provided by the manufacturer. And I'm going to kind of go down a weird rabbit hole for a second here, but it's relevant. So if people are familiar with the pharmaceutical benefit managers, what you see with the PBM industry is inflated costs, right? And so you have a very opaque system, a very difficult to parse out why drug costs are rising. And it's because we have this middleman and they also operate under a rebate program similar to what we have with the infant formula industry. And with rebates, there's a study that shows that there's a 1-to-1 increase. It's like for every dollar that a rebate increases, the list price decreases by $1.17. And what that means is that Whether it's the retailers or the manufacturers or the PBMs, we can point fingers all day, but the system itself, the rebate system itself, does not work. It's not a functional market. And so if we want— and so it's increasing the cost of drugs overall. It's like 1,000%. I've looked at the rebate markups for infant formula. It's like 600%. If you compare that to foods and produce that have regular markups like produce that has high spoilage rate, it's more like 50% markups. And so infant formula rebates, their markups are— they mirror more closely to what we see in the pharmaceutical industry. And so, yes, we've painted ourselves into this corner with the government contracts and doing the rebate system. But I still think that to kind of solve this, we really have to be looking at the rebate system as a whole. And that would have to be a federal change. for that to happen. So if we're looking for a state solution, an alternative cost containment system would work. But if I think examining the way in which we do rebates would help us both on the infant formula, but also with helping to get more affordable drugs like with PBMs. [18:47] Bryan Hyde: Okay. One final question for you, Mackenzie. Where can people access this paper that you've written? [18:52] McKenzie Richards: Yeah. So you can go on CiceroInstitute.org, and the title of the paper is Restoring Competition to the Infant Formula Market. So yeah, take a look. And, you know, this is something I'm really passionate about. And I hope that, you know, other people can, can see it as well, because I think, you know, infants are the most precious lives amongst us. And we need to improve the food in which we're giving them and the cost to make it easier for families to have more kids. [19:20] Bryan Hyde: Again, we've been talking with Mackenzie Richards. She's a health policy fellow with the Cicero Institute. Mackenzie, thank you for joining us on the Health Policy Podcast. [19:29] McKenzie Richards: Thank you, Brian.