How Locums Pricing Works: What Hospitals Actually Pay (And What Physicians Actually Keep)

Nobody in locum tenens wants to talk about pricing. That's by design.

The traditional staffing model depends on information asymmetry. Hospitals don't know what physicians are getting paid. Physicians don't know what hospitals are being billed. The agency sits in the middle, and the spread is where the money is.

This article breaks down exactly where every dollar goes in a locum tenens engagement — from bill rate to physician pay to agency profit — so both sides of the transaction can make informed decisions.

How Does Locum Tenens Pricing Work?

Every locum tenens placement has the same basic math:

Bill Rate = Physician Pay + Malpractice + Travel/Housing + Agency Overhead + Agency Profit

The bill rate is what the hospital pays per hour. Everything else comes out of that number. The question is how much of it ends up in each bucket.

Where Each Dollar Goes at a Traditional Agency

Based on NALTO industry benchmarks and public data from AMN Healthcare, CHG Healthcare, and SIA:

On a $600/hr anesthesiology bill rate, that breaks down to:

• Physician pay: ~$240–$360/hr
• Malpractice: ~$25–$35
• Travel/housing: ~$25–$35
• Agency take: $175–$275/hr

The ranges are wide because agencies don't publish them. That's the point. The opacity lets agencies charge different hospitals different markups for the same physician, and pay different physicians different rates for the same assignment.

Why 40–50% Became the Standard

It didn't happen because the costs justify it. It happened because hospitals had no alternative.

In the 1990s and 2000s, locum tenens agencies built the physician networks, built the credentialing infrastructure, and built the relationships. The 40–50% markup covered all of that — plus healthy profit margins. AMN Healthcare's public filings show gross margins of 30–35% on their locum tenens segment, and they're one of the more efficient operators.

The problem is that the costs have changed but the markups haven't. Credentialing technology is faster and cheaper. Physician databases are digital. Matching is automated. But the bill rate hasn't moved.

48% of hospital decision-makers report communication problems with their staffing agencies. 35% report receiving unqualified or mismatched candidates. The service hasn't improved to justify the price — the price has just become the norm. For hospitals already struggling with the real cost of unfilled shifts, overpaying an agency on top of that is a double hit.

What Does a Low-Margin Locum Tenens Agency Look Like?

A low-margin locum tenens operation runs at 15–22% total markup. Here's the same $600/hr bill rate through that model:

The hospital saves $60/hr. The physician earns $40–$70/hr more. The agency makes less per placement — but competes on volume and physician loyalty rather than margin extraction.

This is the model Locums One operates on. It's not charity — it's a different business strategy. Lower margins attract better physicians (who have options), which produces better outcomes for hospitals, which drives repeat business.

The Dollar-by-Dollar Breakdown: A Real Example

Let's put a specific number on this. A hospital needs an anesthesiologist for a 13-week assignment, 5 days/week, 10 hours/day.

Total hours: 13 weeks × 5 days × 10 hours = 650 hours

Traditional Agency (40% markup)

Low-Margin Agency (18% markup)

The difference:

• Hospital saves: $39,000 on a single 13-week assignment
• Physician earns: $39,000 more on the same assignment
• Agency earns: $74,750 less — but wins the business

Annualized (4 assignments/year): the hospital saves $156,000. The physician earns $156,000 more. The only loser is the agency margin.

Why Hospitals Don't Know What They're Paying

The opacity is structural. Here's how it works in practice:

1. Bundled billing. Most agencies present a single all-in bill rate. Malpractice, travel, housing, and the agency fee are all rolled into one number. The hospital sees $600/hr and has no visibility into how that breaks down.

2. No market benchmarks. There's no public database of locum tenens bill rates by specialty and geography. Hospitals negotiate in the dark, with no reference point for what's reasonable.

3. Urgency creates leverage. When a hospital needs coverage immediately — an unexpected departure, a medical leave, a community emergency — they're not in a position to shop around. The agency knows this and prices accordingly.

4. Relationship lock-in. Once a hospital has credentialed a physician through one agency, switching agencies means starting the credentialing process over. That friction keeps hospitals in relationships that may not be in their financial interest.

5. Physician confidentiality. Most agency contracts prohibit physicians from disclosing their pay rate to the facility. The hospital can't ask the physician what they're making, so the spread stays hidden.

What Physicians Don't Know About Their Own Pay

The information asymmetry runs both directions. Physicians often don't know:

The bill rate. Most agencies won't tell physicians what the hospital is paying. They present a "rate offer" and that's it. A physician accepting $360/hr doesn't know the hospital is paying $600/hr — a 40% spread they're not seeing.

How their rate compares to market. Without knowing the bill rate, physicians can't evaluate whether their cut is fair. They compare their offer to other offers, not to what the hospital is actually paying.

That they can negotiate. Most physicians accept the first offer. Agencies build negotiation room into initial offers — the first number is rarely the best number. See our contract negotiation guide for how to approach this.

That agency choice matters more than assignment choice. A physician choosing between a $380/hr offer from Agency A and a $360/hr offer from Agency B might be making the wrong comparison. If Agency A has a 40% margin and Agency B has a 20% margin, the physician at Agency B is getting a better deal even at the lower rate — because the bill rate is lower and the physician's share is higher.

The Malpractice Markup: A Hidden Profit Center

Malpractice insurance is one of the most opaque components of locum tenens pricing. Here's how it typically works at large agencies:

The actual cost: Occurrence-based malpractice insurance for a locum physician costs roughly $25–$45/hr depending on specialty and state. Anesthesiology and surgery are at the high end; primary care and hospitalist are at the low end.

What agencies charge: Most agencies bundle malpractice into their margin. They don't disclose the actual insurance cost — it's absorbed into the overall markup. On a 40% margin, the agency is profiting on the spread between what malpractice actually costs and what they're implicitly charging.

The transparent alternative: Some agencies — including Locums One — bill malpractice as a separate, transparent line item at actual cost. The physician sees exactly what their coverage costs. The hospital sees exactly what they're paying for insurance. There's no hidden profit on the malpractice component.

Why it matters: On a $600/hr bill rate with a 40% margin, the agency might be charging $50/hr for malpractice that actually costs $30/hr. That's $20/hr in hidden profit — $13,000 on a 13-week assignment — that neither the hospital nor the physician can see.

How to Evaluate Agency Pricing as a Hospital

If you're a hospital administrator evaluating locum tenens agencies, here are the questions that cut through the opacity:

1. What is your all-in bill rate for this specialty and setting?

Get a number that includes physician pay, malpractice, travel, housing, and the agency fee. No surprises on the back end.

2. What is your markup percentage?

A reputable agency will tell you. If they won't, that tells you something. Industry standard is 30–50%. Low-margin agencies operate at 15–22%.

3. Is malpractice billed separately or bundled into your margin?

Bundled malpractice means you can't see what you're paying for insurance. Separate billing means transparency.

4. What does the physician receive?

You're entitled to know what the physician is being paid. If the agency won't tell you, ask the physician directly — though many agency contracts prohibit this disclosure.

5. What are your credentialing timelines?

Faster credentialing means less time paying for an unfilled position. The difference between 21-day and 90-day credentialing is worth $483,000–$828,000 in recovered revenue on a position costing $7,000–$12,000/day. See our guide on the true cost of unfilled shifts for the full math.

How to Evaluate Agency Pricing as a Physician

If you're a physician evaluating locum tenens agencies, the questions are slightly different:

1. What is the hospital's bill rate for this assignment?

You're entitled to know. If the agency won't tell you, that's a red flag. At Locums One, we tell every physician the bill rate if they ask.

2. What is your margin?

Same question, different framing. A 15–22% margin means you're getting 78–85% of the bill rate (minus malpractice and travel). A 40% margin means you're getting 60% or less.

3. Is malpractice deducted from my rate or billed separately to the hospital?

If malpractice is deducted from your rate, your effective hourly pay is lower than the quoted number. If it's billed separately to the hospital, your quoted rate is your actual rate.

4. What does the full compensation package include?

Travel, housing, rental car, licensing fees, DEA registration — these should all be covered by the agency at no cost to you. If any of these are being deducted from your rate, factor that into your comparison.

5. What is your cancellation policy?

Facilities cancel assignments. You need to know what happens when they do — specifically, whether there's a kill fee that protects your income. See our contract negotiation guide for what to look for.

The Annual Impact: Why This Matters More Than It Looks

The per-hour difference between a 40% margin agency and a 15% margin agency might seem modest. $60/hr on a $600 bill rate. But the annual math is significant.

For a full-time locum anesthesiologist (46 weeks × 40 hours):

The physician earns $182,280 more per year. The hospital pays $109,680 less per year. The agency earns $291,960 less per year — but competes on a fundamentally different value proposition.

This is why agency choice is the single most important financial decision a locum physician makes. Not specialty. Not geography. Not shift type. The agency margin determines more of your annual income than any other variable you control.

For the full salary picture by specialty, see our 2026 Locum Tenens Salary Guide. For a physician-side breakdown of what these margins mean for your take-home, see our guide on the real benefits of locum tenens work.

The hospital saves $60/hr — or $120,000/year on a single full-time locum. Or the bill rate stays at $600/hr and the physician earns $70–$190/hr more. Or some combination of both.

Where Do the Savings Come From?

A 15–22% markup doesn't mean worse service. It means different overhead structure:

No VMS platform fees. Traditional agencies pass through 3–5% VMS (Vendor Management System) fees. A direct-relationship model doesn't use a VMS middleman, so that cost disappears entirely.

No administrative surcharges. No "credential verification markup." No "travel coordination fee." No "compliance processing charge." These are real line items on traditional agency invoices that don't correspond to real costs.

Pre-credentialing, not post-matching. Traditional agencies start credentialing after a match is made, which means 60–90 days of waiting (and billing). When all providers are pre-credentialed before they're ever presented to a hospital, placement to active privileges drops to 21 days average — and costs drop proportionally.

Physician-owned, lean operation. No private equity sponsors taking distributions. No publicly traded parent company optimizing for quarterly earnings. The margin goes to covering real costs, not investor returns.

Technology replacing headcount. AI-driven matching means fewer recruiters needed per placement. A 96% first-match acceptance rate means almost no wasted cycles on speculative submissions.

How Much Can Hospitals Save With Lower Locum Tenens Markups?

What Does This Look Like for a Single Anesthesiology Locum?

Assume a full-time locum anesthesiologist at 48 weeks, 4 days/week, 10 hours/day:

Alternatively, if the hospital keeps the bill rate at $600/hr and the savings go to the physician:

Either way, someone on the transaction is keeping an extra $115,000–$135,000 per year. The only question is whether that money goes to the hospital, the physician, or the agency.

What Happens When a Hospital Uses Multiple Locums?

Most hospitals don't use one locum. A 300-bed hospital with 3 locum anesthesiologists and 2 locum hospitalists might be spending $3.5M–$4M/year on locum staffing. At 40–50% markup, roughly $1.4M–$2M of that is agency margin.

At 15–22% markup, that agency margin drops to $525,000–$880,000 — freeing up $500,000–$1.2M per year that either reduces the hospital's staffing budget or increases physician compensation to attract better candidates.

For a rural or critical access hospital operating on 2–3% margins, that's not a rounding error. That's the difference between keeping a service line open and closing it.

What Should Hospitals Ask Their Current Locum Tenens Agency?

If you're a hospital using locum tenens staffing, here are the questions most agencies won't answer:

1. "What is your markup percentage on this placement?"

Most agencies will not answer this directly. They'll say it's "competitive" or "market rate" or they'll redirect to the bill rate. The bill rate tells you nothing without knowing the physician's pay rate.

If they won't answer, that's your answer.

2. "What is the physician being paid per hour?"

This is the single most important number in any locum tenens engagement, and it's the one hospitals almost never see. If the bill rate is $600/hr and the physician is getting $300/hr, you're paying a 100% markup — and the physician has no idea.

3. "What fees are included beyond the bill rate?"

VMS fees (3–5%), credential verification fees, travel coordination fees, compliance fees, cancellation fees, conversion fees ($10,000–$75,000 if you hire the physician permanently). These are real charges that agencies bury in contracts. Our guide to negotiating locum tenens contracts covers each of these in detail.

4. "How long does credentialing take after a match?"

If the answer is 60–90 days, you're paying for the agency's inability to pre-credential their network. Pre-credentialed providers can be active in 21 days, and the fastest emergency deployments happen in 48 hours.

5. "What is your first-match acceptance rate?"

Industry average hovers around 60–70%. A technology-driven matching process can hit 96%. Every rejected candidate costs the hospital another 2–4 weeks and another round of interviewing.

What Should Locum Tenens Physicians Know About Their Pay Rate?

How Do You Calculate Your Agency's Markup?

If you're a locum tenens physician, here's how to reverse-engineer what your agency is taking:

Agency Markup = (Bill Rate – Your Pay – Malpractice – Travel) / Bill Rate

Most physicians never see the bill rate. But hospitals will sometimes share it if you ask — especially if they're frustrated with the agency's pricing. You can also estimate:

• If you're earning $300/hr on an anesthesiology assignment, the hospital is likely paying $500–$600/hr. Your agency is taking 40–50%.
• If you're earning $400/hr on the same type of assignment, the hospital is likely paying $475–$540/hr. Your agency is taking 15–25%.

What Should Locum Tenens Physicians Earn in 2026?

*Rates based on AMN Healthcare data, NALTO benchmarks, and internal placement data. Actual rates vary by geography, facility type, call requirements, and assignment duration.*

If your pay falls significantly below these ranges on a comparable assignment, your agency's markup is likely above 40%. For a deeper look at what total compensation looks like across specialties, see our locum tenens salary guide. For specialty-specific deep dives, see our guides on cardiac anesthesia locums and emergency medicine locums.

Does 1099 vs W-2 Classification Affect Your Take-Home Pay?

Most locum tenens physicians work as 1099 independent contractors. If your agency is classifying you as W-2 and billing the hospital as if you're 1099, they're pocketing the employer-side payroll taxes (7.65%) on top of their markup. That's another $20–$45/hr on a $300–$600/hr bill rate that you'll never see.

Our locum tenens 1099 contractor guide covers 1099 structuring, S-Corp elections, and multi-state filing in detail.

How Do You Evaluate Locum Tenens Agency Transparency?

Here's a simple framework for evaluating any locum tenens agency:

If your current agency fails more than 3 of these, you're likely overpaying — and so is every physician they place.

How Do Locum Tenens Markups Affect Hospital Budgets?

The locum tenens market hit $5.4 billion in 2023 and is projected to reach $10.2 billion by 2030, growing at 9.5% CAGR. Hospital spending on temporary physician staffing is accelerating for structural reasons: an aging physician workforce (56.9% of anesthesiologists are 55+), growing procedure volumes, and persistent rural shortages.

At 40–50% average markup, roughly $2.2–$2.7 billion per year of that market is agency margin — not physician pay, not malpractice, not travel. Just agency profit and overhead.

For individual hospitals, the numbers are stark:

• A critical access hospital spending $800K/year on locums could save $200K–$320K at lower markups
• A 200-bed community hospital spending $2.5M/year could save $625K–$1M
• A large health system spending $25M/year could save $6M–$10M

These aren't theoretical. They're arithmetic.

Why Don't More Locum Tenens Agencies Offer Lower Markups?

The honest answer: because 40–50% margins are extremely profitable, and hospitals haven't demanded better.

The traditional agency model is built on high margins per placement, large sales teams, and relationship-based selling. Cutting the markup to 15–22% means the entire business model has to change:

• Technology replaces headcount. You can't run a low-margin operation with 50 recruiters per 100 placements. AI-driven matching and automated credentialing are prerequisites.
• Volume matters more. At 15–22% markup, you need more placements to generate the same revenue. This only works with a large pre-credentialed network and fast matching.
• No private equity. PE-backed agencies need 40%+ margins to service debt and generate returns. A physician-owned operation can run profitably at 15–22% because there's no financial sponsor extracting value.
• Direct relationships. VMS platforms add 3–5% to every transaction. Removing that layer requires direct hospital partnerships — harder to build, but cheaper to maintain.

The agencies that could do this choose not to. The agencies that want to do this often can't because of their cost structure. The result is an industry where the pricing model hasn't changed in 25 years despite the underlying costs dropping dramatically.

What "Transparent Pricing" Actually Means

The term gets used loosely. Here's what genuine pricing transparency looks like in practice:

Published margin range. The agency states its markup percentage publicly — not just on request, not just in negotiations, but as a stated policy. Locums One operates at 15–22% and publishes this.

Bill rate disclosure. Any physician who asks can see the hospital's bill rate for their assignment. No exceptions.

Itemized malpractice. Malpractice is billed as a separate line item at actual cost, not bundled into the margin.

No hidden fees. Travel, housing, licensing, and credentialing costs are disclosed upfront. No surprise invoices.

Rate protection. The agreed rate doesn't change after the contract is signed. No retroactive adjustments, no "market corrections."

Most agencies meet none of these criteria. Some meet one or two. Genuine transparency requires all of them.

The Locums One Model

We operate at 15–22% margins. We tell physicians the bill rate if they ask. We bill malpractice as a separate line item at actual cost — 10% of physician pay, billed to the hospital, never deducted from the physician's rate.

Here's what that looks like on a real assignment:

Hospital pays: $540/hr (vs. $600/hr at a traditional agency)

Physician receives: $451/hr (vs. $360/hr at a traditional agency)

Malpractice: $45.10/hr billed separately to hospital (not deducted from physician)

Locums One margin: $43.90/hr (18% of $540 minus malpractice)

The physician earns $91/hr more. The hospital pays $60/hr less. The only number that changes is the agency margin.

We can do this because we've built a leaner operation — no massive sales teams, no corporate overhead, no shareholder returns to optimize. The savings go to the people doing the actual work.

Frequently Asked Questions

What is the average locum tenens agency markup?

The industry standard locum tenens agency markup is 40–50% of the bill rate, according to NALTO and SIA data. This means for every $600 a hospital pays per hour, the agency retains $240–$300 as gross margin. Some agencies run higher, particularly on emergency or hard-to-fill placements. Low-margin agencies operate at 15–22% markup, retaining $90–$132 per hour on the same bill rate.

How do I find out what my locum tenens agency charges hospitals?

Ask directly: "What is the bill rate for this assignment?" and "What is your markup percentage?" Most traditional agencies will not disclose this. If they won't tell you, you can estimate by asking the hospital directly — many facilities will share the bill rate, especially if they've worked with transparent agencies before. The difference between the bill rate and your pay rate (minus malpractice and travel costs) is the agency's gross margin.

Why do some locum tenens agencies charge less?

Lower-markup agencies typically achieve their pricing through technology (AI matching, automated credentialing), lean operations (physician-owned, no PE sponsors), pre-credentialed provider networks (eliminating post-match delays), and direct hospital relationships (no VMS fees). The physician quality is identical — the same board-certified doctors work through multiple agencies. The difference is operational efficiency, not clinical quality.

Do hospitals know what locum tenens physicians get paid?

In most cases, no. Traditional agencies deliberately keep bill rates and pay rates separate to prevent both sides from calculating the markup. This information asymmetry is the foundation of the high-margin model. Transparent agencies disclose the full breakdown — bill rate, physician pay, malpractice cost, travel cost, and agency margin — before any contract is signed.

What are VMS fees in locum tenens?

VMS (Vendor Management System) fees are charges of 3–5% of the bill rate that hospitals pay to platforms like Medefis, ShiftWise, or AMN's own VMS tools. These platforms manage the vendor relationship but add cost without improving physician quality or reducing time-to-fill. Agencies that work directly with hospitals eliminate this layer entirely, passing the savings to the hospital or physician.

How much do locum tenens agencies charge hospitals?

Traditional locum tenens agencies charge a markup of 40–50% above physician pay. On a $600/hr bill rate, roughly $240–$300 goes to the agency (covering overhead, profit, malpractice, and travel). Low-margin agencies operate at 15–22%, passing the savings to hospitals, physicians, or both.

What is the difference between bill rate and pay rate in locum tenens?

The bill rate is what the hospital pays the agency per hour. The pay rate is what the physician receives after the agency's margin. On a $600/hr bill rate with a 40% margin, the physician receives $360/hr. On the same bill rate with an 18% margin, the physician receives $492/hr. Always ask about the bill rate — not just the pay rate.

Why won't locum tenens agencies disclose their markup?

Because the markup is where the profit is. Agencies that charge 40–50% margins have a financial incentive to keep that number hidden. If hospitals knew they were paying $600/hr for a physician earning $360/hr, they'd shop for better pricing. If physicians knew the bill rate, they'd negotiate harder. The opacity is structural and intentional.

Can I ask a locum tenens agency what their margin is?

Yes. Any reputable agency should answer this question. If they won't, that tells you something about how they operate. At Locums One, we publish our margin range (15–22%) and will tell any physician or hospital the specific margin on their assignment.

How does malpractice insurance factor into locum tenens pricing?

Malpractice typically costs $25–$45/hr depending on specialty. Most agencies bundle it into their margin — you can't see what you're paying for insurance. Transparent agencies bill malpractice as a separate line item at actual cost. The difference matters: on a 40% margin, the agency may be charging $50/hr for malpractice that costs $30/hr, pocketing the $20/hr spread.

What is a fair markup for a locum tenens agency?

Based on actual cost structures — credentialing, compliance, payroll, malpractice, travel coordination — a fair markup is 15–22%. This covers legitimate operating costs and a reasonable profit margin. The 40–50% industry standard reflects historical market power, not actual cost justification.

How much more do physicians earn at a low-margin agency?

On a $600/hr bill rate, a physician at a 40% margin agency earns $360/hr. At an 18% margin agency with the same bill rate, they earn $492/hr — a difference of $132/hr. Working full-time (46 weeks × 40 hours), that's $243,360 more per year. Even if the low-margin agency negotiates a slightly lower bill rate, the physician still comes out significantly ahead.

Do hospitals save money by using a low-margin locum tenens agency?

Yes — typically $40–$80/hr on the same physician. On a 13-week anesthesiology assignment, that's $26,000–$52,000 in savings. Annualized across multiple positions, the savings are substantial. The physician quality is the same — the only difference is how much of the bill rate goes to the agency.

Is a lower markup safe? Will I get worse physicians?

No. The physician pool is the physician pool. The same board-certified, state-licensed, fellowship-trained doctors work through multiple agencies simultaneously. A lower markup doesn't mean less qualified physicians — it means less money going to the middleman. The relevant quality metrics are first-match acceptance rate (how often the first physician presented is the right fit), assignment completion rate (how often physicians finish the full assignment), and time to active privileges (how fast they can start). These are operational metrics that have nothing to do with markup percentage.

How much can a hospital save by switching to a low-margin locum tenens agency?

On a single full-time locum anesthesiologist at $600/hr, switching from a 45% markup to an 18% markup saves approximately $115,000–$147,000 per year. For a hospital using multiple locums across specialties, annual savings typically range from $200,000 to over $1 million depending on volume. The savings come from lower markup, zero VMS fees, zero administrative surcharges, and faster credentialing (which reduces the total number of locum-days needed).

*All rates and margins referenced in this article are based on NALTO industry benchmarks, SIA staffing data, AMN Healthcare public filings, and internal Locums One placement data as of 2026. Individual rates vary by specialty, geography, facility type, and assignment terms.*

*Have questions about what you're currently paying — or what you should be? Get a side-by-side rate comparison — no contracts, no obligations.*

*Before signing with any agency, review our locum tenens contract negotiation guide to understand the clauses that cost physicians thousands. For rural hospital administrators evaluating locum costs, see our rural and critical access hospital staffing guide.*