Renting a Physician by the Week Because Nobody Will Move There

The Position That Cannot Be Filled

A rural hospital needs an emergency room doctor on call at all times. It has budget for three and can hire two. The third position is not vacant because of money it is vacant because the doctors qualified to fill it prefer to live elsewhere

Without coverage the emergency department cannot function and without an emergency department the hospital loses revenue loses its role in the community and often loses viability

The void is filled through locum tenens staffing from Latin for fill-in: a doctor hired through an agency to work for a defined period often a week or a month at a specific facility

Note the shape of that constraint because it is unusual and governs everything that happens downstream. The hospital is not short of money in the usual sense since it has the budget line. It is missing a person who is willing to be in a certain place. Almost no other input that a hospital purchases behaves that way. The equipment goes where it is sent

The Cost Structure

The economics are simple and expensive. The agency pays the doctor a daily rate arranges travel lodging and malpractice coverage manages licensing and credentials at the facility and charges the hospital a bill rate substantially higher than what it pays

The total cost to the hospital is commonly a substantial multiple of the equivalent salaried physician cost per day worked. For a facility operating on tight or negative margins a single hard-to-fill position filled in this manner can consume a significant portion of the operating budget

What One Uncovered Position Actually Costs

The phrase substantial multiple works a lot so it helps put the relationship in units rather than dollars which also avoids claiming precision that varies wildly by specialty and region

Set the cost of a salaried physician per day actually worked and including benefits at 100 units. Suppose same-day coverage through an agency costs 250 units a multiple within the range commonly reported by facilities

Therefore the hospital pays two and a half times as much to hire one doctor. Put another way filling a single position this way costs what it would cost to employ two and a half salaried doctors and the hospital ends up with one

The premium is the 150 units of difference and 150 units is one and a half salaries for the doctor. That is the number worth sitting down with

Because a salary and a half a year is a hell of a lot more than it would cost to fix the problem permanently. A recruiter's fee a signing bonus a relocation package loan repayment assistance even a materially above-market salary for the permanent position all fit comfortably within that premium and several of them fit within it simultaneously

Which raises the obvious question of why hospitals don't just do that and the answer is all the difficulty. They try. The permanent position remains vacant anyway because the limitation was never the compensation offered. Paying for more shifts reduces the number of people willing to move to less than the arithmetic suggests since the objection is more to location than salary

Therefore it is best to read the premium as a measure. It is what the market says it costs to overcome a local preference by force each week and the reason it persists is that the cheapest permanent solution does not work reliably

Why Physicians Take the Work

The supply side is worth understanding because it explains why the model persists rather than being eliminated by competitors

The daily salary exceeds the equivalent salary and the job does not carry administrative responsibilities committee obligations or institutional politics. The schedules are controllable since a doctor can work twenty weeks a year and take the rest off

It is also tailored to particular career stages: physicians entering practice in sample settings those who are at the end of their career and reducing their commitment without retiring and those who are between permanent positions

What they give up is continuity with patients retirement benefits and contributions and the professional community that comes with belonging to an institution

The Cycle It Creates

The mechanism that makes this more than just a pricing story is the feedback loop

A hospital that relies heavily on temporary staff has a workforce that rotates increasing the burden on permanent staff who carry institutional knowledge onboard each newcomer and fill gaps. Permanent staff burn out and leave. The number of positions requiring temporary coverage increases. Costs increase margins are compressed and the ability to offer competitive permanent compensation decreases

There is also a compensation visibility problem. Permanent staff generally know how much the temporary doctor working alongside them is billed and the gap is demoralizing. Some respond by leaving permanent employment and accepting agency work sometimes returning to the same hospital for a higher price

Why the Loop Tightens Rather Than Settling

That description contains three separate reinforcement arms and separating them shows why the situation does not stabilize on its own

The first is workload. Each rotating doctor must be oriented supervised through unfamiliar systems and covered for things a newcomer can't yet do. That job falls to the permanent staff in addition to his own. So the more temporary coverage a hospital uses the more difficult permanent jobs become and the more difficult those jobs become the more people leave them. Each departure creates another position that needs coverage

The second is financial and runs through the same variable from the other direction. The bonus consumes budget. The consumed budget is budget not available for permanent compensation retention bonuses or additional hiring that would relieve pressure. So the emergency measure consumes the resources that would fix the thing causing the emergency

The third is the visibility problem and it is the most direct of the three because it turns permanent staff into agency staff. A doctor who can see the bill for the substitute working the next shift and who bears the guidance burden generated by the substitute has been shown a precise figure of what the exit is worth. Some accept this and the hospital rehires the same person at a higher rate having lost a permanent employee and gained a temporary one

Read together the three arms move the same amount in the same direction which is the number of positions that require coverage. Nothing in the mechanism pushes back which is why a strong dependence tends to deepen rather than resolve and why the useful time to intervene is early when the proportion is still small

What Happened to Prices

Rates rose dramatically during the acute staffing shortage of the early 2020s most dramatically in nursing but also substantially in medical specialties. Facilities competing for a fixed pool of available doctors offer rates at levels that would have previously been implausible

The response included legislative attention in several states to agency pricing hospital system efforts to create internal float pools and travel programs to capture the margin themselves and long-term contracts to set rates

The internal float pool is the most interesting of those answers because it is an attempt to buy the agency's business model rather than its services. A large system employs its own traveling doctors pays them a premium over a standard salaried position and deploys them in its own facilities. The system maintains the margin that an agency would have earned and gains scheduling control that it never had as a client. What it does not escape is the underlying constraint since those doctors still have to be willing to go where they are asked.sends and a system whose toughest sites are genuinely remote finds its own floating pool rejecting the very assignments that one agency strove to fill

Rates have moderated from peak levels without returning to the previous baseline which is what would be expected if the underlying shortage was structural rather than episodic

The Structural Question Underneath

The temporary personnel market is a price signal and what it signals is a distribution problem rather than an aggregate one

Binding limitations include the number of residency training positions which determines how many doctors are produced in each specialty; licenses that operate on a state-by-state basis which slows the movement of doctors to areas of shortage; and the simple fact that the places with the greatest need are the least attractive places to build a career and raise a family

Interstate licensing pacts have materially reduced the second restriction allowing for faster licensing between member states. The first and third are considerably more difficult and are the reason the agency market exists

Why More Physicians Would Not Fix It

It is necessary to insist on the distinction between a distributive problem and an aggregate one because it changes which policies might work

Suppose the number of residency positions increased substantially and the country produced considerably more doctors. Those doctors finish their training and then choose where to practice and they choose on the same basis as everyone else: membership careers schools family professional community and the amenities of a place

So the additional supply is distributed according to preferences and the places that suffer the worst shortages are almost by definition the places that people least prefer. More domestic supply would relieve competitive pressure in the desirable markets first and reach the most difficult places last if anything. It would be useful. It would not be directed at the problem

Licensing pacts are a genuine improvement and address friction rather than preferences. Making it faster for a willing doctor to work across state lines is very important specifically for the agency model since that model depends on people moving quickly. It does nothing to increase the number of people who want to be there

Which leaves two levers that really touch preference. One is money and the substitute premium is already telling us how much it costs and how imperfectly it works. The other is the location of training because doctors are much more likely to practice near where they trained having built a life and professional network there during their residency. That makes rural and underserved training programs a structural intervention rather than a subsidy since they change where preference is formed rather than trying to pay to override it.after

It's also slow. A residency program established today will produce practicing doctors years from now which is the wrong timeline for a hospital that needs coverage next Tuesday. So the agency market continues to do the immediate work at high cost while the only lasting solutions operate over a horizon that no individual facility can wait for

How to Read It Financially

For a hospital system contracted labor spending as a percentage of total labor is the metric that matters and its trend indicates whether the contracting problem is improving. A system with increasing contracted labor and stable volumes describes a labor problem that will eventually affect service lines

For staffing companies the business is cyclical in an unusual way: It performs best when its clients perform the worst as shortages drive both rates and volume. That inverse relationship makes revenue growth in this sector a reasonable indicator of stress in the supplier sector

The Bottom Line

Locum tenens staffing exists because clinical work is not distributed where patients are and prices are not matched in an honest and costly way. It actually keeps services open that would otherwise close and a heavy reliance on it hastens the departure of permanent staff whose absence created the need. The rate a hospital pays is a measure of how difficult it is to persuade someone to work there which is a fact that depends on geography and training channels rather than the agency charging it. And the single-position premium is usuallyexceed what a permanent solution would cost indicating that the permanent solution is not available at any price the hospital can afford