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.