Building understanding: Q&A with KPMG’s Larry Kocot
Since 2007, Larry Kocot has helped spearhead health policy initiatives at the Brookings Institution, and prior to that was senior adviser to Mark McClellan, administrator of the Centers for Medicare and Medicaid Services, where Kocot was instrumental in the design and launch of the Medicare Part D drug benefit program — and in advocating a larger role for pharmacists in the delivery of such Part D services as medication therapy management. Kocot also has served as SVP and general counsel for the National Association of Chain Drug Stores, and with the Commonwealth Health Research Board and the Center for Strategic and International Studies. DSN recently sat down with Kocot — who now heads up KPMG’s Center for Healthcare Regulatory Insight — to discuss the future of payment system reforms.
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DSN: What do you see as KPMG’s part in helping business and government align more effectively, and preparing pharmacy and other health stakeholders for payment system reforms?
Larry Kocot: There’s been a lot of talk [within the healthcare industry and government] about the way things are, but not as much about what needs to be done in terms of understanding the regulations, and understanding what government and business [need to be] doing … both to make government work better in regulating business and, frankly, to make it easier for business to work with government and the regulations government has established.
So we seized on this notion of insights to help bridge those gaps. That’s really what we’re designed to do — to help various constituencies understand regulation and put it in context and perspective, so that they might benefit from the opportunities regulation can bring, instead of always feeling the crushing burden of regulation.
DSN: How does that translate into action on behalf of pharmacy chains?
Kocot: There’s a number of things we can do … in providing those insights and then building on them for our clients. There are a lot of interesting changes coming that we hope to be thought leaders on, in terms not only of the Medicare program but of payment delivery forms in general.
I’m at the forefront, along with others in the [accountable care organization] world, of trying to push that [outcomes-driven payment reform] concept. There are now 33 million Americans in ACOs, and the future of that program and other payment reforms emanating from them are evolving very quickly. And we’ll see a lot more of this coming in 2019, where we’ll see increased penalties and payment incentives … as we move to alternative payment designs [based on patient outcomes instead of fee-for-service].
So … we’re looking at what we can do down the road to encourage a move away from fee for service. How do various providers coalesce around ideas and notions of reform? We’ve got the bare bones, so how do we put meat on those bones? We continue to move in that direction.
DSN: How do you shift the payment model in a way that’s workable and transparent, and can evolve into a standardized reimbursement model?
Kocot: As you look at [the Medicare Modernization Act, which created Part D], you start to think, Congress just handed a bunch of concepts to [CMS] and said, basically, ‘Make them work.’ That’s a big challenge for the agency. They’re going to need a lot of help and support from industry to come up with models that actually do work and come up with a workable program.
DSN: There are a lot of programs around the country now where health systems and pharmacies are working together to come up with a workable payment system. But it sounds like it will take years for all this to totally smooth out.
Kocot: I think that’s right. Community pharmacies stepped up in a way that’s pretty impressive for the future. You can see the way that chains like CVS and Walgreens and … Target have put forth innovations recently. Rite Aid is getting more aggressive, and some of the food chains are becoming even more prominent in the health-and-wellness space. It’s pretty impressive to watch how they are stepping up not only to the opportunities, but also the challenges that we’ll face as a system going forward.
DSN: What should pharmacy retailers be looking out for as the pharmaceutical market evolves, boomers age and health reform continues?
Kocot: As I look down the road, we’re going to see more opportunity to help government and industry understand structural changes with evolving markets and maturing programs.
For example, in Part D, in 2020, 50% of the cost of pharmaceuticals is going to be in specialty drugs. Now, if the specialty tier is 25% to 33% co-pay and 50% of the cost … there’s going to be access issues, first of all, for many beneficiaries who have to pay a substantial amount of those dollars out of pocket.
In addition, the insurance is only going to increase. It’s the most expensive part of the benefit now, because people are going to get to catastrophic [coverage levels] much sooner.
So you’ve got those structural issues. And the drug pipelines being what they are, that really begs the question: do we need to revise the benefit? You have to start thinking structurally. Are there things we need to do to the Part D benefit to create reform in the law that will better align with where we are in the pipeline — especially with specialty drugs?
Another big focus is with the Medicare Advantage program, which now accounts for about one-third of the beneficiaries. With the wave of boomers more accustomed to managed care, you’re seeing more gravitation toward that program and away from traditional fee-for-service Medicare [delivery]. So changes are needed for that program as well.
Pharmacy’s battle for recognition continues
Fifty years ago this summer, President Lyndon B. Johnson secured his place in history by signing into law the legislation that created Medicare and Medicaid. It was a landmark in the nation’s social and political development and an evolutionary leap for community pharmacy.
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The law, passed under Title XVIII of the Social Security Act, established a healthcare safety net for older Americans and low-income adults, children, pregnant women and people with disabilities. In time, it also made the federal government the largest purchaser of health services and medicines in the United States, and set in motion a series of tectonic shifts in health care and society that continue to reverberate today.
For generations of older Americans — not to mention the entire U.S. healthcare system, including physicians, pharmacists, hospitals, and public and private health plans — the program’s impact has been transformative.
“These programs have extended coverage of life-improving and life-saving drug treatment to millions of Americans and, through the creation of the Medicare Part D program, have better positioned healthcare professionals to deliver high-quality support to older Americans who are at greater risk of chronic and multiple conditions,” said Richard Ashworth, president of pharmacy and retail operations for Walgreens.
“The enactment of Medicare had an immediate and dramatic impact on access to healthcare services for beneficiaries,” noted the Commonwealth Fund in a new report issued in April and titled “Medicare: 50 Years of Ensuring Coverage and Care.”
“Prior to Medicare, older people and their adult children faced a high risk of financial burden because of medical bills,” the fund reported. “In 1966, older Americans paid 56% of their medical expenses directly out-of-pocket.”
“Medicare was designed to eliminate this financial pressure and ensure access to needed care,” the report added. “Today, older Americans pay just 13% of their healthcare expenses directly.”
Those “reduced financial barriers,” noted the report, “resulted in increased demand and use of services. From 1963 to 1970, the hospital admission rate for older Americans increased from 18% to 21%. Additionally, the proportion of elderly Americans seeing a physician rose from 68% to 76%.”
“For 50 years, Medicare has accomplished its two key goals: ensure access to health care for its elderly and disabled beneficiaries, and protect them against the financial hardship of healthcare costs,” the Commonwealth Fund reported. “As the single-largest source of health insurance in the United States, with 55 million covered through the program, Medicare has both shaped the U.S. health system and responded as needs have demanded.”
Doctors and hospitals — and the ways in which they practice and administer care — certainly were affected by the massive shift in the financial framework for much of the healthcare system under Medicare Parts A and B, which cover, respectively, hospital stays of up to 60 days in most cases, and, under Part B, many outpatient services such as physician visits, x-rays, lab tests and diagnostic screenings. Medicare Part C, spawned by the Balanced Budget Act of 1997, created the Medicare + Choice program and, eventually, the Medicare Advantage program, by which eligible seniors can obtain Medicare benefits through a private, capitated health plan.
Also impacted in a big way were the nation’s community pharmacists. With federal and state governments suddenly assuming responsibility for paying for many healthcare services under Medicare and Medicaid — services that were formerly covered by employers’ pension plans, patients themselves or not at all — a wave of tens of millions of newly or more fully insured seniors and lower-income Americans swept into doctors’ offices, hospitals and retail pharmacies. Those patients pushed up demand for a litany of health services — and unleashed a decades-long campaign by retail pharmacies to expand the menu of home health supplies and chronic care supplies they could sell, as well as services they could provide for a fee, under Part B.
The availability of Part D to America’s seniors, in particular, has had a clear impact on the prescription drug market. In 2011, five years after implementation of Part D, beginning on Jan. 1, 2006, Medicare paid for 21.5% of all U.S. prescriptions dispensed, with commercial third-party plans picking up the tab for 58.4% of all scripts, IMS Health reported. And Part D’s roll in pharmacy payments has continued to increase as baby boomers enter Medicare, and Part D participation grows, according to IMS. By 2014, 25.7% of all prescriptions were purchased by Medicare, IMS reported, with private plans’ share declining to 53.1% of all scripts dispensed.
Meanwhile, Medicaid also has played an increasingly important role as a purchaser of prescription medicines, accounting for 13.3% of the 3.7 billion prescriptions dispensed at retail in the United States in 2014, according to IMS.
“Seniors, disabled and economically disadvantaged Americans have benefited from Medicare and Medicaid, which has made health care more affordable and accessible. That’s a good thing for community pharmacists who are committed to the health of their patients,” said Doug Hoey, president and CEO of the National Community Pharmacists Association. Citing the 2014 NCPA Digest, sponsored by Cardinal Health, Hoey added, “these programs combine to cover over 50% of the prescription drugs dispensed in the average independent community pharmacy. As Medicare and Medicaid celebrate their 50th anniversary, we hope real progress is made in the next 50 years to ensure these programs remain structurally sound and find more innovative ways to deliver even better health care to the programs’ beneficiaries, with a greater emphasis on utilizing community pharmacists.”
“We are pleased to be positioned to help provide education and medication adherence support to these patients on their journey to improved health,” said Walgreens’ Ashworth. “And, we look forward to the future of Medicare and Medicaid, including the opportunity for pharmacists to be recognized as a provider of preventive care and disease management services.”
Expanding pharmacy services
But the rise in prescription revenues is just the tip of the iceberg as far as the long-term impact that both Medicare and Medicaid have had on the practice and business of community pharmacy. Besides expanding access to prescription drugs, both federal programs have been a powerful impetus for the expansion of pharmacy-based clinical and counseling services, such as medication therapy management, immunizations and disease management services for a variety of conditions, including diabetes, asthma and hyperlipidemia.
Given their critical importance as a health safety net for older and lower-income Americans — and as the nation’s single-largest healthcare payer — Medicare and Medicaid also serve as the focal point for community pharmacy’s long effort to achieve full professional status as a fully recognized healthcare provider. Medicare, in particular, has become the primary battleground for the retail pharmacy industry’s campaign for provider status, professional recognition and fair reimbursement for health services.
“The MMA of 2003, enacted Jan. 1, 2006, was the first mention of a pharmacist as a healthcare provider in federal legislation,” noted Rebecca Chater, executive healthcare strategist at Ateb, and former EVP in charge of Kerr Drug’s clinical services division, Kerr Health.
“With pharmacist expertise in the area of medication use, the requirement of medication therapy management as a companion service to the MMA prescription drug benefit, as well as compensation for MTM, provided an overarching moniker to represent pharmacists’ cognitive/nondistributive contributions to health care [and] signaled the expansion of pharmacy services,” said Chater. It also “made 2006 a pivotal point in the history of both the pharmacy profession and patient care,” Chater told DSN.
Pharmacies continue to wrestle with health plan payers over a standardized reimbursement system for some of those clinical services. But Medicare Parts B and D have at least spurred the search for new models of more cost-effective, integrated care involving pharmacy and helped fuel a dramatic expansion of clinical and preventive care services at pharmacy counters across the United States.
What’s more, efforts by the Centers for Medicare and Medicaid Services to enlist pharmacists in the national campaign to lower health costs and improve healthcare quality have brought the concept of paid pharmacy care services into the mainstream of thinking by healthcare reform advocates. And the advent of health reform under the Affordable Care Act has accelerated the drive for payment and full provider status for pharmacists.
“The ACA has expanded MTM services introduced by Part D in the Medicare Modernization Act, and has increased utilization of pharmacists in integrated care delivery models,” Chater said.
“Pharmacists are well-positioned to help alleviate the access pressures resulting from shortages of other primary care providers,” Chater added. “While models are being tested to explore best methods to integrate community pharmacy services into ACO [accountable care organization] delivery models, considerable work remains in this area. Continuous creativity and innovation are required to create accessible, affordable, quality health care, and new remuneration models with aligned incentives are required to sustain it.”
The National Association of Chain Drug Stores has waged a long campaign on Capitol Hill to get the Medicare and Medicaid systems to embrace the concept of a higher level of pharmacist-delivered care. In a broader sense, that means getting lawmakers and federal regulators to embrace the pharmacy industry’s enormous potential to improve the long-term health of older Americans while saving the federal health system billions of dollars through more cost-effective, accessible community care, said NACDS president and CEO Steve Anderson.
“Recognition of pharmacists as providers under Medicare Part B would help to provide valuable and convenient pharmacist services to millions of Americans and, most importantly, to those who are already medically underserved and have chronic conditions,” Anderson pointed out in a letter to Congress on June 18.
To that end, NACDS and other pharmacy advocates are lobbying for passage of legislation that would give pharmacists a greater role as health providers serving the Medicare program. “NACDS urges the adoption of policies and legislation that increase access to much-needed services for underserved Americans, such as S. 314, the Pharmacy and Medically Underserved Areas Enhancement Act,” Anderson noted in his letter. “This important legislation would allow Medicare Part B to utilize pharmacists to their full capability by providing those under-served beneficiaries with services not currently reaching them [subject to state scope-of-practice laws].”
“We believe that this would not only lead to reduced overall healthcare costs, but also to increased access to healthcare services and improved quality for underserved patients, especially those with chronic conditions,” Anderson continued.
Fighting for ‘a rightful place at the table’
That battle for recognition and professional status continues. With enactment of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which spawned the creation of the Medicare Part D drug benefit program, the changes wrought by Medicare beginning in 1965 reached a crescendo for the retail pharmacy industry with the launch of Part D in January 2006.
“I think that community pharmacy had not necessarily been a player in this game, or at least we weren’t given our rightful place at the table. And this certainly got the attention of the administration and others,” recalled Larry Kocot, former VP government affairs for the National Association of Chain Drug Stores, and currently head of KPMG’s new Center for Healthcare Regulatory Insight within its Healthcare and Life Sciences Practice.
What’s really key, Kocot said, is the role Medicare has had in spurring the massive search by public and private health plan payers, health systems and pharmacy operators themselves for new ways to squeeze value from pharmacy providers as a much-needed community healthcare resource — a cost-effective, patient-centered alternative to costly physician-centered care in the era of unsustainably rising health costs, a shrinking pool of primary care physicians and a critical need to boost patient access to professional sources of care.
The Part D benefit, Kocot said, was a major catalyst in the creation of alternative, pharmacy-based concepts of affordable care like MTM.
“It spawned a new thinking in pharmacy about the value that pharmacists deliver, and how to measure that value,” Kocot said. “The MTM evidence is growing in terms of the value that MTM can create, and we’re finally showing that pharmacists or others can make a big difference with medication therapy management.” That includes both pharmacists and other clinicians, like the nurse practitioners and physician assistants, Kocot said. “It’s not only pharmacists,” he noted. For instance, said the healthcare advocate, “CVS and others are making a lot of progress with [in-store] clinics.”
In the run-up to the launch of Part D, Kocot joined with Mark McClellan, then administrator of the Centers for Medicare and Medicaid Services, in a no-holds-barred quest by the agency to come up with cost-effective ways to extend the drug benefit to seniors, in part by tapping the already existing expertise of community pharmacists to counsel elderly patients on their medication use and to monitor the long-term effects of government-funded drug therapy.
In turn, that search gave rise to such organizations as the Pharmacy Quality Alliance, set up with the cooperation of CMS to support, fund and measure pharmacy-based, integrated models of patient care and to track their results. “Its manifest [was] in PQA, but it really did emanate from Part D,” Kocot explained. “There’s a pretty symbiotic relationship between the Part D program and the measures that PQA developed. That’s really how it all began. As a matter of fact, CMS still participates in that organization.”
CMS itself also is getting closer to sponsoring its own demonstration project to determine the role that pharmacists can play in holding down health costs through MTM and other services in a team-based, holistic approach to patient care, Kocot added. That project, he said, could help “realign the incentives on MTM, which is really the big missing piece.”
“There is no real incentive for plans to pay for MTM in Part D … when you’re paying just for the drugs instead of the whole person,” Kocot said. “That’s really what’s been necessary, and that’s really the next step: realigning the incentives. Because that really emphasizes the evidence that pharmacists can make a difference with MTM, but it also aligns plans and pharmacies and really does accomplish what community pharmacists have been arguing about for a long time — that they should be compensated for their value. And if the incentives are aligned, they’ll be used a lot more effectively, and probably more, to achieve the goals of the program and to save money for the Medicare trust fund.”