Health Workforce: Ensuring Adequate Supply and Distribution	 
Remains Challenging (01-AUG-01, GAO-01-1042T).			 
								 
This testimony discusses (1) the shortage of healthcare workers  
and (2) the lessons learned by the National Health Service Corps 
(NHSC) in addressing these shortages. GAO found that problems in 
recruiting and retaining health care professionals could worsen  
as demand for these workers increases. High levels of job	 
dissatisfaction among nurses and nurses aides may also play a	 
crucial role in current and future nursing shortages. Efforts to 
improve the workplace environment may both reduce the likelihood 
of nurses and nurse aides leaving the field and encourage more	 
young people to enter the nursing profession. Nonetheless,	 
demographic forces will continue to widen the gap between the	 
number of people needing care and the nursing staff available. As
a result, the nation will face a caregiver shortage very	 
different from shortages of the past. More detailed data are	 
needed, however, to delineate the extent and nature of nurse and 
nurse aide shortages to assist in planning and targeting	 
corrective efforts. Better coordination of NHSC placements, with 
waivers for foreign U.S.-educated physicians, could help more	 
needy areas. In addition, addressing shortfalls in the Department
of Health and Human Services (HHS) systems for identifying	 
underservice is long overdue. HHS needs to gather more consistent
and reliable information on the changing needs for services in	 
underserved communities. Until then, it will remain difficult to 
determine whether federal resources are appropriately targeted to
communities of greatest need and to measure their impact.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1042T					        
    ACCNO:   A01504						        
  TITLE:     Health Workforce: Ensuring Adequate Supply and	      
             Distribution Remains Challenging                                 
     DATE:   08/01/2001 
  SUBJECT:   Health care personnel				 
	     Economically depressed areas			 
	     Physicians 					 
	     Labor statistics					 
	     Labor supply					 
	     Personnel recruiting				 
	     Attrition rates					 
	     Job satisfaction surveys				 
	     Health resources utilization			 
	     National Health Service Corps			 
	     Scholarship Program				 
								 

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GAO-01-1042T
     
Testimony Before the Subcommittee on Health, Committee on Energy and
Commerce, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10: 00 a. m. Wednesday, August 1,
2001 HEALTH WORKFORCE

Ensuring Adequate Supply and Distribution Remains Challenging

Statement of Janet Heinrich Director, Health Care- Public Health Issues

GAO- 01- 1042T

Page 1 GAO- 01- 1042T

Mr. Chairman and Members of the Subcommittee: We are pleased to be here
today as you discuss issues related to the health care workforce and the
reauthorization of federal safety net programs to improve access to care for
medically underserved populations. As you know, there is growing concern
that many Americans will go without needed health care services because
worker shortages or geographic maldistribution of certain types of health
care professionals may develop.

Changes in the U. S. health care system over the past two decades have
affected the environment in which a variety of health professionals and
paraprofessionals provide care. For example, while hospitals traditionally
were the primary providers of acute care, advances in technology, along with
cost controls, have shifted much care from traditional inpatient settings to
ambulatory or community- based settings, nursing facilities, and home health
care settings. In addition, the transfer of less acute patients to nursing
homes and community- based- care settings created a broader range of health
care employment opportunities. These changes have led to concerns regarding
the adequacy of the health care workforce. And while the adequacy of the
health care workforce is an important issue nationwide, the distribution of
available health professionals is a particularly acute issue in certain
locations. These medically underserved areas, ranging from isolated rural
areas to inner cities, have problems attracting and retaining health care
professionals.

My testimony will discuss (1) growing concerns about the adequacy of the
health care workforce and emerging shortages in some fields, particularly
among nurses and nurse aides, and (2) the lessons learned from the
experience of one federal program- the Department of Health and Human
Services? (HHS) National Health Service Corps (NHSC)- in addressing the
maldistribution of health care professionals. My comments are based on our
previous work in these areas and limited follow- up work we conducted to
update the findings and recommendations contained in earlier reports. 1

In brief, while current data on supply and demand for many categories of
health workers are limited, available evidence suggests emerging shortages
in some fields, for example, among nurses and nurse aides. Many providers
are reporting rising vacancy and turnover rates for these

1 See Related GAO Reports.

Page 2 GAO- 01- 1042T

workers, contributing to growing concerns about recruiting and retaining
qualified health professionals. These concerns are likely to increase in the
future as demographic pressures associated with an aging population are
expected to both increase demand for health services and limit the pool of
available workers such as nurses and nurse aides.

Regarding the experience of the NHSC, while the program has placed thousands
of health professionals in needy communities since its establishment in
1970, our work has identified several areas for HHS and the Congress to
consider in discussing NHSC reauthorization. For example, we found problems
with HHS? system for identifying and measuring the need for NHSC providers.
In addition, the NHSC placement process is not well coordinated with other
efforts to place physicians in underserved areas and does not assist as many
needy areas as possible. Finally, regarding the financing mechanism used to
attract health care professionals to the NHSC, our analysis found that
educational loan repayment is preferable over scholarships in most
situations.

Recruitment and retention of adequate numbers of qualified workers are major
concerns for many health care providers today. While current data on supply
and demand for many categories of health workers are limited, available
evidence suggests emerging shortages in some fields, for example, among
nurses and nurse aides. Many providers are reporting rising vacancy and
turnover rates for these worker categories. In addition, difficult working
conditions and dissatisfaction with wages have contributed to rising levels
of dissatisfaction among many nurses and nurse aides. These concerns are
likely to increase in the future as demographic pressures associated with an
aging population are expected to both increase demand for health services
and limit the pool of available workers such as nurses and nurse aides. As
the baby boom generation ages, the population of persons age 65 and older is
expected to double between 2000 and 2030, while the number of women age 25
to 54, who have traditionally formed the core of the nursing workforce, will
remain virtually unchanged. As a result, the nation may face a caregiver
shortage of different dimensions from those of the past. Health Workforce

Issues Are A Growing Concern

Page 3 GAO- 01- 1042T

Nurses and nurse aides are by far the two largest categories of health care
workers, followed by physicians and pharmacists. 2 While current workforce
data are not adequate to determine the magnitude of any imbalance between
supply and demand with any degree of precision, evidence suggests emerging
shortages of nurses and nurse aides to fill vacant positions in hospitals,
nursing homes, and other health care settings. Hospitals and other providers
throughout the country have reported increasing difficulty in recruiting
health care workers, with national vacancy rates in hospitals as high as 21
percent for pharmacists in 2001. Rising turnover rates in some fields such
as nursing and pharmacy are another challenge facing providers and are
suggestive of growing dissatisfaction with wages, working environments, or
both.

There is no consensus on the optimal number and ratio of health
professionals necessary to meet the population?s health care needs. Both
demand and supply of health workers are influenced by many factors. For
example, with respect to registered nurses (RN), demand not only depends on
the care needs of the population, but also on how providers- hospitals,
nursing homes, clinics, and others- decide to use nurses in delivering care.
Providers have changed staffing patterns in the past, employing fewer or
more nurses relative to other workers at various times. National data are
not adequate to describe the nature and extent of nurse workforce shortages
nor are data sufficiently sensitive or current to allow a comparison of the
adequacy of nurse workforce size across states, specialties, or provider
types.

With respect to pharmacists, there are also limited data available for
assessing the adequacy of supply, a situation that has led to contradictory
claims of a surplus of pharmacists a few years ago and a shortage at the
present time. While several factors point to growing demand for pharmacy
services such as the increasing number of prescriptions being filled, a
greater number of pharmacy sites, and longer hours of operation, these
pressures may be moderated by expanding access to alternative dispensing
models such as Internet and mail- order delivery services.

2 In 1999, there were approximately 2.2 million nurse aides, 2.2 million
registered nurses, 688, 000 licensed practical or vocational nurses, 313,000
physicians, and 226,000 pharmacists employed in the United States according
to the Bureau of Labor Statistics. Evidence Suggests

Emerging Health Worker Shortages in Some Fields

Data on Health Workforce Supply and Demand Are Limited

Page 4 GAO- 01- 1042T

Recent studies suggest that hospitals and other health care providers in
many areas of the country are experiencing increasing difficulty recruiting
health care workers. 3 A recent 2001 national survey by the American
Hospital Association reported an 11 percent vacancy rate for RNs, 18 percent
for radiology technicians, and 21 percent for pharmacists. 4 Half of all
hospitals reported more difficulty in recruiting pharmacists than in the
previous year, and three- quarters reported greater difficulty in recruiting
RNs. Urban hospitals reported slightly more difficulty in recruiting RNs
than rural hospitals. However, rural hospitals reported higher vacancy rates
for several other types of employees. Rural hospitals reported a 29 percent
vacancy rate for pharmacists and 21 percent for radiology technologists
compared to 15 percent and 16 percent respectively among urban hospitals.

A recent survey in Maryland conducted by the Association of Maryland
Hospitals and Health Systems reported a statewide average RN vacancy rate
for hospitals of 14. 7 percent in 2000, up from 3.3 percent in 1997. 5 The
Association reported that the last time vacancy rates were at this level was
during the late 1980s, during the last reported nurse shortage. Also in
2000, Maryland hospitals reported a 12.4 percent vacancy rate for
pharmacists, a 13.6 percent rate for laboratory technicians, and 21.0
percent for nuclear medicine technologists. These same hospitals reported
taking 60 days to fill a vacant RN position in 2000 and 54 days to fill a
pharmacy vacancy in 1999.

Several recent analyses illustrate concerns over the supply of nurse aides.
In a 2000 study of the nurse aide workforce in Pennsylvania, staff shortages
were reported by three- fourths of nursing homes and more than half of all
home health care agencies. 6 Over half (53 percent) of private

3 Caution must be used when comparing vacancy rates from different studies.
While nurse vacancy rates are typically the number of budgeted full- time RN
positions that are unfilled divided by the total number of budgeted full-
time RN positions, not all studies identify the method used to calculate
rates.

4 American Hospital Association, The Hospital Workforce Shortage: Immediate
and Future, (Washington, D. C.: AHA, 2001). 5 Association of Maryland
Hospitals & Health Systems, MHA Hospital Personnel Survey 2000, (Elkridge,
MD: MHA, 2001). 6 Joel Leon, Jonas Marainen, and John Marcotte,
Pennsylvania?s Frontline Workers in Long Term Care (Jenkintown, Pa.:
Polisher Research Institute at the Philadelphia Geriatric Center, 2001).
Providers Report High Vacancy

Rates for Many Health Care Workers

Page 5 GAO- 01- 1042T

nursing homes and 46 percent of certified home health care agencies reported
staff vacancy rates higher than 10 percent. Nineteen percent of nursing
homes and 25 percent of home health care agencies reported vacancy rates
exceeding 20 percent. A recent survey of providers in Vermont found high
vacancy rates for nurse aides, particularly in hospitals and nursing homes;
as of June 2000, the vacancy rate for nurse aides in nursing homes was 16
percent, in hospitals 15 percent, and in home health care 8 percent. In a
recent survey of states, officials from 42 of the 48 states responding
reported that nurse aide recruitment and retention were currently major
workforce issues in their states. 7 More than two- thirds of these states
(30 of 42) reported that they were actively engaged in efforts to address
these issues.

Rising turnover rates in many fields are another challenge facing providers
and suggest growing dissatisfaction with wages, working environments, or
both. According to a recent national hospital survey, rising rates of
turnover have been experienced, particularly in nursing and pharmacy
departments. 8 Turnover among nursing staff rose from 11. 7 percent in 1998
to 26.2 percent in 2000. Among pharmacy staff, turnover rose from 14.6
percent to 21.3 percent over the same period. Nursing home and home health
care industry surveys indicate that nurse turnover is an issue for them as
well. 9 In 1997, an American Health Care Association (AHCA) survey of 13
nursing home chains identified a 51- percent turnover rate for RNs and
licensed practical nurses (LPN). 10 A 2000 national survey of home health
care agencies reported a 21- percent turnover rate for RNs. 11

7 North Carolina Division of Facility Services, Comparing State Efforts to
Address the Recruitment and Retention of Nurse Aide and Other
Paraprofessional Aide Workers (Raleigh, N. C.: Sept. 1999). 8 Hospital &
Healthcare Compensation Service, Hospital Salary and Benefits Report 2000-
2001 (Oakland, N. J.: Hospital & Healthcare Compensation Service, 2000). 9
As with vacancy rates, caution should be used when comparing turnover rates
from different studies. Nurse turnover rates are typically the number of
nurses that have left a facility divided by the total number of nurse
positions. However, there is no standard method for calculating turnover,
and methods used in different studies may vary.

10 American Health Care Association, Facts and Trends 1999, The Nursing
Facility Sourcebook (Washington, D. C.: AHCA, 1999). 11 Hospital &
Healthcare Compensation Service, Homecare Salary and Benefits Report 2000-
2001 (Oakland, N. J.: Hospital & Healthcare Compensation Service, 2000).
High Rates of Turnover

Experienced in Some Fields

Page 6 GAO- 01- 1042T

Many providers also are reporting problems with retention of nurse aide
staff. Annual turnover rates among aides working in nursing homes are
reported to be from about 40 percent to more than 100 percent. In 1998, a
survey sponsored by AHCA of 12 nursing home chains found 94- percent
turnover among nurse aides. 12 A more recent national study of home health
care agencies identified a 28 percent turnover rate among aides in 2000, up
from 19 percent in 1994. 13

High rates of turnover may lead to higher provider costs and quality of care
problems. Direct provider costs of turnover include recruitment, selection,
and training of new staff, overtime, and use of temporary agency staff to
fill gaps. Indirect costs associated with turnover include an initial
reduction in the efficiency of new staff and a decrease staff morale and
group productivity. In nursing homes, for example, high turnover can disrupt
the continuity of patient care- that is, aides may lack experience and
knowledge of individual residents or clients. When turnover leads to staff
shortages, nursing home residents may suffer harm because there remain fewer
staff to care for the same number of residents.

Job dissatisfaction has been identified as a major factor contributing to
the current problems providers report in recruiting and retaining nurses and
nurse aides. Among nurses, inadequate staffing, heavy workloads, and the
increased use of overtime are frequently cited as key areas of job
dissatisfaction. A recent Federation of Nurses and Health Professionals
(FNHP) survey found that half of the currently employed RNs surveyed had
considered leaving the patient- care field for reasons other than retirement
over the past 2 years; of those who considered leaving, 18 percent wanted
higher wages, but 56 percent wanted a less stressful and less physically
demanding job. 14 Other surveys indicate that while increased wages might
encourage nurses to stay at their jobs, money is not generally cited as the
primary reason for job dissatisfaction. The FNHP survey found that 55
percent of currently employed RNs were either just somewhat or not satisfied
with their facility?s staffing levels, while 43

12 American Health Care Association, Staffing of Nursing Services in Long
Term Care: Present Issues and Prospects for the Future (Washington, D. C.:
AHCA, 2001). 13 Homecare Salary and Benefits Report, 2000- 2001, 2000. 14
Federation of Nurses and Health Professionals, The Nurse Shortage:
Perspectives from Current Direct Care Nurses and Former Direct Care Nurses
(opinion research study

conducted by Peter D. Hart Research Associates)( Washington, D. C.: 2001).
Working Conditions and Wages

Contribute to Job Dissatisfaction Among Nurses and Nurse Aides

Page 7 GAO- 01- 1042T

percent indicated that increased staffing would do the most to improve their
jobs.

For nurse aides, low wages, few benefits, and difficult working conditions
are linked to high turnover. Our analysis of national wage and employment
data from the Bureau of Labor Statistics (BLS) indicates that, on average,
nurse aides receive lower wages and have fewer benefits than workers
generally. In 1999, the national average hourly wage for aides working in
nursing homes was $8.29, compared to $9.22 for service workers and $15.29
for all workers. For aides working in home health care agencies, the average
hourly wage was $8.67, and for aides working in hospitals, $8.94. Aides
working in nursing homes and home health care are more than twice as likely
as other workers to be receiving food stamps and Medicaid benefits, and they
are much more likely to lack health insurance. Onefourth of aides in nursing
homes and one- third of aides in home health care are uninsured compared to
16 percent of all workers. In addition, other studies have found that the
physical demands of nurse aide work and other aspects of the environment
contribute to retention problems. Nurse aide jobs are physically demanding,
often requiring moving patients in and out of bed, long hours of standing
and walking, and dealing with patients or residents who may be disoriented
or uncooperative.

Concern about emerging shortages may increase as the demand for health care
services is expected to grow dramatically with the continued aging of the
population. In most job categories, health care employment is expected to
grow much faster than overall employment, which BLS projects will increase
by 14.4 percent from 1998 to 2008. As shown in Table 1, total employment for
personal and home care aides is expected to grow by 58 percent, with 567,000
new workers needed to meet the increased demand and replace those who leave
the field. Employment of physical therapists is expected to grow by 34
percent, and employment of RNs is projected to grow by almost 22 percent,
with 794, 000 new RNs expected to be needed by 2008. Demand for Most Health

Workers Will Continue to Grow While Demographic Pressures May Limit Supply

Page 8 GAO- 01- 1042T

Table 1: Projected Employment Growth for Selected Occupations, 1998- 2008
Occupation

1998 employment (in thousands)

Percent growth in employment

1998- 2008 Total projected job

openings, 1998- 2008 (in thousands) a

All occupations 140,514 14.4 54,622 Physicians 577 21.2 212 Dentists 160 3.1
38 Registered nurses 2, 079 21.7 794 Pharmacists 185 7.3 64 Physical
therapists 120 34.0 59 Clinical laboratory technicians and technologists

313 17.0 93 Radiology technicians and technologists

162 20.1 55 Nurse aides, orderlies and attendants

1,367 23.8 515 Personal and home health aides 746 58.1 567

a Total projected openings are due to both growth in demand and net
replacements. Source: U. S. Department of Labor, Bureau of Labor Statistics,
?Occupational Employment Projections to 2008,? Monthly Labor Review,
November 1999.

Demographic pressures will continue to exert significant pressure on both
the supply and demand for nurses and nurse aides. A more serious shortage of
nurses and nurse aides is expected in the future, as pressures are exerted
on both supply and demand. The future demand for these workers is expected
to increase dramatically when the baby boomers reach their 60s, 70s, and
beyond. Between 2000 and 2030, the population age 65 years and older will
double. During that same period the number of women age 25 to 54, who have
traditionally formed the core of the nurse and nurse aide workforce, is
expected to remain relatively unchanged. Unless more young people choose to
go into the nursing profession, the workforce will continue to age. By 2010,
approximately 40 percent of nurses will likely be older than 50 years. By
2020, the total number of full time equivalent RNs is projected to have
fallen 20 percent below HRSA?s projections of the number of RNs that will be
required to meet demand at that time. 15

15 Peter I. Beurhaus, Douglas O. Staiger, and David I. Auerbach,
?Implications of an Aging Registered Nurse Workforce,? JAMA, Vol. 283, No.
22 (June 14, 2000).

Page 9 GAO- 01- 1042T

In addition to concerns about the overall supply of health care
professionals, the distribution of available providers is an ongoing public
health concern. Many Americans live in areas- including isolated rural areas
or inner city neighborhoods- that lack a sufficient number of health care
providers. The National Health Service Corps (NHSC) is one safetynet program
that directly places primary care physicians and other health professionals
in these medically needy areas. The NHSC offers scholarships and educational
loan repayments for health care professionals who, in turn, agree to serve
in communities that have a shortage of them. Since its establishment in
1970, the NHSC has placed thousands of physicians, nurse practitioners,
dentists, and other health care providers in communities that report chronic
shortages of health professionals. At the end of fiscal year 2000, the NHSC
had 2,376 providers serving in shortage areas. Since the NHSC was last
reauthorized in 1990, funding for its scholarship and loan repayment
programs has increased nearly 8- fold, from about $11 million in 1990 to
around $84 million in 2001. 16

Some have proposed expanding the NHSC or developing similar programs to
include additional health care disciplines, such as nurses, pharmacists, and
medical laboratory personnel. In considering such possibilities, HHS and the
Congress may want to consider our work that has identified several ways in
which the NHSC could be improved. These include how the NHSC identifies the
need for providers and how it measures that need, how the NHSC placements
are coordinated with other programs and with its own placements, and which
financing mechanism- scholarships or loan repayments- is a better approach
to attract providers to those areas.

Over the past 6 years, we have identified numerous problems with the way HHS
decides whether an area is a health professional shortage area (HPSA), a
designation required for a NHSC placement. 17 In addition to identifying
problems with the timeliness and quality of the data used, we

16 In addition to funding for scholarship and loan repayment awards, the
NHSC receives funding for support of its providers and operations. In fiscal
year 2001, this field budget was about $41 million.

17 Only areas designated as a HPSA may apply for NHSC providers. Currently,
HHS considers a HPSA generally to be a location or area with less than one
primary care physician for every 3,500 persons. As of June 30, 2001, HHS
identified 2,968 primary care HPSAs. To eliminate these HPSA designations,
HHS identified a need of over 6,000 full- time physicians. HHS has different
criteria for dental and mental health HPSAs. NHSC Illustrates

Challenges in Addressing Shortages of Health Professionals in Certain
Locations

Current System for Identifying Need is Inadequate

Page 10 GAO- 01- 1042T

found that HHS? current approach does not count some providers already
working in the shortage area. 18 For example, it does not count
nonphysicians providing primary care, such as nurse practitioners, and it
does not count NHSC providers already practicing there. As a result, the
current HPSA system tends to overstate the need for more providers, leading
us to question the system?s ability to assist HHS in identifying the
universe of need and in prioritizing areas.

Recognizing the flaws in the current system, HHS has been working on ways to
improve the designation of HPSAs, but the problems have not yet been
resolved. After studying the changes needed to improve the HPSA system for
nearly a decade, HHS published a proposed rule in the Federal Register in
September 1998. The proposed rule generated a large volume of comments and a
high level of concern about its potential impact. In June 1999, HHS
announced that it would conduct further analyses before proceeding. HHS
continues to work on a revised shortage area designation methodology;
however, as of July 2001, it did not have a firm date for publishing the
proposed new regulations.

The controversy surrounding proposed modifications to the HPSA designation
system may be due, in large part, to its use by other programs. Originally,
it was only used to identify an area as one that could request a provider
from the NHSC. Today many federal and state programs- including efforts
unaffiliated with HHS- use the HPSA designation in considering program
eligibility. These areas want to get and retain the HPSA designation in
order to be eligible for such other programs as the Rural Health Clinic
program or a 10 percent bonus on Medicare payments for physicians and other
providers.

The NHSC needs to coordinate its placements with other efforts to attract
physicians to needy areas. There are not enough providers to fill all of the
vacancies approved for NHSC providers. As a result, underserved communities
are frequently turning to another method of obtaining physicians- attracting
non- U. S. citizens who have just completed their graduate medical education
in the United States. 19 These physicians

18 See Health Care Shortage Areas: Designations Not a Useful Tool for
Directing Resources to the Underserved (GAO/ HEHS- 95- 200, Sept. 8, 1995).
19 See Foreign Physicians: Exchange Visitor Program Becoming Major Route to
Practicing in U. S. Underserved Areas (GAO/ HEHS- 97- 26, Dec. 30, 1996).
Better Coordination of

Placements With Waivers for J- 1 Visa Physicians Is Needed

Page 11 GAO- 01- 1042T

generally enter the United States under an exchange visitor program, and
their visas, called J- 1 visas, require them to leave the country when their
medical training is done. However, the requirement to leave can be waived if
a federal agency or state requests it. A waiver is usually accompanied by a
requirement that the physician practice for a specified period in an
underserved area. In fiscal year 1999, nearly 40 states requested such
waivers. They are joined by several federal agencies- particularly the
Department of Agriculture, which wants physicians to practice in rural
areas, and the Appalachian Regional Commission, which wants to fill
physician needs in Appalachia.

Waiver placements have become so numerous that they have outnumbered the
placements of NHSC physicians. In September 1999, over 2,000 physicians had
waivers and were practicing in or contracted to practice in underserved
areas, compared with 1, 356 NHSC physicians. In 1999, the number of waiver
physicians was large enough to satisfy over one- fourth of the physicians
needed to eliminate HPSA designations nationwide. Our follow- up work in
2001 with the federal agencies requesting the waivers and 10 states
indicates that these waivers are still frequently used to attract physicians
to underserved areas.

Although coordinating NHSC placements and waiver placements has the obvious
advantage of addressing the needs of as many underserved locations as
possible, this coordination has not occurred. In fact, this sizeable
domestic placement effort- using waiver physicians to address medical
underservice- is rudderless. Even among those states and agencies using the
waiver approach, no federal agency has responsibility for ensuring that
placement efforts are coordinated. 20 The Administration has recently stated
that HHS will enhance coordination between the NHSC and the use of waiver
physicians; however HHS does not have a system to take waiver physician
placements into account in determining where to put NHSC physicians. While
some informal coordination may occur, it remains a fragmented effort with no
overall program accountability. As a result, some areas have ended up with
more than enough physicians to remove their shortage designations, while
needs in other areas have gone unfilled.

20 Historically, HHS has not supported the waiver approach as a sound way to
address underservice needs in the United States. While HHS is considering
the issue, the agency still takes the position that physicians should return
home after completing their medical training to make their knowledge and
skills available to their home countries.

Page 12 GAO- 01- 1042T

As the Congress considers reauthorizing the NHSC, it also has the
opportunity to address these issues. We believe that the prospects for
coordination would be enhanced through congressional direction in two areas.
The first is whether waivers should be included as part of an overall
federal strategy for addressing underservice. This should include
determining the size of the waiver program and establishing how it should be
coordinated with other federal programs. The second- applicable if the
Congress decides that waivers should be a part of the federal strategy- is
designating leadership responsibility for managing the use of waivers as a
distinct program.

While congressional action could foster a coordinated federal strategy for
placement of J- 1 waiver physicians, our work has also shown that
congressional action could help ensure that NHSC providers assist as many
needy areas as possible. We previously reported that at least 22 percent of
shortage areas receiving NHSC providers in 1993 received more NHSC providers
than needed to lift their provider- to- population ratio to the point at
which their HPSA designation could be removed, while 65 percent of shortage
areas with NHSC- approved vacancies did not receive any providers at all. 21
Of these latter locations, 143 had unsuccessfully requested a NHSC provider
for 3 years or more. 22 In response to our recommendations, the NHSC has
subsequently made improvements in its procedures and has substantially cut
the number of HPSAs not receiving providers. However, these procedures still
allow some HPSAs to receive more than enough providers to remove their
shortage designation while others go without.

NHSC officials have said that in making placements, they need to weigh not
only assisting as many shortage areas as possible, but also factors- such as
referral networks, office space, and salary and benefit packages- that can
affect the chance that a provider might stay beyond the period of obligated
service. Since the practice sites on the NHSC vacancy list had to

21 To calculate oversupply, we counted physicians as one full- time provider
and nonphysicians (nurse practitioners, nurse midwives, or physician
assistants) as one- half a full- time provider. If only physician placements
are counted, 6 percent of these shortage areas would still be identified as
oversupplied. We consider these estimates of oversupply to be conservative
because our analysis does not include NHSC providers placed in prior years
who were still in service during vacancy year 1993.

22 See National Health Service Corps: Opportunities to Stretch Scarce
Dollars and Improve Provider Placement (GAO/ HEHS- 96- 28, Nov. 24, 1995).
Better Placement Process

is Needed

Page 13 GAO- 01- 1042T

meet NHSC requirements, including requirements for referral networks and
salary and benefits packages, such factors should not be an issue for those
practice locations. And while we agree that retention is a laudable goal,
the impact of the NHSC?s current practice is unknown, since the NHSC does
not routinely track how long NHSC providers are retained at their sites
after completing their service obligations. The Congress may want to
consider clarifying the extent to which the program should try to meet the
minimum needs of as many shortage areas as possible, and the extent to which
additional placements should be allowed in an effort to encourage provider
retention.

Another issue that is fundamental to attracting health care professionals to
the NHSC is the allocation of funds between scholarships and educational
loan repayments. Under the NHSC scholarship program, students are recruited
before or during their health professions training- generally several years
before they begin their service obligation. By contrast, under the NHSC loan
repayment program, providers are recruited at the time or after they
complete their training. The scholarship program provides a set amount of
aid per year while in school, while the loan repayment program repays a set
amount of student debt for each year of service provided. Under the Public
Health Service Act, at least 40 percent of the available funding must be for
scholarships.

We looked at which financing mechanism works better and found that, for
several reasons, the loan repayment program is the better approach in most
situations. 23

 The loan repayment program costs less. On average, each year of service by
a physician under the scholarship program costs the federal government over
$43,000 compared with less than $25,000 under loan repayment. 24 A major
reason for the difference is the time value of money. Because 7 or more
years can elapse between the time that a physician receives a scholarship
and the time that the physician begins to practice in an underserved area,
the federal government is making an investment for a commitment for service
in the future. In the loan repayment program, however, the federal
government does not pay until after the service has

23 See GAO/ HEHS- 96- 28. 24 Amounts are in 1999 dollars. This cost analysis
is based on new scholarship and new federal loan repayment awards made in
fiscal year 1999. Loan Repayment Is a

Better Approach than Scholarships

Page 14 GAO- 01- 1042T

begun. The difference in average cost per year of service could increase in
the future as a result of a recent change in tax law. 25

 Loan repayment recipients are more likely to complete their service
obligations. This is not surprising when one considers that scholarship
recipients enter into their contracts up to 7 or more years before beginning
their service obligation, during which time their professional interests and
personal circumstances may change. Twelve percent of scholarship recipients
between 1980 and 1999 breached their contract to serve, 26 compared to about
3 percent of loan repayment recipients since that program began.

 Loan repayment recipients are more likely to continue practicing in the
underserved community after completing their obligation. How long providers
remain at their sites after fulfilling their obligation is not fully clear,
because the NHSC does not have a long- term tracking system in place.
However, we analyzed data for calendar years 1991 through 1993 and found
that 48 percent of loan repayment recipients were still at the same site 1
year after fulfilling their obligation, compared to 27 percent for
scholarship recipients. Again, this is not surprising. Because loan
repayment recipients do not commit to service until after they have
completed training, they are more likely to know what they want to do and
where they want to live or practice at the time they make the commitment.

These reasons support applying a higher percentage of NHSC funding to loan
repayment. The Congress may want to consider eliminating the current
requirement that scholarships receive at least 40 percent of the funding.
Besides being generally more cost- effective, the loan repayment program
allows the NHSC to respond more quickly to changing needs. If demand
suddenly increases for a certain type of health professional, the NHSC can
recruit graduates right away through loan repayments. By contrast, giving a
scholarship means waiting for years for the person to graduate.

25 In analyzing the net cost differences, we took into account the federal
income tax liability associated with scholarship and loan repayment awards.
In essence, loan repayment awards are increased to provide for the resulting
increased federal tax liability; scholarship awards are not. However, as a
result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.
L. 107- 16, Sec. 413), beginning January 1, 2002, scholarship payments of
tuition, fees, and other reasonable educational costs will not be subject to
federal income tax. As a result, the net cost to the federal government of a
year of service under the NHSC scholarship program will increase.

26 This includes scholarship recipients who defaulted and paid the default
penalty, those who defaulted and subsequently completed or are serving their
obligation, and those who defaulted and have not begun service or payback.

Page 15 GAO- 01- 1042T

This is not to say that scholarships should be eliminated. One reason to
keep them is that they can potentially do a better job of putting people in
sites with the greatest need because scholarship recipients have less
latitude in where they can fulfill their service obligation. However, our
work indicates that this advantage has not been realized in practice. For
NHSC providers beginning practice in 1993- 1994, we found no significant
difference between scholarship and loan payment recipients in the priority
that NHSC assigned to their service locations. This suggests that the
scholarship program should be tightened so that it focuses on those areas
with critical needs that cannot be met through loan repayment. In this
regard, the Congress may want to consider reducing the number of sites that
scholarship recipients can choose from, so that the focus of scholarships is
clearly on the neediest sites. 27 While placing greater restrictions on
service locations could potentially reduce interest in the scholarship
program, the program currently has more than six applicants for every
scholarship- suggesting that the interest level is high enough to allow for
some tightening in the program?s conditions. If that approach should fail,
additional incentives to get providers to the neediest areas might need to
be explored.

Providers? current difficulty recruiting and retaining health care
professionals such as nurses and others could worsen as demand for these
workers increases in the future. Current high levels of job dissatisfaction
among nurses and nurse aides may also play a crucial role in determining the
extent of current and future nursing shortages. Efforts undertaken to
improve the workplace environment may both reduce the likelihood of nurses
and nurse aides leaving the field and encourage more young people to enter
the nursing profession. Nonetheless, demographic forces will continue to
widen the gap between the number of people needing care and the nursing
staff available to provide care. As a result, the nation will face a
caregiver shortage of different dimensions from shortages of the past. More
detailed data are needed, however, to delineate the extent and nature of
nurse and nurse aide shortages to assist in planning and targeting
corrective efforts.

27 The law provides for three vacancies for each scholar in a given
discipline and specialty, up to a maximum of 500 vacancies. For example, if
there are 10 pediatricians available for service, the NHSC would provide a
list of 30 eligible vacancies for that group if there were 500 or fewer
vacancies in total. Concluding

Observations

Page 16 GAO- 01- 1042T

Regarding the NHSC, addressing needed program improvements would be
beneficial. In particular, better coordination of NHSC placements with
waivers for J- 1 visa physicians could help more needy areas. In addition,
addressing shortfalls in HHS systems for identifying underservice is long
overdue. We believe HHS needs to gather more consistent and reliable
information on the changing needs for services in underserved communities.
Until then, determining whether federal resources are appropriately targeted
to communities of greatest need and measuring their impact will remain
problematic.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
respond to any questions you or members of the Subcommittee may have.

For further information regarding this testimony, please call Janet
Heinrich, Director, Health Care- Public Health Issues, at (202) 512- 7119 or
Frank Pasquier, Assistant Director, Health Care, at (206) 287- 4861. Other
individuals who made key contributions to this testimony include Eric
Anderson and Kim Yamane. GAO Contacts and

Acknowledgements

Page 17 GAO- 01- 1042T

Nursing Workforce: Emerging Nurse Shortages Due to Multiple Factors (GAO-
01- 944, July 10, 2001)

Nursing Workforce: Multiple Factors Create Nurse Recruitment and Retention
Problems (GAO- 01- 912T, June 27, 2001)

Nursing Workforce: Recruitment and Retention of Nurses and Nurse Aides Is a
Growing Concern (GAO- 01- 750T, May 17, 2001)

Health Care Access: Programs for Underserved Populations Could Be Improved
(GAO/ T- HEHS- 00- 81, Mar. 23, 2000)

Community Health Centers: Adapting to Changing Health Care Environment Key
to Continued Success (GAO/ HEHS- 00- 39, Mar. 10, 2000)

Physician Shortage Areas: Medicare Incentive Payments Not an Effective
Approach to Improve Access (GAO/ HEHS- 99- 36, Feb. 26, 1999)

Health Care Access: Opportunities to Target Programs and Improve
Accountability (GAO/ T- HEHS- 97- 204, Sept. 11, 1997)

Foreign Physicians: Exchange Visitor Program Becoming Major Route to
Practicing in U. S. Underserved Areas (GAO/ HEHS- 97- 26, Dec. 30, 1996)

National Health Service Corps: Opportunities to Stretch Scarce Dollars and
Improve Provider Placement (GAO/ HEHS- 96- 28, Nov. 24, 1995)

Health Care Shortage Areas: Designations Not a Useful Tool for Directing
Resources to the Underserved (GAO/ HEHS- 95- 200, Sept. 8, 1995)

(290108) Related GAO Reports
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