VA Testimony of Kenneth Clark before Congress on April 12, 2000

STATEMENT OF
KENNETH J. CLARK
CHIEF NETWORK OFFICER
VETERANS HEALTH ADMINISTRATION
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON VETERANS AFFAIRS
U S HOUSE OF REPRESENTATIVES

I am pleased to appear before the committee to discuss the recruitment, retention, and compensation of health care professionals and to present the Department’s views on H.R. 1216 and H.R. 2660.

VA’s health care providers are its most important resource in delivering high-quality, compassionate care to our Nation’s veterans. We must maintain the ability to recruit and retain well-qualified individuals in health care and related occupations. Compensation, employment benefits and workplace factors affect our ability to recruit and retain employees, particularly in highly competitive labor markets and for hard-to-fill occupations. Thanks to the efforts of this Committee and the Senate Veterans’ Affairs Committee, VA is able to offer generally competitive pay in most markets. VA continuously monitors the recruitment of health care workers, trends in private sector employment, and workforce projections for the health care industry. At the present time, health care staffing in the VA health care system is relatively stable and we are not currently experiencing any widespread or critical staffing shortage for our health care occupations.

However, there are some specific problem areas – individual locations that are experiencing some difficulties for some occupations and non-VA pay trends for dentists and pharmacists are beginning to create difficulties.

Under the authority of the "Department of Veterans Affairs (VA) Nurse Pay Act of 1990," VA established the Nurse Locality Pay System (LPS) covering Registered Nurses and Nurse Anesthetists. The purpose of the LPS is to ensure that pay rates at VA facilities are sufficient to be competitive with those at local non-VA health care facilities for the recruitment and retention of nurses and nurse anesthetists. Under the Act, officials of VA medical centers throughout the country establish nurse pay schedules based on the results of local salary surveys.

An analysis of the average full-time nurse salary in VA, as compared to the average nurse salary in the United States over the past ten years shows a close linkage between VA’s salary trends and those for the U.S. nursing population. Over the past 5 years, average increase for VA’s LPS schedules increased from 1.67 percent in January 1996 to 4.27 percent in January 2000.

Recruitment and turnover data for VA full-time nurses for the past 15 years show that VA nurse employment trends have remained relatively stable.

In 1998, the Department hired an outside contractor to conduct a comprehensive review of the Nurse Locality Pay System (LPS). The results of that study were reviewed by an implementation group of management and employee representatives, which reached consensus on a number of recommendations.

Among the key recommendations the group presented to the Under Secretary for Health and the Secretary of Veterans Affairs were:

The Secretary accepted the group’s recommendations and forwarded the complete report to Congress on November 29, 1999.

The key conclusion of the contractor and the implementation group was that the current survey process is flawed and that another methodology is needed for pay adjustments to ensure more equitable pay adjustments for nurses.

VA has accomplished or is working on a number of the Report's recommendations that can be acted on without legislative action. For instance, VA is working with BLS to develop a survey methodology for them to collect nurse pay data for the LPS. Those surveys would use re-described survey jobs to find private sector pay data, and would collect rate ranges, average salaries, and actual hiring rates. VA has provided guidance and instruction to managers and nurse executives on the use of LPS and other pay flexibility to advance recruitment and retention goals. In addition, for the last three years, the Under Secretary has strongly encouraged all facilities to grant pay adjustments to nurses in January to coincide with the timing of pay increases in other different pay systems.

H.R. 1216 would expand the VA occupations covered by the LPS, would require that the pay rates of covered employees be adjusted annually under Title 5, revise the LPS survey process, and retain VA’s authority to make local pay adjustments in addition to the Title 5 annual adjustment. The Department supports the goal of H.R. 1216 -- equitable pay adjustments for nurses -- however, we have concerns with the bill as currently drafted.

Coverage of H.R. 1216 -- H.R. 1216 would expand the Locality Pay System (LPS) beyond the current coverage of nurses and nurse anesthetists to include all Title 38 occupations (except for physicians and dentists), hybrid occupations, and some Title 5 occupations. This would require VA to use BLS surveys, where available, for the Title 38 occupations of optometrists, podiatrists, physician assistants, and expanded-function dental auxiliaries; the hybrid occupations of occupational therapists, physical therapists, pharmacists, certified or registered respiratory therapists, and licensed/vocational nurses; and, the Title 5 occupations of dieticians, psychologists, and other scientific personnel (such as microbiologists, chemists, biostatisticians, and medical and dental technologists).

The costs for BLS locality surveys for these additional occupations would be significant, and the resulting data could be of limited validity, accuracy, and value, given the small population numbers of individuals in some of the occupations, the difficulty of surveying in small geographic areas, and the lack of pay-related national staffing problems. These occupations currently are paid from national pay schedules linked to or under the General Schedule, and already receive annual increases in the same manner and at the same time as General Schedule employees under 5 U.S.C. 5303 and 5304. In addition, the Department currently has the flexibility to adjust rates using the special salary rate mechanism if nationwide rates are not sufficient to recruit and retain well-qualified individuals. We do not believe that bringing these additional occupations under the LPS is necessary, practical, or even beneficial.

Annual Pay Adjustment Mechanism -- H.R. 1216 would provide that covered positions, which are currently paid under the Locality Pay System (LPS) and receive rates of pay based directly on the community rates for comparable positions, would be adjusted annually in accordance with the provisions of 5 U.S.C. 5303, which provides for general comparability increases to basic pay, and 5 U.S.C. 5304, which provides for locality-based comparability payments (LCP). Because the LPS system is part of VA’s independent title 38 personnel system, changes should be accomplished solely in title 38. Title 5 should not be applied to title 38 employees.

LCP works as an add-on to General Schedule pay, based on the difference between the General Schedule (GS) basic pay rates and local prevailing rates of pay at private employers, as measured by the Bureau of Labor Statistics. The statute provides for a graduated increase in the locality payment over a number of years to bring Federal pay to within 5 percent of the community. Those increases have been accumulating every year since 1994, and now vary from just under 7 percent in many parts of the country to a high of just over 15 percent in San Francisco.

LCP add-ons are paid at the full amount for the locality in which the individual works. There is no provision in Title 5 to pay only a portion of the LCP accumulated percentage. VA is concerned that, as a result of this legislation, nurses, whose salaries have been adjusted to reflect locality rates, would become entitled to the full LCP percentage, on top of their LPS rates. VA does not believe that this would be the intent of the legislation, and is concerned that the language be carefully crafted to avoid such an unintended consequence.

A key concern about such a possible outcome is that many VA facilities would become community pay leaders if starting salaries were increased by 7 percent or more throughout the continental United States. A comparison of VA starting rates for nurses at grades I through III to the community pay leader shows that one-third of the VA starting rates are at or within about 5 percent of the highest community rate found. For these VA locations, then, mandated LCP adjustments would result in VA becoming the community pay leader.

A second concern is that the proposed bill provides that the LCP adjustment would become part of the nurses’ basic pay. Because LCP is tied to where employees work, it is not portable and is not part of employees’ basic pay. LCP serves to offer competitive salaries with the private sector in a given locale; it serves, then, as a recruitment and retention tool for the community where it is paid. If the LCP increase were to become part of nurses’ basic pay, it would have the effect of making permanent a conditional locality payment. Thus, making LCP a part of nurses’ basic pay would create an advantage not accorded to General Schedule and other employees. Another disparity that would result from adding the LCP to a nurse’s basic pay is that it would be compounded (magnified) by future increases in basic pay, whether due to future pay increases, promotions, etc.

If LCP is to be granted to nurses, the Department believes that the LCP increase should not be granted until the valid, accurate, and sufficiently detailed locality survey data collected by the Bureau of Labor Statistics is available. In addition, VA nurses should not receive the full accumulated LCP add-on, but only the current year adjustment. Until such time, adjustments should continue to be made under the current VA LPS statute.

Use of BLS Survey Data to Set VA Nurse Pay Rates -- Another of our concerns with H.R. 1216 relates to the proposed mechanism for use of Bureau of Labor Statistics (BLS) data. The proposed language would provide for use of BLS data in lieu of facility-conducted salary surveys. The proposed bill, unlike the current VA statute, does not provide for any alternative mechanism. We are very concerned that under this rigid mechanism the Department will not be able to respond to certain situations, such as instances where BLS data are not available or not yet validated, where BLS data are not available for specialty assignments or qualifications, where, for technical reasons, BLS surveys must cover an area too large to be useful in meeting local nurse salary competition, or where BLS data do not support higher rates for a facility, even when it is documented by recruitment and retention data that an increase is necessary.

We believe that the Department needs the flexibility to consider salary information beyond and in addition to the BLS results if we are to retain the ability to adjust pay rates when justified and necessary to maintain a competitive stance with the community, whether it be to set rates for remote locations, for specialized groups of nurses, or for pay comparability, should the BLS survey data not be adequate to VA’s staffing needs. Thus, VA favors retention of its current authority to conduct local surveys where BLS data are inadequate, not yet validated, for too large an area, or offer insufficient detail on specialties. It is important that H.R. 1216, if it is adopted, make clear that any adjustment in pay for nurses not be mandatory.

Availability of BLS Data -- We understand that BLS data would not be available until 2002 at the earliest. The initial cost estimate from BLS to provide survey data for nurses alone ranges up to $10 million per year. The cost would increase significantly if VA were to include additional occupations, such as those proposed for inclusion by H.R. 1216.

Other Concerns -- The bill does not continue the provision to use contractor salary data for pay setting for nurse anesthetists. The flexibility to survey rates paid to contract employees is one that the Department believes should be retained.

Amendment Concerning Annual Pay Adjustment for Employees on Special Salary Rates -- We understand that a proposal has been submitted that would amend HR 1216 to provide for a change in the annual pay adjustment process for employees with special salary rates set under 38 U.S.C. 7455. It is unclear how this alternative proposal might work. We are concerned that it would mandate that the annual comparability increase under 5 U.S.C. 5303 and the locality increase under 5 U.S.C. 5304 be granted to employees receiving special salary rates. This provision could result in VA becoming a community pay leader or could cause VA facilities to delay adjusting rates when warranted. For example, if a facility increases pay rates for a healthcare occupation in October to maintain comparability with the community, and then is required to pass on the comparability increase the following January, the VA’s rates could exceed community rates. Alternatively, a facility might defer a warranted increase in the latter half of a year, knowing that a mandated increase was coming the next January. This second possibility could result in VA losing pace with the community and adversely affect our recruitment and retention.

It should be noted that other Executive agencies have been delegated authority to use section 7455 to establish special salary rates for health care workers in their agencies. Any change to the language in 38 U.S.C. 7455 would also affect other agencies.

Title 5 special rate employees, including VA’s, are not currently guaranteed an annual increase. VA employees in the hybrid occupations are treated similarly. VA’s Title 38 special salary rates are adjusted as needed.

Cost Estimate for H.R. 1216 -- The Department has not formulated a comprehensive cost estimate for H.R. 1216, due to the potential for changes to coverage and scope, however, we believe the cost could be substantial.

Public Law 102-40, "The Department of Veterans Affairs Healthcare Personnel Act of 1991," provided an enhanced program of special pay for VA physicians and dentists. Special pay is paid in addition to rates of basic pay to assist in the recruitment and retention of well-qualified practitioners. This law significantly increased the amounts of special pay available to compensate VA physicians, with smaller increases authorized for dentists.

Special pay for VA physicians and dentists may be authorized locally for six of the seven components established in statute; one requires the express approval of the Under Secretary on a case-by-case basis. Some components are entitlements for employees; others are discretionary and approved on a local basis according to the recruitment and retention needs, as well as the levels needed to be generally competitive with the community.

Employees receive special pay to the extent that they qualify for the mandatory components, work in a designated clinical category, and provide hands-on patient care. The amounts approved for each individual are based on their entitlements to certain components, as well as their personal qualifications, experience, and training. These mandatory and discretionary components resulted in average pay for dentists of $104,959 as of September 30, 1999.

Recruitment and Retention of VA Dentists -- The turnover rate for dentists has paralleled that for other health care occupations. It has remained relatively stable over the past 5 years. We note, however, that the rate is increasing slightly, primarily due to the aging of VA dentists, who are reaching retirement age in increasing numbers.

An analysis of the VA dentist workforce shows that almost 7 in 10 will be eligible for regular or early retirement by 2003. Of the 131 full-time VA dentists who left since January 1997:

21 (16 percent) resigned to pursue other employment opportunities and 1 left dental practice to pursue research. These dentists had an average of 10.6 years of service. If the 6 new hires who left after only 1 year are excluded, the average seniority at departure was 14.7 years.

56 (42.7 percent) of those who left employment, were Service Chiefs. While this offers advancement opportunities to dentists on staff, it indicates a significant loss in the leadership cadre in a short period of time.

32 (31.1 percent) of the retirements indicated that they were entering private practice, academia, or other employment opportunities in the dental profession.

4 additional full-time employees converted to part-time employment, reducing their availability to care for veterans.

H.R. 2660 would increase dentists’ special pay so that it would be identical to the amounts authorized in statute for physicians.

When the amounts of special pay for dentists were established in P.L. 102-40, the Department was not experiencing significant turnover or retention difficulties for dentists. For that reason, special pay increases at the level of those for physicians were not put in place.

Although VA does not currently have a widespread recruitment and retention problem for dentists, there are some areas where problems exist. Almost 70 percent of VA full-time dentists will be eligible for regular or early retirement in the next three years. Therefore, we are concerned that as VA dentists retire, it will be difficult to attract the best qualified dentists to work in the VA, given the gap that exists between VA and non-VA compensation packages. VA is currently reviewing legislative options that would mitigate these potential problems.

VA’s preliminary estimate for the cost of H.R. 2660 ranges from $8.2 to $18.9 million per year, based on current approval rates for some discretionary components.

At the present time, health care staffing in the VA health care system is relatively stable. However, efforts are continually underway to maintain this stability. Staffing problems typically occur in cycles and vary considerably from one locale to another.

One occupation for which VA is currently experiencing increased recruitment and retention difficulties is pharmacist. Currently, VA pharmacists are not leaving their jobs to pursue private sector opportunities (most losses are due to retirements); rather VA is experiencing some increased difficulty recruiting new pharmacists.

There is a significant increase in the number of special salary rate authorizations for pharmacists. The Department is receiving requests for new or increased special rates on almost a daily basis. VA will continue to monitor the ceiling on special rates contained in 38 U.S.C. 7455(c) to ensure that restrictions in salary adjustments do not become problematic.

An analysis of special salary rates for all occupations subject to the ceiling (excludes nurse anesthetists and licensed physical therapists) contained in 38 U.S.C. 7455(c) shows:

Of the 638 special salary rate authorizations in effect as of March 28, 1999, 178, or 28 percent, are at or within 6 percent of the ceiling.

The 178 authorizations within 6 percent of the ceiling cover 19 different occupations. 75 of the authorizations, or 42 percent, are for pharmacists alone.

VA salaries for certain occupations in certain locations could fall behind those in the private sector, and create recruitment and retention difficulties although this has not happened. We will continue to carefully monitor the situation. VA will also continue to use the tools that are currently available to address any incipient recruitment and retention problems. These authorities include recruitment, relocation, and retention bonuses; advanced in-hire rates for high quality candidates; special advancements within the rate range and cash awards for exceptional achievements and contributions; and educational assistance.

Educational assistance provided through the recently implemented Employee Incentive Scholarship program and the soon-to-be-implemented Education Debt Reduction Program will undoubtedly have a positive impact on our ability to recruit and retain a well qualified health care workforce.

VA is generally able to recruit all clinical specialties in all areas of the country. Although facilities do encounter problems from time to time for particular clinical specialties, we find the current pay flexibility in P.L. 102-40 to be generally adequate to meet our needs. However, P.L. 102-40 was enacted 10 years ago and the limits established at that time may not prove to be sufficient to respond to all recruitment situations in the future – particularly for scarce specialties.

VA will continue to closely monitor physician pay trends and recruitment experience, and will evaluate whether any action is necessary to maintain our ability to recruit and retain well-qualified physicians.

VA has been diligent in its use of the special authorities that Congress has provided for recruiting and retaining health care occupations. As noted earlier, VA monitors the current staffing needs, and the effects of changing demographics on both the veteran population and the labor force of health care professionals available to serve them.

The average age of the VA workforce is increasing. A significant number of VA employees will be eligible to retire in the next few years. As a result VA likely will experience significant turnover. VA is studying this phenomenon in order to maintain our ability to maintain the highest quality health care workforce.

We look forward to continuing to work with the Committee to ensure that VA is able to recruit and retain well-qualified health care professionals to meet VA’s obligation to care for the Nation’s veterans.