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Locum rates - a touchy subject. What determines them and why they fluctuate

In my last blog “A bunch of great reasons to locum...” I proposed that locum work is not always about the money. Whilst the article received much positive feedback, it seems that many still doubt the motives of locums, expressing, in particular, incredulity at the dollar amount that locums are paid.

Locums are passionate about their entitlement yet many employers or full-time colleagues are equally fervent in their belief that locums are exploitative and self-serving. The topic of locum rates evokes such strong emotions in both camps that I feel compelled to tackle it.

Such passions are perhaps surprising given that, much like the stock-market, locum rates are determined by multiple factors beyond the influence of any one individual or group.

In an attempt at objectivity I will try to explain and de-mystify some of the factors that determine locum rates and why they move up and down so much. At least I hope to take some of the heat out of the debate.

 

“Why do I pay so much to hire locums?”

Market forces

Few markets are more sensitive to the powers of supply and demand than the medical locum market. Doctors can step in and out of regular employment to do contract work in a way that few professionals can, and they can therefore wait for rates that they consider attractive.

Similarly, healthcare providers have a much greater obligation than most organisations to continue providing a service, which weakens their negotiating position. This combination has a strongly inflationary effect on locum rates.

Competition

In most circumstances there is a greater need for locums than there is a supply and that pushes rates up, as it would in any free market.

Employers are often compelled to engage in a bidding war to attract a candidate to fill their locum position and that inevitably means higher rates and disappointed bidders.

On-cost for locums

In the business world the rule of thirds states that, to be viable in the market, an independent contractor must charge about three times their normal employment pay rate. Much the same applies to doctors.

Locums usually absorb “employment cost” (a saving to the employer) which must be factored into the overall locum rate.

Insurance, tax, workers’ compensation, leave provisions, superannuation, fees for professional services such as accountants, training and licensing fees are all thrown in, as well as the cost of unpaid time associated with actually looking for the next locum.

Anything over that is the incentive to actually do a locum and is often a smaller increment on a basic salary than most observers imagine.

Market parity

After a period of stabilization locum rates can sometimes “inexplicably” jump for a particular specialty. This often starts with an employer offering premium rates “just this once” to beat the market for a must-fill locum.

Doctors are well networked and news quickly spreads via the grapevine. Candidates have a natural expectation that they will be offered rates in line with their peers and this premium rate is quickly seen as the new normal. Once raised, the bar is hard to lower again.

Recruiter influence

This is probably the most overrated and least influential factor in setting locum rates in the marketplace.

Recruiters certainly become very good judges of how the market is positioned given where they sit, but, by and large, they are a conduit in the negotiation between the locum and the employer, not a driver.

Of course, I can only talk for Wavelength staff but in my experience recruiters are much more concerned about making sure the locum position is filled than they are about where the rates fall.

 

"Why are my locum rates dropping?"

Market Forces

What goes around comes around. Inevitably there are times when there are fewer jobs than there are people to fill them. Some of this is seasonal and much is driven by the hiring cycle of employers.

Broader medical workforce demographics also come into play. It should be no surprise to Australians that junior doctor locums are drying up and paying less given that there is currently a surplus of graduates spilling out onto the market.

So guess what - when there are more locums than there are positions to fill - locum rates go down.

Economic Forces

There is a myth in the marketplace that healthcare is recession-proof, particularly with respect to public health services. At the time of writing, Australian government coffers are depleted by lower tax takings leading to tightening of the belt across all departments - including health.

Furthermore, locum rates are a bell-weather indicator of fiscal tightening as they are one of the first line items to come under scrutiny during lean times.

Normalisation pressures

Irrespective of the broader economy, locums should not be surprised if sudden jumps in locum rates lead to a backlash from employers.

When news reaches senior management that locum spend is rising, strategies are inevitably put in place to limit cost.

Politics

Governments come and go and their philosophy towards outsourcing travels with them. Health departments will often be handed a directive to reduce spend on contractors, on principle.

It may not appear to make sense to those working on the front-line but political parties are under considerable pressure to be seen to be ‘walking the talk’ as far as their political ideology is concerned.

Group Purchasing

Every employer has its own purchasing function and from time to time they will seek to bring some stability to locum prices.  Invariably they will try to save costs and that means downward pressure on your locum rates.

Hospitals, regions and even states will group together to set prices so as to prevent competition between them for the services of locums and the inevitable auction that spirals rates upwards.

 

 Conclusions

These are just a few of the influences that I have observed which influence locum rates. There are, no doubt, many more and if you can think of any (or you would like to contend any of the ones I have postulated) please feel free to add to comments.

One thing is for certain - in the rough and tumble of the locum market we see a lot of short-term decisions being made, many fueled by emotion rather than rational thinking, which have long-term effects on the whole market.

So, if you are a locum, best not to price yourself out of the market and make sure you have some back-up plans if things don't work out as a locum - it is an inherently unstable way to make a living.

If you are an employer that tends to rely on locums, best to accept that fact, make some provisions for locum spend and then try to stay within budget.

Whichever side of the fence you are on you should always be prepared to walk away if the terms are not acceptable to you. Either way, there is little point in getting hot under the collar about it all. It won't get you anywhere.

 

Dr John Bethell

Director, Wavelength International

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Comments

  • Jodi Knapp, Today's Hospitalist 14/05/2013 9:39pm (4 years ago)

    In our May issue, we highlight how much hospitalists working locum really make. We found that full-time hospitalists who reported working some locum shifts earned less than doctors who didn't. http://bit.ly/hospitalistsworkinglocum

  • Georg Gossius 30/05/2013 10:44pm (4 years ago)

    Thank you Director Dr.John Bethell,Your note was well-balanced and very reasonable.
    Professor Dr.Georg Gossius,Scandinavia

  • Why do Locum Tenens Physician Pay Rates Fluctuate? | Locum Tenens Daily 04/06/2013 1:08am (4 years ago)

    […] To read more, click here. (Off the script) […]

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