You are offered $210 per hour to cover two weeks of nocturnist shifts at a critical access hospital four states away. The recruiter handles the license, the privileging packet, the flight, the rental car, and the malpractice certificate. Three months later the same hospital calls you directly and offers $265 per hour for the same shifts, and you handle everything else. The $55 per hour gap is the entire argument between agency locums and direct locums, and almost nobody prices the second column honestly.
Locum tenens is not one arrangement. It is two business models that produce the same clinical week. In the agency model, a staffing firm holds the contract with the facility, bills a rate you never see, pays you a lower rate, and absorbs a defined set of costs and risks in between. In the direct model, you hold the contract, collect the full rate, and absorb those costs and risks yourself. Neither is better in the abstract. The question is whether the spread the agency keeps is larger or smaller than what it costs you to do the work the agency was doing.
The spread is real, it is roughly a quarter to a half of the bill rate, and it is not pure profit
Staffing firms do not publish pay-rate-to-bill-rate spreads, so the honest answer comes from two directions and neither is precise.
From public filings: a large publicly traded healthcare staffing company reported gross margin of 27.6 percent in its physician and leadership solutions segment for fiscal year 2025, down from 29.7 percent in 2024, and attributed a goodwill impairment partly to margin pressure in its locum tenens business from higher physician pay packages (Form 10-K filed February 2026). That segment blends locums with interim leadership and permanent placement, so treat it as a directional proxy.
From trade commentary: physician-facing and agency-facing sources describe agencies retaining roughly 20 to 50 percent of what the facility pays, varying by specialty, how quickly the facility needs coverage, and how much travel, housing, credentialing, and malpractice the agency absorbs. These are self-reported and undated in several cases. No survey dataset exists that would let anyone state a median.
Treat the agency spread as roughly 25 to 45 percent of the facility's bill rate, understand that this is a reported range rather than a measured one, and never assume the entire spread is profit the agency would surrender if you asked.
Key insight
The spread is not a fee for finding you. It is the price of a bundle: credentialing labor, malpractice premium, travel and lodging float, the accounts-receivable risk if the facility pays in 60 days or disputes an invoice, and the loss the agency eats when a facility cancels a confirmed week. Unbundle it before you decide it is too high.
What each model actually costs you, line by line
| Dimension | Agency locums | Direct locums |
|---|---|---|
| Rate to you | Lower; agency retains a spread on the bill rate | Higher; you receive the full negotiated rate |
| Malpractice | Agency-arranged policy, commonly occurrence-form or a claims-made group policy with a long retroactive date | You procure it, or you ride the facility's policy; verify form and limits in writing |
| Tail exposure | Usually none if the policy is occurrence-form; agency typically handles the reporting endorsement on claims-made | Yours to buy if your policy is claims-made; commonly quoted at 100 to 200 percent of annual premium |
| Credentialing and privileging | Agency assembles the packet and chases primary source verification | You assemble it; expect the process to run months, not weeks |
| Licensure | Agency often funds and expedites state licensure | You fund and track it |
| Travel, lodging, ground transport | Booked and paid by the agency | Booked and paid by you, then reimbursed or built into the rate |
| Payment terms | Typically weekly or biweekly after timesheet approval | Your invoice terms against the facility's accounts payable calendar |
| Collections risk | Agency carries it | You carry it |
| Unfilled or cancelled week | Agency absorbs the gap; you are paid only for what the contract guarantees | You absorb the entire gap |
| Tax reporting | to you as an independent contractor | 1099 to you as an independent contractor |
The last row deserves attention because it does not change. Both models almost always pay you as an independent contractor on Form 1099, which means self-employment tax at 15.3 percent applies to net earnings, split as 12.4 percent Social Security up to the wage base and 2.9 percent uncapped Medicare (IRS Topic No. 554). For 2026 the Social Security wage base is $184,500. Neither model gives you an employer paying half of that, so do not credit either column for it. The mechanics of running the 1099 side are covered in the 1099 starter kit.
Example calculation
Assumptions, stated explicitly: a facility bill rate of $300 per hour for hospitalist coverage, a 12-week engagement at 168 hours per month, an agency spread of 35 percent, and a direct rate negotiated at 90 percent of the bill rate because the facility keeps some of the savings.
Agency path Bill rate: $300 per hour Your rate at a 35 percent spread: $195 per hour Hours over 12 weeks: 504 Gross to you: $98,280 Your out-of-pocket costs: $0 for malpractice, travel, lodging, licensure
Direct path Your rate: $270 per hour Gross to you: $136,080 Malpractice for the engagement, if you procure it: estimate $4,000 to $9,000 depending on specialty and state Travel and lodging for 12 weeks: estimate $9,000 to $14,000 State licensure and credentialing application costs: estimate $1,500 to $3,500 Your unbilled administrative time: estimate 40 to 70 hours
Net cash difference before your own time: $136,080 minus roughly $14,500 to $26,500 equals about $109,600 to $121,600, against $98,280 on the agency path.
The direct path wins by roughly $11,000 to $23,000 on a 12-week engagement, and that spread is consumed if the facility cancels three weeks or pays 75 days late. The margin is real and it is thinner than the headline rate gap suggests.
Malpractice is the clause that outlives every other clause
Every other term in a locums agreement expires when the assignment ends. Coverage does not. A claim arising from a shift you worked in March of 2026 can be filed years later, and the only question that matters then is whether a policy responds.
An occurrence-form policy covers incidents that occurred during the policy period regardless of when the claim is reported. A claims-made policy covers only claims reported while the policy is active, so coverage evaporates the day it lapses unless a reporting endorsement, commonly called tail, is purchased. Agency-arranged locums coverage is most often described as occurrence-form, or as a claims-made group policy with a retroactive date reaching back to the agency's inception, which functions similarly while you remain on it. Every source describing this is published by a staffing agency, so verify rather than assume.
Important
Ask for the certificate of insurance before you sign, not after. You need four items in writing: the form type (occurrence or claims-made), the per-claim and aggregate limits, the retroactive date if it is claims-made, and who pays for the reporting endorsement if the relationship ends. A recruiter saying "you are fully covered" is not any of those four things. The mechanics of form types and tail pricing are worked through in malpractice decoded and the negotiation angle in tail coverage negotiation.
In the direct model, this is the single largest thing that lands on your desk. Either the facility extends its own policy to cover you as a contracted physician, which you must see documented rather than promised, or you buy your own. If you buy your own and it is claims-made, you are the one who purchases tail when you stop working, at a cost commonly quoted at 100 to 200 percent of the annual premium.
Three clauses decide whether a locums contract pays what it appears to pay
Cancellation notice, on both sides. The most commonly cited notice period is 30 days for either party, extending to 60 days on longer engagements. Read the symmetry. A contract that requires 60 days of notice from you and permits the facility to cancel with 14 days is not a scheduling detail, it is a transfer of income risk. Better agreements pay you for scheduled shifts when the facility cancels inside the notice window, typically capped at some number of days of the confirmed schedule. No survey data establishes how common that protection is, so ask for it explicitly rather than expecting it.
Guaranteed minimums. The word to hunt for is "anticipated." An assignment described as an anticipated 14 shifts per month guarantees nothing. A guaranteed minimum states a number of shifts or hours the facility will pay for whether or not census supports them. Without one, a soft census month is your loss, and in the direct model it is entirely your loss.
Non-solicitation and conversion fees. This is the clause physicians read last and regret first. Agency agreements routinely restrict the facility from hiring you directly, and restrict you from accepting such an offer, for a defined window after you are first presented or after your last worked day. Trade and legal-marketing sources describe conversion or permanent-placement fees commonly quoted in the range of $10,000 to $40,000 or more, with trigger windows of roughly one to two years, and restrictive covenants described as one to two years and 20 to 50 miles. None of this comes from a survey or primary dataset, so treat the numbers as commonly reported rather than typical.
The practical consequence: if you work an agency assignment at a hospital you would genuinely like to join, the conversion clause decides whether that is possible and at what cost. Negotiate a declining fee schedule or a defined buyout figure before you sign, because after the facility makes the offer your negotiating position is gone.
The National Association of Locum Tenens Organizations publishes a code of ethics binding on member firms, enforced by an ethics committee with sanctions up to expulsion. It requires that a member not present you to a client except at the client's request and with your permission, that the client name, facility, worksite, time frame, and clinical requirements be disclosed to you before permission is sought, and that fee conditions sit in a signed written client contract before your curriculum vitae is submitted. It does not address conversion fees or non-solicitation durations, so do not expect membership to constrain those terms.
Quick takeaway
Agency locums buys you speed, insurance, and the elimination of collections risk at a cost of roughly a quarter to a half of the bill rate. Direct locums buys you the spread at the cost of credentialing months, malpractice procurement, travel float, and the entire loss when a week evaporates. The right answer depends on how many assignments you plan to work, because credentialing and licensure costs amortize across engagements while the agency spread does not.
Common questions
Can I ask an agency what the bill rate is?
You can ask, and many agencies will decline. The refusal is itself information. A more productive approach is to negotiate your rate against comparable posted rates for the specialty and region rather than against a bill rate you cannot verify, and to negotiate the non-rate terms — cancellation protection, guaranteed minimums, and the conversion fee — where agencies often have more room than they do on the rate itself. The full economics are laid out in locums economics.
Does direct locums make sense for a single two-week assignment?
Rarely. The fixed costs — state licensure, credentialing packet assembly, malpractice procurement, and your own administrative hours — do not scale down. A single short engagement is where the agency bundle is worth the most. Direct contracting becomes attractive when you intend to return to the same facility repeatedly, or when you are already licensed and credentialed in the state for another reason.
How long does credentialing take?
Industry practice commonly quotes 90 to 120 days from a complete application through privileging, but that figure does not trace to a primary standards publication that is freely available, so treat it as a planning estimate rather than a benchmark. What is documented: the Joint Commission requires primary source verification of licensure, education, and training, and applicant signatures and releases remain valid for 120 days. Assume months, and start before you have a signed assignment.
If the agency provides malpractice coverage, am I finished thinking about it?
No. You still need the certificate, the form type, and the answer to what happens if a claim arises from an assignment after you have stopped working with that agency. Occurrence-form coverage genuinely closes the question. A group claims-made policy closes it only while you remain on the policy.
What to do next
- Request the certificate of insurance for any locums assignment before signing, and confirm four items in writing: form type, per-claim and aggregate limits, retroactive date, and who pays for a reporting endorsement. This costs one email.
- Read the cancellation clause for both parties and write the two notice periods side by side. If they are asymmetric, ask for symmetry before discussing rate.
- Find the words "anticipated," "estimated," or "projected" in the shift schedule. Ask for a guaranteed minimum in shifts or hours, in writing.
- Locate the non-solicitation and conversion provisions, note the trigger window and the fee, and negotiate a declining schedule or a stated buyout figure before you work the first shift.
- Price the direct path against the agency path for your actual engagement using the calculation above with your own malpractice quote, travel estimate, and licensure cost. Do not compare headline rates.
- If you intend to work more than two or three assignments in the same state, get licensed and credentialed on your own timeline rather than on an agency's, because those costs amortize and the spread does not.
Locums pays well because it prices inconvenience, and the two models divide that inconvenience differently. The physician who does well is not the one who finds the higher rate but the one who counts the costs behind it — the tail exposure, the cancelled week, the 75-day payment cycle, the conversion fee that arrives exactly when the assignment turns into something worth keeping. Work through those before the recruiter's deadline rather than after; the protocol above works with or without us. This is education, not individualized financial advice.