Vendor cost containment.—

(i) In general .— The State agency shall— (I) establish a vendor peer group system; (II) in accordance with subparagraphs (B) and (C), establish competitive price criteria and allowable reimbursement levels for each vendor peer group; and (III) if the State agency elects to authorize any types of vendors described in subparagraph (D)(ii)(I)— (aa) distinguish between vendors described in subparagraph (D)(ii)(I) and other vendors by establishing— (AA) separate peer groups for vendors described in subparagraph (D)(ii)(I); or (BB) distinct competitive price criteria and allowable reimbursement levels for vendors described in subparagraph (D)(ii)(I) within a peer group that contains both vendors described in subparagraph (D)(ii)(I) and other vendors; and (bb) establish competitive price criteria and allowable reimbursement levels that comply with subparagraphs (B) and (C), respectively, and that do not result in higher food costs if program participants redeem supplemental food vouchers at vendors described in subparagraph (D)(ii)(I) rather than at vendors other than vendors described in subparagraph (D)(ii)(I).

Nothing in this paragraph shall be construed to compel a State agency to achieve lower food costs if program participants redeem supplemental food vouchers at vendors described in subparagraph (D)(ii)(I) rather than at vendors other than vendors described in subparagraph (D)(ii)(I).

(ii) Exemptions .— The Secretary may exempt from the requirements of clause (i)— (I) a State agency that elects not to authorize any types of vendors described in subparagraph (D)(ii)(I) and that demonstrates to the Secretary that— (aa) compliance with clause (i) would be inconsistent with efficient and effective operation of the program administered by the State under this section; or (bb) an alternative cost-containment system would be as effective as a vendor peer group system; or (II) a State agency— (aa) in which the sale of supplemental foods that are obtained with food instruments from vendors described in subparagraph (D)(ii)(I) constituted less than 5 percent of total sales of supplemental foods that were obtained with food instruments in the State in the year preceding a year in which the exemption is effective; and (bb) that demonstrates to the Secretary that an alternative cost-containment system would be as effective as the vendor peer group system and would not result in higher food costs if program participants redeem supplemental food vouchers at vendors described in subparagraph (D)(ii)(I) rather than at vendors other than vendors described in subparagraph (D)(ii)(I).

(i) In general .— The State agency shall establish competitive price criteria for each peer group for the selection of vendors for participation in the program that— (I) ensure that the retail prices charged by vendor applicants for the program are competitive with the prices charged by other vendors; and (II) consider— (aa) the shelf prices of the vendor for all buyers; or (bb) the prices that the vendor bid for supplemental foods, which shall not exceed the shelf prices of the vendor for all buyers.

(ii) Participant access .— In establishing competitive price criteria, the State agency shall consider participant access by geographic area.

(iii) Subsequent price increases .— The State agency shall establish procedures to ensure that a retail store selected for participation in the program does not, subsequent to selection, increase prices to levels that would make the store ineligible for selection to participate in the program.

(i) In general .— The State agency shall establish allowable reimbursement levels for supplemental foods for each vendor peer group that ensure— (I) that payments to vendors in the vendor peer group reflect competitive retail prices; and (II) that the State agency does not reimburse a vendor for supplemental foods at a level that would make the vendor ineligible for authorization under the criteria established under subparagraph (B).

(ii) Price fluctuations .— The allowable reimbursement levels may include a factor to reflect fluctuations in wholesale prices.

(iii) Participant access .— In establishing allowable reimbursement levels, the State agency shall consider participant access in a geographic area.

The State agency may exempt from competitive price criteria and allowable reimbursement levels established under this paragraph—

(i) pharmacy vendors that supply only exempt infant formula or medical foods that are eligible under the program; and

(ii) vendors— (I) (aa) for which more than 50 percent of the annual revenue of the vendor from the sale of food items consists of revenue from the sale of supplemental foods that are obtained with food instruments; or (bb) who are new applicants likely to meet the criteria of item (aa) under criteria approved by the Secretary; and (II) that are nonprofit.

If a State agency elects to authorize any types of vendors described in subparagraph (D)(ii)(I), the State agency shall demonstrate to the Secretary, and the Secretary shall certify, that the competitive price criteria and allowable reimbursement levels established under this paragraph for vendors described in subparagraph (D)(ii)(I) do not result in average payments per voucher to vendors described in subparagraph (D)(ii)(I) that are higher than average payments per voucher to comparable vendors other than vendors described in subparagraph (D)(ii)(I).

Nothing in this paragraph may be construed as creating a private right of action.