Which is More Cost-Effective: Permanent Physician Recruitment or Locum Tenens?

On its face, hiring a permanent physician may appear to be more cost-effective than bringing on a locum tenens to fill the same position. However, when one compares the costs of each proposition head-to-head, locum tenens is actually more cost-effective in most circumstances. Consider the costs associated with each method of filling a given position:

Permanent Physician Locum Tenens Physician
Signing bonus Yes No
Health insurance Yes No
Retirement contributions Yes No
Licensing fees Yes No
Employer FICA Yes No
Worker’s compensation Yes No
Relocation costs Yes No
Continuing medical education Yes No
Malpractice insurance Yes No
Processing payroll and taxes Yes No
HR functionalities Yes No
Travel No Yes*
Housing No Yes*

*Varies by facility.

While a locum tenens day rate may seem high when considered in isolation, this amount is still less than the revenue generated by that physician. Moreover, the rate is comparable or less than the composite rate of a staff physician, when all relevant costs are considered in addition to salary.

Permanent physicians are not always permanent

One objection to the head-to-head comparison of the costs of hiring a permanent physician versus a locum tenens is that many of the permanent physician costs only need to be paid once, but the locum tenens costs are paid each time staff turns over. While this objection may seem reasonable, it does not apply for two reasons. First, most costs are associated with the position, not the staff member.

If a hospital needs a physical medicine and rehabilitation specialist (PM&R), for example, there is an inherent cost to the hospital for finding that specialist. Whether that position is filled with three locum tenens physicians for four months each, or one locum tenens physician for 12 months, salary, malpractice insurance, and housing expenses are the same.

Second, in modern hospital settings, permanent physicians are not always permanent. According to 2014 study, roughly one full-time provider leaves a hospital each year for every 10 hospitalists. Direct and indirect costs for physician recruitment average approximately $30,000 per filled position. Onboarding costs can reach $250,000 per doctor. Thus, believing in the myth of “permanent” staff physicians can incur real penalties.

Locum tenens provides staffing flexibility, preserving revenue

The other facet of this issue is the revenue lost by leaving a position open. Locum tenens provides a flexible staffing solution to maintain a steady physician revenue stream for the hospital. After salary and costs, one specialist physician generates roughly $1,601,000 for the hospital each year in inpatient and outpatient revenue, while a primary care physician generates about $1,400,000 for the hospital in a single year. Leaving any physician staff position unfilled leaves substantial money on the table. Conversely, rapidly filling that vacant position with a locum tenens physician recoups that potential lost revenue.

Ready to see how locum tenens can serve as a cost-effective staffing solution for your healthcare facility? Contact the experienced team at NEXTLocums today.

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