Jackson & Coker Industry Report
Special Report :

Locum Tenens–Cost Effectiveness and Return on Investment

By J&C Research Associates

It’s no secret that the health care industry is undergoing a period of considerable change. It’s also no secret that this upheaval is occurring at a time when health organization budgets are particularly stretched. The rise in the number of government-insured patients, the ever-increasing costs of recruiting and retaining top physician talent, the spiraling costs of ever more complex medical technology: all of these and more converge to place remarkable stress on hospital budgets. Add to this a present and growing physician shortage–with experts expecting the American medical industry to be short anywhere from 85,000 to 200,000 physicians by 2020[1]–and it becomes readily apparent that adequate and affordable staffing is a major concern for health care organizations of all sizes. Precisely at the time when physicians are needed most across the nation, it is expensive and time consuming to bring on those same needed physicians.

For an organization experiencing an understaffing crisis–be it due to unavailability of sufficient talent or a lack of funds to support a permanent position–the choice could be between hiring on a locum tenens practitioner or having a need go unfilled. In such a case, health organizations are better served by bringing on a locum physician. Such a move makes sense not only from a care perspective–as these physicians are then serving patients that might not otherwise be seen–but also from a revenue perspective–as these patients are treated at the organization contracting with the locum providers instead of by the competition.

With physician shortages representing a real threat to service line development at institutions across the nation, locum professionals represent a definite opportunity for health care providers to shore up deficiencies in cardiology, orthopedic surgery, neurology, neurosurgery, and similarly shortage-affected specialties.[2] In specialties like general surgery, the availability of practitioners has dropped by as much as 25 percent per capita over the past quarter-century.[3] For this reason, general surgery is one of the fastest growing areas for temporary physician services.[4] Overall, the increasing shortage of physicians in recent years seems to have led directly to a boom in the locum tenens industry, with industry revenues increasing 45 percent between 2004 and 2007 to estimated revenues of $1.6 billion in 2007.[5]

Major Physician Shortages by Specialty – 2009[6]


Advertised Opportunities

Approximate Graduating Residents

% of Physicians Over the Age of 50

Number of Physicians Who Relocate Annually








Orthopedic Surgery


















Source: Healthcare Strategy Group with data from The Pinnacle Health Group

The cost effectiveness of bringing on locum physicians is borne out in the increasing popularity of their use among health organizations. A survey conducted last year by a locum tenens firm found that nearly three in four health care facilities had used locum tenens professionals sometime in the previous year.[7] That same survey found that health care facility administrators deemed the service and skill provided by locum physicians was adequate or better at a ratio of nearly 99 to 1. The vast majority of those administrators surveyed also said that the value locum tenens physicians bring into a facility is well worth the investment.[8]

The Bottom Line

So what sort of value does a locum provider bring? Enough perhaps to shake up some preexisting notions. Some think that locum tenens physicians are too expensive–with locum services for some specialties typically running around a thousand dollars per day–but administrators increasingly are discovering that locum providers actually shore up the bottom line at facilities where they fill a role. Take, for example, the chart below, which details fees and collections for locum providers in the top ten specialties. [Note: This data appeared on the site of the National Association of Locum Tenens Organizations in 2008 and is offered for comparative purposes.—ed.]


Approximate cost for locum tenens physician per day[9]

Approximate professional fee collections per day[10]

Estimated Daily Net

(Excluding other Rev)[11]









Emergency Medicine




Family Practice








General Surgery




Internal Medicine








Orthopedic Surgery








Source: NALTO

As shown in the chart, locum professionals in the top ten specialties–with the exception of emergency medicine–all bring in more in daily professional fees than it costs to staff the physician for that day. Family medicine and internal medicine–two specialties hit hardest by the physician shortage, and thus more likely to need filling by a locum provider–actually bring in nearly twice as much in daily fees as it costs to fill the position with a locum provider, while gastroenterology brings in more than twice as much as it costs to staff a locum provider for a day. Additionally, figures in this table don’t include the inpatient and outpatient revenue generated by locum physicians ordering therapeutic services and diagnostic tests, performing surgery, delivering babies, and carrying out other duties.

According to another locum tenens agency’s survey, if you combine base pay, benefits, incentives, vacation, CME allowance, liability insurance, and taxes, the full cost of a permanent family practitioner for an organization could top $220,000 for a year. An organization utilizing a locum tenens family practitioner would expend about $197,000 over the same period.[12]

Medical facilities do pay for travel and housing as well as extra for overtime and on-call duty; so these are factors to take into account when contracting with a locum professional. These organizations do not, though, pay the employer’s portion of FICA, fringe benefits, malpractice premiums, and continuing medical education expenses. Locum professionals also yield benefits not immediately quantifiable, but just as important to the operations of a health organization.

The Intangibles

As to what kinds of less-quantifiable benefits locum professionals bring with them, a good example involves doctor burnout. About 40 percent of surgeons–and a comparable rate among other physicians–are burned out on the job.[13] This sort of disillusionment not only causes physicians to leave the medical field early, but it also places patients in danger, as physician effectiveness is eroded. Locum tenens physicians can help prevent physician turnover by carrying the load for burnt-out physicians while they recover. The facility maintains quality continuity of care while reducing the long-term likelihood of physician attrition, and physicians receive some much-needed time away from practice.[14]

Aside from physician relief, locum professionals have the potential to help organizations by increasing patient satisfaction. Organizations fill absences of regular physicians with locum physicians, but they also occasionally use locum providers to test new medical services. With locum physicians, organizations can figure out demand for particular services within an area as well as the ability of that area to support those services.[15] All this can be accomplished without the necessity of a hefty, long-term expenditure on recruiting and bringing in another physician permanently.

Maximizing Return on Investment

Patient satisfaction, new market testing, physician retention: these are all solid reasons to look into bringing on a locum provider. Add to them the financial benefits and even the ability to maintain compliance with third-party payer staffing and service agreements, and locum providers are an even more attractive option. How, then, does an organization go about taking advantage of these and other benefits to fully maximize the return on investment in a locum hire?

The National Association of Locum Tenens Organizations has detailed four critical steps for organizations looking to reap the best returns on their locum tenens investment. [16]

  •  Plan ahead. While emergency situations do arise from time to time, most of your use of a locum provider is going to come with a good deal of notice: either a physician leaves an organization, goes on extended vacation or is absent for some other reason. In these cases, strategic planning on the organization’s part is necessary, as locum agencies with prior notice are more likely to be able to fill positions with a good match. Planning will help you save even more money, as short-notice placements often are scheduled at a premium rate.
  • Provide orientation. No two working environments are exactly the same. For this reason, it’s best to orient your locum provider to the particularities of your facility. Resist the urge to simply have the physician “get to work”; instead, show him around to supply closets, teach him how to use the electronic medical record system, and most importantly introduce him to the staff. Locum providers work best when they are fully integrated into the work environment.

  • Schedule appropriately. Find your locum’s ideal patient load and aim for that every day of their contract. Don’t overbook your locum provider, as that can compromise patient care or satisfaction, essentially negating the positive benefits you brought him on for in the first place.

  • Know how to bill. In most cases, your organization can bill on a permanent doctor’s provider numbers for services provided by a locum tenens–or, “holding one’s place”–provider. This sort of billing applies for six months if the locum hire is covering for a terminated physician or one who left the practice voluntarily. Locums brought on to help while a group recruits a permanent physician are not eligible for this sort of billing and thus need their own provider numbers. Special modifier codes may also apply in some situations for Medicare/Medicaid billing.

Whether your organization is lacking in critical services, looking to test out a new service offering, is over-capacity or understaffed, or just looking to cover for a physician going on maternity leave, a locum tenens provider could easily be the cost-effective solution you’ve been seeking.. And likely not just your organization: with three out of four health organizations reporting locum use, locum tenens professionals represent a vital and growing segment of the health care landscape. And, should your organization bring one on, you may find they’ll come to be an indispensable aspect of your facility’s functioning.

[1] Croasdale, Myrle. "Demand Up for Locum Doctors," American Medical News, November 6, 2006. http://www.ama-assn.org/amednews/site/free/prsb1106.htm

[2] Healthcare Strategy Group, Physician Shortages Threaten Service Line Development. http://www.healthcarestrategygroup.com/newsletters/article.php?show=physician_shortages_threaten_service_line_development

[3] Samuels, Jennifer. "Locum Tenens Can Solve Shortage of Primary Care Physicians," LocumLife, March 15, 2010. http://locumlife.modernmedicine.com/locumlife/Modern+Medicine+Now/Locum-tenens-can-solve-shortage-of-primary-care-ph/ArticleStandard/Article/detail/662972

[4] Ibid

[5] Croasdale, op cit.

[6] Healthcare Strategy Group, op cit.

[7] Boes, Tim. “Use of Locum Tenens Remains Robust,” LocumLife, December 15, 2009. http://locumlife.modernmedicine.com/locumlife/Modern+Medicine+Now/Use-of-locum-tenens-remains-robust/ArticleStandard/Article/detail/649577

[8] Ibid

[9] Source: NALTO, "Locum Tenens: A Smart Investment." http://www.nalto.org/documents/ROI_article-Formatted-Updated_Oct_2008.pdf

[10] Source: MGMA Physician Compensation and Production Survey: 2008 Report Based on 2007 Data

[11] Onyx MD, Maximizing Your Return on Locum Tenens Physicians. http://www.onyxmd.com/health-care-clients/locum-tenens-roi.html

[12] Boehme-Hernandez, Andrea. "Maximize Your ROI with Locum Tenens and Advance Planning," Executive Healthcare Management. http://www.executivehm.com/article/Maximize-Your-ROI-with-Locum-Tenens-and-Advance-Planning/

[13] Ulene, Valerie. “Physician Burnout Affects Patients Too,” The Los Angeles Times, June 7, 2010. http://articles.latimes.com/2010/jun/07/health/la-he-the-md-20100607

[14] “Calculate ROI for Locum Tenens Physicians,” HealthLeaders Media, May 15, 2008. http://www.healthleadersmedia.com/content/211737/topic/WS_HLM2_PHY/Calculate-ROI-for-Locum-Tenens-Physicians.html

[15] Boes, op cit.

[16] NALTO, op cit.

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