118 STAT. 777 PUBLIC LAW 108–265—JUNE 30, 2004 ‘‘(II) in accordance with subparagraphs (B) and (C), establish competitive price criteria and allow able 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 ven dors described in subparagraph (D)(ii)(I);or ‘‘(BB) distinct competitive price cri teria 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 ven dors 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 oper ation 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
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