Navigating Fair Market Value as a Locum Tenens or Independent Physician

If you are practicing as a locum tenens or independent physician, you have undoubtedly pondered an essential question: Am I receiving appropriate compensation for my expertise and time? Unlike employed physicians, who generally have established salary ranges, benefits, and payout structures, independent physicians must set their own rates—and this can be challenging without access to complete compensation data.

Grasping what is deemed “fair market value” (FMV) is vital not just for successful rate negotiations but also for adhering to stringent federal regulations that oversee physician compensation, like the Stark Law. More crucially, it’s about securing the recognition and payment you rightfully warrant.

What Is Fair Market Value (FMV)—And Why Is It Important?

Within the realm of healthcare, FMV transcends a mere descriptor—it bears legal significance. The Stark Law, which seeks to avert conflicts of interest concerning physician referrals, defines FMV (referred to in the regulation as “general market value”) as follows:

“The compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other.”

For independent or locum tenens physicians, this presents a challenge: having limited access to precise compensation information makes it difficult to be a “well-informed” participant in negotiations.

The Stark Law introduces another concept: commercial reasonableness. Essentially, even if an arrangement isn’t financially advantageous on paper, it can still qualify as commercially reasonable if it benefits patient care or meets organizational needs. This is especially significant in areas of high demand or under-resourced locations, where having a physician present—even if only temporarily—can significantly impact hospital operations.

How to Assess Your Worth

Independent physicians don’t receive a salary guide. Consequently, you need to investigate further to establish a fair hourly wage. A robust starting point is calculating the expense a healthcare organization would incur to employ a full-time physician in your area of expertise.

Let’s dissect this using national benchmarks from the Medical Group Management Association (MGMA):

Family Medicine Physician (Median Benchmark):

– Annual Total Compensation: $297,746
– Paid Time Off (PTO): 216 hours
– Total Work Hours (2,080 – 216): 1,864
– Hourly Compensation: $297,746 ÷ 1,864 = $159.73
– Benefits Load (30%): $47.92
– Sign-on/Relocation Bonus (averaged per year): $8.72/hour

Total Hourly Employer Cost: $159.73 + $47.92 + $8.72 = $216.37

This $216.37/hour rate reflects the minimum total hourly investment hospitals allocate for a full-time family medicine physician. For locum tenens physicians—who usually operate in urgent, understaffed conditions without job stability or long-term benefits—the rate should be equal to or potentially exceed this amount due to the additional flexibility and risks you’re undertaking.

Don’t Overlook the Hospital’s Perspective

Commercial reasonableness serves as an asset in financial dealings. Hospitals may legally justify paying a premium for locum tenens services if the alternative leads to worse outcomes—service closures, loss of referrals, or patient dissatisfaction. If your services mitigate staffing shortages or avert interruptions, you deliver genuine, measurable value.

Additionally, your compensation should account for local market dynamics of supply and demand. If few physicians are willing to work in isolated or rural regions—or in a high-demand specialty—you effectively become a rare asset deserving top compensation.

Tips Before Signing Any Contract

1. Know the Benchmark
Investigate MGMA data or consult a healthcare attorney with expertise in physician contracts. Understanding regional and specialty-specific payment ranges is essential for negotiating effectively.

2. Consider Total Compensation
Factors like malpractice insurance, housing allowances, and travel reimbursements should be included when evaluating offers.

3. Ask Intelligent Questions
Don’t hesitate to discover more about the role:
– How long has the position been unfilled?
– What obstacles make this role difficult to fill?
– How urgently does the facility require coverage?

These inquiries not only demonstrate initiative but can also help unearth warning signs and provide leverage during negotiations.

4. Don’t Undervalue Yourself
Never accept a rate lower than what an employed physician earns in your specialty. Keep in mind that you also bear costs and liabilities that employed personnel do not—such as self-employment taxes, health insurance, and retirement planning.

5. Document Everything
Ensure that payment details, duties, and contract lengths are clearly stated—preferably reviewed by a specialized healthcare attorney. Ambiguous wording can lead to vulnerabilities or legal complications.

Conclusion: Know Your Value, and Receive Compensation That Reflects It

For locum tenens and independent physicians, understanding fair market value is essential. It forms the basis for compensation that accurately represents your expertise.