What Is Locum Tenens?

Locum tenens is a temporary physician placement arrangement in which a staffing firm supplies a licensed clinician to a hospital, health system, or practice group to cover a vacancy, seasonal demand, or a specialty gap. The staffing firm recruits the physician, handles credentialing and privileging, and bills the client at a marked-up rate. The firm earns its revenue on the spread between the bill rate and the pay rate, paid only when the physician works.

How the Placement and Revenue Model Works

The locum tenens model differs from permanent physician search in both timing and economics. A permanent search firm typically collects a retained or contingency fee upon placement. A locum tenens firm carries the clinician on its own payroll or as an independent contractor, invoices the client weekly or monthly for hours worked, and pays the physician at a lower negotiated rate. The markup is the firm's gross margin.

A typical engagement runs 30 to 90 days, with extensions common. The client hospital pays $200 per hour for an internal medicine locum. The staffing firm pays the physician $140 per hour. The $60 spread covers the firm's recruiting costs, credentialing staff, malpractice insurance, and overhead. The firm is only paid when the physician shows up and works. If the placement fails, the firm absorbs the loss.

Credentialing and Privileging Are the Bottleneck

The longest lead time in any locum placement is not recruitment. It is credentialing. The staffing firm must verify the physician's licenses, training, board certifications, work history, and malpractice history. Then the client hospital's medical staff office runs its own primary source verification and grants temporary privileges. This process takes 30 to 60 days for a clean file. A rushed placement with an incomplete file risks a delay that costs the client a week of coverage and costs the firm a week of billable hours.

Malpractice coverage is typically claims-made or occurrence, carried by the staffing firm and tailored to the state and specialty. The firm must confirm the policy matches the scope of practice at the client site. A general surgeon doing locum work needs coverage for the procedures the client actually performs, not just the ones the surgeon lists on a CV.

Why Locum Tenens Matters to the Staffing Firm Owner

The revenue is recurring within the assignment but not automatic. Each placement requires active management: scheduling, travel coordination, timesheet verification, and conflict resolution. A firm with 50 working locums at any time has 50 relationships to maintain, 50 credentialing files to keep current, and 50 clients invoicing on different cycles.

The working capital demand is significant. The firm pays the physician weekly or biweekly. The client hospital may pay net 30 or net 45. A firm growing fast can find itself funding a $2 million payroll while waiting on $2.5 million in receivables. This is why many locum tenens firms use invoice factoring or an asset-based line to bridge the gap.

Client concentration is a risk. A rural health system that uses 20 locum tenens physicians across multiple specialties represents a stable book. A single contract with a large hospital for 15 emergency medicine locums can represent 40 percent of revenue. If that hospital hires a permanent staff or switches vendors, the firm loses a large block of billable hours at once.

Where Locum Tenens Firms Get It Wrong

The most expensive mistake is treating credentialing as a back-office afterthought. A firm that accelerates a placement by submitting an incomplete file to the hospital medical staff office creates a rejection or a delay that often cannot be recovered. The client needed coverage to start Monday. The file is kicked back on Thursday for a missing DEA verification. The start date slips two weeks. The client may cancel the order entirely, or the physician takes another assignment.

Another common error is mispricing the markup. A firm competing on rate alone may drop the bill rate to $175 and the pay rate to $155, leaving a $20 spread. That margin does not cover the cost of recruiting, credentialing, and insurance. The firm works hard and loses money. The correct pricing model builds in the full cost of placement, the risk of non-renewal, and the working capital carry.

Some firms also fail to track state licensure reciprocity correctly. A physician licensed in Texas and New Mexico cannot automatically work in Arizona. The Interstate Medical Licensure Compact speeds the process for qualifying physicians, but it is not universal. A firm that assumes a license is portable without verifying the specific state pathway can promise a start date it cannot meet.

Related Terms in Success-Fee Staffing

A locum tenens firm owner should also understand the mechanics of bill rate versus pay rate, the same markup structure that governs temporary staffing across nursing, allied health, and IT. Credentialing is the operational process that determines whether a placement can actually start. Travel nursing contracts follow a similar temporary staffing model with different billing conventions and state licensing requirements. Temp-to-perm arrangements convert temporary placements into permanent hires, often with a conversion fee. Contingency search is the permanent placement counterpart, where the fee is paid only upon successful hire.

If you run a locum tenens staffing firm, the ROI Wire program for locum tenens staffing uses Email Correspondence, Direct Mail, and Retargeting to reach hospital administrators and medical staff directors who authorize temporary physician coverage. See more terms in the Success-Fee Staffing glossary.