How Much Money A Locums Company Makes from Physicians Working Through Their Agency
- Nisha Mehta, MD
- Mar 29
- 8 min read
A common dilemma physicians on our online communities for doctors encounter when pursuing locums opportunities is whether to go through a locums company or contract directly. We have many related questions submitted on our forums, such as, “How much does the locums company charge the hospital?,” “How much money is it fair for the locums company to make from me,” and “How much can I negotiate up my rate with the locums company? They’re telling me they can’t offer me any more?” We also get many posts from physicians who find out what the hospital or employer is paying the locums company and are shocked at how much higher the number is than the rate that they are receiving. Below, we’ll cover what locums companies charge, what to understand about where the difference between what they receive from the client and what they pay you goes, how you can use this information when you are negotiating your rates, and more.
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How much money do locums companies make from physicians working for their agencies, or what percentage of my rates?
Technically, the locums companies aren't usually taking a percentage of the daily or hourly rate that you accept. Rather, they are typically charging the client (the hospital system, institution, or private practice) that you will be working for an hourly or daily rate, depending on the contract.
They separately contract with you on a rate that you will accept. The difference between what the client pays them and what they pay you is the money they have for potential profit. Of course, expenses are taken out of this, so not all of that is pure profit, but you can see why it is in their interest to have your piece of the pie be smaller and encourage you to take a lower rate.
As bigger companies have higher overhead, they may not be able to pay you as much, but that's not a hard and fast rule, as depending on their relationship with the client they may also have negotiated higher rates.
The difference in what the locums company is willing to accept as profit is a large part of why you may see different rates from different companies for the same locums position.
What is the average percent markup or middleman fee on a physician's rates that the locums company takes?
The short answer is that the percentage middleman fee or markup that a locums company charges above and beyond your rates varies significantly based on the company's business model and the rates that you negotiate. The numbers we’ve seen on the communities range anywhere from the locums company keeping 15-60% of what the client pays them for the hourly or daily rate for a doctor. The majority of answers from people who are in the know (either they’ve used a locums agency to hire a physician, run a locums agency, or have found out what the hospital is paying per hour for them) appear to run between 30-50%. This is a much larger markup than most physicians would guess intuitively.
This means that you may be surprised to find out that the locums company actually receives the same amount of money from the locums gig that you do, despite the fact that you’re the one doing the work and the one that has the skillset to provide patient care. Understandably, this rubs many physicians the wrong way.
How does the locums company justify taking such a large middleman fee?
Before you get too upset, they’re probably not making the same profit that you are off of the locums gig, and they are providing you with a service as well.
Depending on the contract that you negotiate with your locums company, they may be providing or paying:
Malpractice insurance
Credentialing and licensing costs
Travel expenses
Housing or Housing expenses
Meal expenses
Overhead related to the running of their business, such as paying your locums recruiter, contracting with the hospital, advertising, etc
Subcontracting with other agencies to help find staffing
Additionally, depending on the situation, the agency may be taking on some risk, as depending on their contract with the physician, they may have to pay out before they receive payment from the client. Many hospital systems have complicated vendor processes that result in significantly delayed payouts, and sometimes they cancel bookings last minute but the contract you have with the agency hopefully protects you and means you still get paid.
In many cases for busy physicians, especially those doing locums as a side gig, having someone else take care of finding the gig, making the arrangements, paying for malpractice insurance, and otherwise dotting the i’s and crossing the t’s has value. It’s the easiest way to get started in locums and focus on just doing what you do best, providing patient care.
Is this middleman fee from the locums company fair?
This is where we feel things get much more subjective. Ultimately what you’re willing to pay or what the hospital or client of the locums company is willing to pay is whatever the market will tolerate or whatever reflects the value add.
Hospital systems and private practices know that they’re paying a premium for using an agency, but often justify this by the need to get someone to fill the position as soon as possible for necessary staffing needs or because the vacancy of the position comes at a huge opportunity cost that outweighs the extra costs paid to the locums company.
On your end, though, you have to decide what you feel is fair as well as what value is provided, so that you can leverage that in your negotiations appropriately.
Things to ask yourself:
Am I willing to put the effort into finding locums opportunities and contracting with hospitals or private practices by myself?
How much time and money will I spend if I arrange travel myself?
Do I have my own malpractice insurance policy or would I be willing to get one if the employer can’t bring me under their existing malpractice policy?
What are my other options? Can I use another agency or contract directly, or has this place that I want to work with subcontracted to this agency exclusively?
Are they paying me what I feel is a fair rate that is similar to what I could get myself, and if so, do I care how much they’re making?
Am I morally opposed to them making that much money off of me?
The answers to these questions are going to be different for every physician, but as always, we encourage you to know your worth and advocate for yourself, just as the company will try to do for themselves.
Can I negotiate my rate up now that I know how much the locums company makes from me?
That brings us to the question of what’s negotiable. As you hopefully know, we are big advocates of the concept that everything is negotiable. The locums company needs to fill these spots if they want to make money, and they want to keep their clients happy by doing so ASAP. So you do have leverage when negotiating with a locums agency.
In general, we don’t think that you should take the first offer. Remember that the locums company makes the difference between what the client pays them and what you are willing to take as a rate, so they are incentivized to get you to take the lowest rate possible. In this situation, the locums company is not your friend, despite the fact that you may have a very good working relationship. So it will be on you to push the rate up.
Learn more about how to establish a successful working relationship with a locum tenens agency recruiter.
What if the locums company states that that is the best that they can do? This is your call, and will depend on how willing you are to walk away. We are strong advocates of physicians getting paid fairly and advocating for their worth, so we feel that you should decide on a number that feels fair for the services you provide, and not go below that (though we recognize that it may be more complicated than that).
Based on the experiences we’ve seen on the groups though, somehow the “best” number that the locums company can do often magically increases when you state that you’re walking away, so keep that in mind. Often it just means that the locums company has to decide to take a little less profit.
What are some other ways to reduce middleman fees with locums companies?
Depending on the locums company and how boutique or customizable the contract is (and honestly, how much they need you), you may be able to negotiate better terms above and beyond just the rate.
After all, there’s nothing to say that they need to earn the same on every dollar you make for a multiyear contract where they were just the initial point of contact. If you know that this is a long term assignment, you may want to negotiate a situation where they take a bigger upfront commission, but after a certain number of hours worked, your rate goes up and the percentage that they make of the amount that the client is paying goes down.
You could also negotiate things like what type of housing or travel is paid for, payments for licenses, etc, etc. Don’t be afraid to get creative.
Should I just contract directly with the hospital system or locum company’s client directly?
As we stated above, there are hassles involved with going directly, but those physicians in our group that are seasoned locums doctors often advocate for this approach. This is a deeper topic beyond the scope of this article, but if you’re in locums for the long haul, definitely one worth considering. Some physicians contract directly with some gigs and use agencies for others. There’s no one right way to do it, so just judge each situation individually and see what’s working for you.
Conclusion
Locums companies are very popular businesses for a reason, whether they’re owned by large corporate entities or even other physicians. By making it easy for both you and the clients to connect, they provide a valuable service. The question is more whether you feel that how much they make off of you is fair, and by understanding their business model, we hope you’ll be able to best advocate for yourself.
Additional locum tenens resources for physicians
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