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.

10American Health Care Association, Facts and Trends 1999, The Nursing Facility

Sourcebook (Washington, D.C.: AHCA, 1999).

11Hospital & 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

 12American Health Care Association, Staffing of Nursing Services in Long Term Care:

Present Issues and Prospects for the Future (Washington, D.C.: AHCA, 2001).

13Homecare Salary and Benefits Report, 2000-2001, 2000.

14Federation 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

 15Peter 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

 16In 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.

17Only 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

 18See Health Care Shortage Areas: Designations Not a Useful Tool for Directing Resources

to the Underserved (GAO/HEHS-95-200, Sept. 8, 1995).

19See 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.

 20Historically, 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

 21To 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.

22See 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

 23See GAO/HEHS-96-28.

24Amounts 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.

 25In 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.

26This 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.

 27The 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)

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