The Most Expensive Problem in Healthcare That Nobody Is Trying to Fix

There is a peculiar thing that happens when a problem has been present long enough.

It stops being a problem. It becomes a condition.

The physician shortage has been a condition for so long that most health system leaders no longer experience it as a crisis. They experience it as weather. Uncomfortable, sometimes severe, but ultimately something you manage around rather than solve. You call the agency. You fill the shift. You pay the rate. You move on.

The same is true for locum spend.

Ask a CFO at a mid-size health system what they spend on locums annually and most can tell you within a few million dollars. Ask them what percentage of that spend goes directly to agency markup — the margin the agency keeps for connecting a physician to a shift — and most cannot answer. Not because the number is hidden. Because they stopped looking.

The number, for most health systems, is somewhere between 35% and 50% of every dollar spent.

At $20 million in annual locum spend, that is $7 to $10 million per year flowing out of your budget and into agency margin. Not into physician compensation. Not into patient care. Into the cost of a transaction that, in many cases, you have the infrastructure to eliminate.

That is not a cost of doing business. That is a recoverable asset.

Why Chronic Pain Stops Feeling Like a Crisis

The human brain is remarkably good at adapting to persistent discomfort. A headache that has lasted three years stops registering as an emergency. A budget line that has grown 15% annually for a decade starts to feel like a fixed cost rather than a variable one.

This is the trap that locum spend has set for healthcare finance leaders.

The problem did not arrive suddenly. It crept in gradually, as physician shortages deepened, as agency relationships multiplied, as the administrative complexity of managing dozens of vendors across dozens of specialties made centralization feel impossible. Each year the spend grew a little more. Each year the budget was adjusted to accommodate it. Each year the urgency to address it diminished slightly, because the organization had survived another year without addressing it.

The result is a generation of health system leaders who are extraordinarily sophisticated about managing locum spend — and almost entirely uninterested in eliminating it.

They have MSPs. They have VMSs. They have rate cards and preferred vendor lists and quarterly business reviews. They have dashboards that tell them exactly what they are spending.

What they do not have is a plan to spend less.

The Difference Between Managing a Problem and Solving It

There is an important distinction that gets lost in most conversations about workforce management technology.

A VMS helps you manage your locum spend. It gives you visibility, process efficiency, and consolidated invoicing. It is a genuinely useful tool. But it does not reduce the number of locum shifts you need to fill. It does not build an internal bench of credentialed providers who can cover those shifts at a fraction of the agency cost. It does not create a permanent workforce pipeline that reduces your dependency on agencies over time.

It manages the problem. It does not solve it.

The health systems that have moved from managing locum spend to reducing it have done so by building internal float pools — a bench of credentialed, flexible clinicians who fill shifts at the cost of a management fee rather than an agency markup. The difference in cost is not marginal. At scale, it is transformational.

One large health system reduced its locum dependency by shifting 43% of its shifts to an internal float pool over four years. The cumulative saving was $51 million. Not $51 million in theoretical efficiency gains. $51 million in actual agency markup that was no longer paid.

That money did not disappear. It was recovered.

The Question Worth Asking

If you are a health system leader reading this, I want to ask you a direct question.

When did you last look at your locum spend not as a line item to be managed, but as a problem to be solved?

Not optimized. Not benchmarked against peers. Solved.

Because the math is not complicated. If you are spending $30 million a year on locums and 40% of that is agency markup, you are paying $12 million a year for a service that, with the right infrastructure, you could provide internally for a fraction of that cost. The infrastructure exists. The technology exists. The operational model exists and has been proven at scale.

What is missing, in most cases, is not capability. It is urgency.

And urgency, in healthcare, tends to arrive in one of two ways: a crisis forces it, or a leader chooses it.

The crisis is coming regardless. Physician shortages are deepening. Agency rates are rising. The health systems that have already built internal float pools and reduced their locum dependency are accumulating a structural cost advantage that will compound over time.

The question is not whether to address this. The question is whether you address it now, on your terms, or later, when the market forces your hand.

Stop Accepting Overpayment as a Way of Operating

There is a version of this conversation that is comfortable and familiar. It involves benchmarking your rates against peers, negotiating a slightly better contract with your MSP, and reporting to your board that locum costs are being managed responsibly.

That conversation is not wrong. It is just insufficient.

The more important conversation starts with a different premise: that the money currently flowing to agency markup is not a fixed cost of operating in a physician-scarce market. It is a recoverable asset. And recovering it does not require a crisis, a board mandate, or a multi-year transformation program.

It requires a decision to stop accepting the status quo as permanent.

The chronic pain is real. The adaptation to it is understandable. But adaptation is not the same as acceptance, and acceptance is not the same as strategy.

The health systems winning the workforce war are not the ones that have learned to manage their locum spend most efficiently. They are the ones that decided, at some point, that managing it was not enough.

If you're organization is different and wants to explore a solution that can deliver these savings, I'd love to connect with you.