Locum tenens providers play a vital role in healthcare, stepping in to ensure continuity of care during vacations, medical leave, burnout, or ongoing staffing shortages. And with provider gaps becoming more common, especially in high-demand specialties, more organizations are leaning on locums to keep things running. In fact, an estimated 7% of the available physician population in the U.S. works locum tenens either part-time or full-time and that number is expected to grow by 5% in 2025 alone.
But that’s where things get tricky: paying these providers isn’t nearly as straightforward as it sounds. In concept, a physician works a shift, logs their hours, and gets paid, but the reality is much messier.
At Ludi, we’ve partnered with many of our client organizations to support locum tenens providers, giving us a deep well of best practices to draw from. This article outlines why that matters and offers actionable strategies your organization can use to streamline and improve the process.
Understanding the Locum Tenens Payment Model
While the concept of traveling physicians dates back to the 1850s, the modern locum tenens model took shape in 1979 when CompHealth was founded to assist rural areas in staffing open positions. Since then, it’s evolved into a comprehensive solution, with locum providers now working across the country and even internationally in a wide range of medical settings.
Along the way, it’s become an appealing option for physicians and clinicians at many different career stages. For early-career professionals, it’s a chance to try out different work environments without making a long-term commitment. Mid-career providers often use it to supplement income or gain more flexibility. And for those nearing retirement, locum assignments offer a way to keep working without the demands of running a practice or maintaining a full schedule.
Despite these advantages, the fact that most locum providers are independent contractors is what makes payments so complex.
How ‘Independent Contractor’ Status Complicates Things
Unlike W-2 employees, locum tenens providers are often classified as 1099 workers. This means they’re responsible for managing their own taxes, insurance, and retirement planning, introducing an additional layer of nuance for both organizations and clinicians.
Most hospitals and health systems are used to payroll processes that handle these things automatically, but when that structure disappears, the administrative burden piles up quickly. That burden affects everyone, including the provider trying to get paid, the finance team processing the invoice, and the compliance folks making sure everything aligns with payer requirements.
Add in factors like multi-state tax rules, contract variability, and third-party agency fees, and suddenly, what should be a simple process becomes a mammoth operational challenge. Each assignment can come with different terms — some negotiated directly, others handled through agencies — making standardization almost impossible.
Locum Tenens: What Healthcare Organizations Struggle With Most
Considering all of these factors, it’s no wonder that paying locum providers correctly and on time is tough. Here’s a closer look at some of the most common locums-based challenges healthcare organizations face, especially in terms of compensation:
Higher costs. Locum providers can charge two to three times more per hour than full-time physicians, particularly in high-demand specialties like anesthesiology and emergency medicine. This is partly because they must cover their own taxes, healthcare, and retirement, but rates also vary significantly based on specialty, shift type, location, and urgency. When multiple agencies or brokers are involved, markups can push costs even higher, creating confusion around what’s actually being paid and to whom.
Complex billing and credentialing. Onboarding a new locums provider can take anywhere from 30 days to six months, and each hospital or health system has its own documentation requirements, payer guidelines, and onboarding process.
These inconsistencies can make it difficult to process payments efficiently. A delay in credentialing or a missing timecard can hold up compensation for weeks, frustrating providers and adding stress to already overburdened finance teams.
Limited continuity of care. In general, a locum physician can only work 60 continuous days. If additional coverage is needed, this can create additional workforce management burdens. With providers constantly rotating in and out, and no standard process for how their compensation is tracked or reported, it’s easy for things to fall through the cracks. Payment accuracy becomes even more difficult when multiple shifts, departments, or coverage types are involved.
Delays in productivity. Locum providers need time to get up to speed on EMRs, internal protocols, and hospital equipment, but the average onboarding process takes approximately 120 days, or four months, according to the Association for Advancing Physician and Provider Recruitment’s (AAPPR) most recent onboarding report. That large onboarding window can affect patient outcomes and compensation tracking. If hours or procedures aren’t documented properly early on, it often results in underpayment, billing issues, or even claims denials down the line.
Team cohesion. Bringing in locum providers without clear communication can disrupt team dynamics. If payment terms or workloads aren’t transparent, full-time staff may feel slighted, especially if locums are being paid more for similar shifts or responsibilities. Furthermore, misalignment around compensation can strain trust among care teams.
While locums can create initial friction, the payoff is real. According to the American Medical Association (AMA), teams that successfully integrate locum providers see up to a 20% improvement in overall team performance, thanks to better workload distribution and reduced burnout.
5 Best Practices to Make the Process Smoother
Although locum tenens payments vary drastically from organization to organization, a few proven strategies can help your compensation team reduce friction and improve accuracy. Here are five practical ways to make the process smoother:
1. Create a standardized workflow.
Design a repeatable, organization-wide process that covers onboarding, time tracking, invoice submission, billing, and payment approvals. This consistency ensures that locum-related data flows through the same checkpoints every time, making it easier to prevent underpayments, catch discrepancies early, and avoid last-minute scrambles during payroll runs.
2. Understand your payer rules.
Compensation professionals must stay fluent in Medicare’s 60-day rule (which allows a locum to fill in for a provider for up to 60 consecutive days) along with appropriate documentation use of modifiers for submitting claims, and the varying enrollment timelines and billing rules across private payers.
Missteps in any of these areas can delay reimbursement or lead to denials, impacting a provider’s compensation and your organization’s bottom line. Building payer-specific checklists can help reduce some of this guesswork.
3. Leverage automation tools.
Manual spreadsheets may work for organizations with only a few providers, but they can’t scale. Instead of relying on Excel, use purpose-built tools that automatically capture time logs, validate shift details against contract terms, and flag incomplete submissions. Automating even one part of the workflow, like timesheet approvals or expense documentation, can significantly reduce payroll errors and speed up payment timelines.
4. Set expectations upfront.
Make compensation details clear from the beginning. Locum providers should understand how and when they’ll be paid, what documentation is required, and who to reach out to with payment-related questions. Clarity in each of these areas builds trust and reduces back-and-forth that can delay payouts.
5. Classify providers correctly.
Be precise about whether a provider qualifies as a locum tenens or as supplemental staff. True locums temporarily fill in for an absent provider, while supplemental workers address long-term or ongoing staffing shortages. This distinction matters because it affects billing eligibility, enrollment requirements, and taxes. Any misclassification can trigger compliance risks or payment delays.
Wrapping Up: Making Locums Compensation Work
Locum tenens providers aren’t going anywhere, and with the ongoing physician shortage, rural care gaps, and the rise of telehealth, they’re only becoming more essential. These clinicians bring flexibility and help keep care accessible, but getting them paid correctly (and on time) is rarely straightforward.
Thankfully, it doesn’t have to be so hard. With the right systems in place, including a clear process, a solid understanding of payer rules, and tools built for the job, you can reduce the administrative load and bring more consistency to locums payments.
Our team works through these challenges every day. In fact, our DocTime technology helps remove much of the complexity from the process. If you’re looking to streamline your compensation workflows and bring more visibility to your locum tenens program, we’d be happy to show you how it works.
