The VA has been plagued for years by problems, including the 2014 scandal, where employees created secret lists to cover up delays in appointments.
The new law also gets rid of senior executives' right to appeal to the MSPB but replaces that process with an internal VA grievance procedure.
The president signed the Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017, which enjoys broad bipartisan support and was approved in the Senate on June 6. The VA is the second-largest department in the USA government, with more than 350,000 employees, and it is charged with providing health care and other services to military veterans.
"One of my greatest honors and joys during the presidential campaign was the time I spent going all across the country with our nations really and truly incredible veterans", Trump said.
The measure was prompted by a 2014 scandal at the Phoenix VA medical center, where some veterans died as they waited months for care. Outdated laws kept the government from holding those who failed our veterans accountable.
The bill also would allow the VA to take back bonuses paid to employees found guilty of misconduct and would prohibit employees who are appealing discipline from being placed on paid administrative leave.
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"Currently, for a variety of reasons, we are not ready to vote for this bill, but we are open to negotiation and obtaining more information before it is brought to the floor", Lee said in a joint statement with Sens. Critics say few employees are fired for malfeasance.
The Veterans Affairs bill was backed by Shulkin, who had called the department's employee accountability process "clearly broken".
"In just a short time, we've already achieved transformative change at the VA - and believe me, we're just getting started", Trump said.
Unions representing some VA workers, including the American Federation of Government Employees, are concerned the measure could be abused for political reasons.
President Donald Trump (2nd L), first lady Melania Trump (L), and Vice President Mike Pence (R) applaud during a Congressional Picnic on the South Lawn of the White House Thursday in Washington, DC.