While other changes to Veteran Affairs will take longer to implement, the $16.3 billion law will allow military veterans to immediately return to private doctors.
The new law is a comprehensive remedy to the corruption and bureaucracy that plagued the Veterans Affairs Department and led to the ouster of Eric Shinseki as the secretary of the VA.
Veterans who have waited at least one month for a medical appointment or live at least 40 miles from a VA hospital or clinic will be permitted to see private doctors at the expense of the government.
The bill, called the Veterans Access, Choice and Accountability Act, will expand the VA staff by hiring thousands more nurses, doctors and mental health counselors. Twenty-seven new clinics will be opened across the country, which will take at least two years.
"Implementing this law will take time," Obama said as he signed the bill at Fort Belvoir, an Army base in Virginia. Veterans, veterans groups and military leaders attended the signing.
"This will not and cannot be the end of our effort," he said. "And even as we focus on the urgent reforms we need at the VA right now, particularly around wait lists and the health care system, we can't lose sight of our long-term goals for our service members and our veterans."
He noted that there is still rampant homelessness and mental health instability among veterans, which needs to be addressed.
Yet, Paul Rieckhoff, founder and CEO of Iraq and Afghanistan Veterans of America, called the new law "a Band-Aid solution."
"Anybody who thinks this is going to fix the problem is not being honest about this," Rieckhoff said, saying the bill does not address lots of veterans issues.
The bill, which was approved by a majority in the House and Senate, responds to reports of veterans dying while waiting to see doctors and reports of employees covering up veterans' months-long wait times to get appointments. Employees even received bonuses for falsifying records in some instances.
The new law will also make it easier for senior VA executives to be fired if they display negligence on the job.
The law provides $10 billion in emergency spending over three years to pay for private doctors for veterans who live far from clinics, as well as $5 billion for hiring more doctors, nurses and other medical staff. The remaining $1.3 billion will pay for the opening of the 27 new VA clinics.
The new VA secretary, Robert McDonald, also attended the bill signing. McDonald, former Procter & Gamble CEO, will head the agency of more than 310,000, which provides health care for around 9 million veterans and disability compensation for 4 million.
McDonald said he wants to "transform" the VA, in large part by improving patients' ability to receive health care, in addition to increased transparency and accountability.
"This is a labor of love for him, and he has hit the ground running," Obama said, in reference to McDonald.
McDonald will go to Phoenix Friday to visit the VA hospital where the scandal began.
While the reforms were just implemented, there has already been reports of reduced delays at VA facilities. Data from July showed that around 35,000 veterans waited at least 90 days for an appointment, which is down from 57,000 in May.
Last week, the VA also announced that it will fire two supervisors in Colorado and Wyoming who falsified information.