Throughout the allied health industry, practitioners are eager to bring about resolution once and for all to the conundrum created by Medicare reform as it was spelled out in the Balanced Budget Act of 1997 (BBA).

The past eight years have been a roller-coaster ride of limitations, periods of momentary relief and ongoing uncertainty. The topsy-turvy environment was enough to send the industry and job market into a tailspin. But physical therapists (PTs), occupational therapists (OTs) and speech-language pathologists (SLPs)-the three specialties most directly impacted-did what they do best: They assessed the situation and devised a plan to get allied health back on track.

A Brief History

Forty years ago health care was undergoing substantial growing pains, including an expanding elderly population that had barriers to adequate health care. For generations, people had paid for medical care in cash, but health care was now adapting a business persona and insurance was the accepted mode of operation.

However, there was a significant number of older people who didn’t have the means to purchase adequate coverage, and there was a sense that they were being left behind. These circumstances were considered unacceptable in the days of The Great Society, President Lyndon B. Johnson’s encompassing social outreach program. Legislators, therefore, enacted a national insurance program known as Medicare.

Today, the basic coverage parameters remain virtually unchanged: Citizens 65 years old and older or those with certain disabilities, receive assistance paying for their health services. And it worked, until the cost of doing business surpassed federal funding. By the mid 1990s, Medicare was tapped out. The program was on life support and needed some serious resuscitation.

Not only was it operating in the red by 1997, but the projected strain retired baby boomers were going to place on the system-an estimated 80 million eligible beneficiaries by 2030-would ultimately prove to be Medicare’s unraveling. “And there is going to be an increasing elderly population, too,” notes Dave Mason, vice president of government affairs for the American Physical Therapy Association (APTA), based in Alexandria, Va. “We’ll be seeing more people moving into the extremely elderly age bracket and relying on Medicare.”

So when lawmakers saw an opportunity to restructure the program’s spending practices via the Balanced Budget Act, they seized it. Among other provisions, the legislation restricted outpatient spending on therapeutic services. It set annual reimbursement for OTs at $1,500 per Medicare patient and a combined cap of $1,500 for both physical and speech therapy.

“The BBA’s purpose was to get Medicare expenditures and rate of growth under control,” says Christine Metzler, director of federal affairs for the American Occupational Therapy Association (AOTA), located in Bethesda, Md.

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From a fiscal point of view, the caps seemed logical, but in the clinical environment, it resulted in immediate repercussions. “When the BBA hit, the job market for PTs was expecting a huge need, and almost overnight there was a talent surplus,” says Steven Chesbro, PT, EdD, MHA, GCS, associate professor and chair for the Department of Physical Therapy at Howard University, College of Pharmacy, Nursing & Allied Health Sciences in Washington D.C.

OTs and SLPs found themselves in similar circumstances. “Anytime you have a major shift, it throws the system into shock,” says Carolyn Baum. Ph.D., OTR/L, FAOTA, professor of occupational therapy and neurology, director of the OT program at Washington University in St. Louis, and AOTA president.

Immediate Repercussions

The caps, however, were only one change within the BBA affecting allied health. Medicare has always been divided into two billing segments: Part A covered inpatient hospital stays, skilled nursing facilities, hospice care and some home care; Part B was responsible for reimbursing costs from doctors’ services, medical equipment, and some medical services not covered by Part A. Under the BBA, Part A was switched to a prospective payment system and Part B now included outpatient services, Metzler explains. Additionally, Part B now works off of a physician’s fee schedule, rather than cost-based formulas.


“There was a shift away from a cost-based system and that required outpatient programs under Part B to switch to a physician’s schedule. That was different from what we’d been doing,” says Baum.

The changes stirred up a lot of uncertainty. Rehabilitation centers, outpatient clinics, and any number of facilities took action to counteract the anticipated revenue loss. “Before the BBA, the incentive was to find new patients and provide them more therapy. After, we saw a tremendous drop in how much Medicare was paying and no one really knew how it would work,” explains Metzler. “So in a pre-emptive response, some therapists were let go or switched to per diem or hourly. Employers weren’t sure how they were going to pay for the therapy and make a profit.”

Of course, the majority of therapists and pathologists have always treated a diverse clientele, but it wasn’t uncommon for Medicare patients to represent a hefty portion of their business-or at least enough of it that the specialists felt the full force of Medicare reform.

Practices had to diversify or reduce their Medicare operations,” states Mason. “They reduced staff and combined practices with other clinics, yet others restructured their operations.”

Unemployment figures reinforced the doubtful perceptions within allied health. According to APTA, unemployment among PTs in 1999 jumped two percent from the year before. The American-Speech-Language-Hearing Association (ASHA), headquartered in Rockville, Md., reported decreased spending on speech therapy.
“Fees were reduced from 12% of the total rehab expenditures to six percent.

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That’s huge,” states James Potter, CAE, ASHA director of government relations and public policy. “Part of the decrease is because speech and swallowing services are typically placed behind physical therapy, but together they tend to go over the $1,500 cap.”

Indeed, PTs and SLPs started quipping that patients could walk or they could talk, but they couldn’t afford to do both. “Contributing to the problem is a technical definition for speech therapy that allows Congress to lump it in with PT services. Because of that narrow interpretation of the law, we’ve suffered a double whammy,” says Potter. “We continue to advocate speech therapy be treated like other service deliveries in Medicare, which is as a separate service. At the minimum, we would like SLPs to be able to bill Medicare directly for outpatient services or from private practice settings. OTs and PTs have that ability right now, but the way the outpatient statute is constructed, Medicare limits SLPs to bill from private practice.”

Although the BBA only pertained to Medicare patients, its reach went much further. In fact, it was felt throughout the industry. Even practices that didn’t rely heavily on Medicare donned a cautionary attitude.

“Facilities started reviewing their long-range planning and decided they didn’t necessarily have to fill current vacancies or shelved expansion plans, which would have created new jobs,” notes Mason.

“People weren’t changing jobs like they had been in the years prior to the BBA because the market was unknown,” adds Debra Margolis, MS, OTR/L, professional development manager for occupational therapy at Spaulding Rehabilitation Hospital Network in Boston.

Small Victories

Rather than boosting Medicare’s fiscal well-being, experts-and patients-believed the constraints led to further deterioration of the system. Neither group felt it improved health services; professional organizations including APTA, AOTA and ASHA cried for urgent reforms. Fortunately, Congress listened. Although the BBA Reform Act in 1999 didn’t repeal the caps, it did place a moratorium on them. This action allowed therapists and pathologists to treat their Medicare clients without the overriding budgetary concerns, at least for a while.

Allied health had won some breathing room, but it was temporary, and the job market was hesitant. Notes Chesbro, “The moratorium helped, but employers were slow to respond. The BBA changed how we view the volatility of Medicare reimbursement. We realized the rules could change.”

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Indeed, the rules did keep changing. That initial moratorium only lasted two years, after which the caps would be reinstated unless Congress acted again. What happened is that lawmakers imposed another moratorium and then another. The latest was tied to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which also replaced an anticipated 4.5% cut in Medicare payments to therapists with a 1.5% increase. Meanwhile the caps officially remain on the books.

“Right now it is a difficult environment to really know what will happen with Medicare. You have to plan for the cap even if it’s not in effect,” states Mason.

Complicating matters is the national deficit. “The budget has become a problem. It’s difficult finding money to either continue the moratorium or repeal the cap. The deficit has made a bad situation even worse,” says Potter.

Even when Washington D.C. was operating with a budget surplus, Medicare struggled to find enough funding. But today’s $500 billion deficit really limits legislators’ options. Their hands are virtually tied in what they can and cannot do with new Medicare reforms. Mason explains, “A majority of representatives in both the House and Senate have cosponsored a cap repeal, signifying that we have won the policy debate. But the budget is operating off of a baseline estimate of federal spending as if the caps were in effect. What that means is that in order to repeal the cap altogether, the federal budget would see its spending increase.

“Estimates have stated that a full repeal would cost the government more than $7 billion in 10 years,” he continues. “Therefore, Congress has struggled with the cost implications

of repealing the act. So for now, the moratorium is the only feasible option. However, that moratorium expires in 2006, so the battle continues.”

Making the Grade

As if the BBA didn’t have a big enough influence on allied health, the three specialties (physical therapy, occupational therapy and speech-language pathology) have also experienced a major shift on the academic front. Each has either undergone or is preparing for a redefinition of its entry-level education requirements. For years, the bachelor’s degree was accepted as adequate preparation to enter the work force, but technology, research and general advances have propelled the specialties forward. Now the minimum requirements needed reflect the increased expertise of the practitioners.

Physical therapy raised the entry-level minimum to a master’s degree. Occupational therapy has followed suit, their degree change is scheduled to take full effect in January 2007. And speech-language pathology also pushed for advanced degrees among pathologists. Now, there’s another movement underway to raise the PT level to the doctorate degree. Although the additional training mandates have been generally well-received, they did caused a marked drop in student enrollments.

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So when Medicare reform was lopped on top of the new academic prerequisites, the circumstances drove the enrollment figures even lower, and most likely prolonged the situation. “Up to then, programs had waiting lists and new schools were developing bachelor’s degree programs. When the shift went into effect, the next year or two saw enrollments start to drop and they stayed low,” says Peggy Denton, Ph.D., OTR FAOTA, associate professor and director of occupational therapy at University of Wisconsin-La Crosse.

“There weren’t as many people excited about getting into the professions,” adds Chesbro. But now that the initiatives are in place and schools have had time to react, the situation appears to be settling. “There are already 150 entry programs and five are at the doctorate level, and 75% are moving toward the post baccalaureate,” notes Frank E. Gainer, MHS, OTR/L FAOTA, conference and student program manager, education and professional development for AOTA.

“There has been a delay to getting students enrolling at the graduate level,” states Denton. “In the last year or so, however, those numbers have started to bounce back.”

Near a Full Recovery

Between the changing academic standards and the Medicare roller coaster, it’s been a tumultuous period for allied health. But leave it to the therapists and pathologists, those dedicated to getting people back to full function, to rehabilitate their own job market. In fact, the current atmosphere is one of optimism. “There was an overreaction on the part of employers right after the passage of the BBA,” says Baum. “But AOTA is now projecting a 30% increase in demand and more than 40% for OT assistants.”

Adds Gainer, “We took a survey of the educational programs and most said 25% of their students had accepted jobs upon graduation and the rest received offers shortly after graduation.”

Job prospectives for PTs and SLPs are also on the upswing. Ironically, the reason behind the positive momentum is the exact reason why legislators felt compelled to initiate reform: the strain the baby boomers would put on the system. The rehab and therapeutic needs for the population haven’t changed; they will still require the attention and assistance associated with aging patients.
But the BBA did change how practitioners viewed the work place. One of the unforeseen benefits is that the uncertainty forced practitioners to expand their horizons. Allied health specialists can take their expertise and apply it to any number of environments. “I tell my students that occupational therapy is a great profession because there are so many areas to work in,” notes Denton.

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OTs are perhaps burgeoning on one of the most exciting periods in the specialty’s history. As employers, communities and aging advocacy groups are readying to meet the needs of baby boomers, new positions are being created. “Occupational therapists with the entrepreneurial spirit are working with older individuals to put the necessary items in place in order to help clients remain in their homes. And there is a whole new market for training older drivers,” states Gainer.

“More and more therapists are working with community programs for aging and developing initiatives,” adds Baum. “There are assessment centers and assistive technology centers that support people’s independence. We see new graduates working for contractors and builders to help them facilitate universal designs, making more places accessible to people with disabilities.”

“Schools have been very proactive in getting students to look beyond traditional OT roles. The real challenge, however, is to retain people because there are so many options,” explains Margolis.

PTs are also taking on a more proactive role. “Before physical therapists were tertiary providers for maintenance or rehab services. Now, they’re considered more of a primary provider and working on secondary prevention, so the wellness environment is hot right now,” states Chesbro.

Of course, schools continue to be the predominant employer of SLPs, which probably will be the case for the foreseeable future. However, there are whispers of job diversity. “For a while, there have been projections of growth in the school-based setting, but as baby boomers head into retirement, the health care setting is showing more promise. There are opportunities for SLPs to grow, ” says Potter.

The specifics of how the employment picture will play out aren’t crystal clear. There are a lot of mitigating factors that haven’t been ironed out. The future of Medicare payment structure is still dependent on Congressional action. Whatever it decides will definitely impact the industry’s next move.

“Allied health specialists should be mindful of participating in the legislative process and knowing where the funding is coming from,” cautions Chesbro. “The job market and practice environments change based on those conditions.”

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