A Physician-Owned Locum Tenens Co-op?
Today, I’ve got an interesting proposal from a group of physicians and entrepreneurs with whom I’ve spoken regarding their idea for a completely new take on the locum tenens agency.
My experience with locum tenens (temporary work) began the Monday after I finished residency. I practiced exclusively as a locums doc for nearly two years, trying jobs before buying, and was offered a job in just about every place I worked.
Once I settled into a “permanent” job, I still did some locums on the side to keep different skills fresh and learn from different practice settings. I used locums jobs to audition for my next full-time job and to earn some money while in between gigs.
My current and presumably final job is at a place that I practiced first as a locum tenens anesthesiologist eleven years ago, and seven years prior to returning as an employed physician. My familiarity with some of the docs and the staff, and the positive impression I left when working there, made it easy to land the job and make for a smooth transition as the sort-of “new guy.”
I detailed my various locums stints in a guest post at The White Coat Investor, and I’ve since published a couple more posts on the topic here.
Only in recent years have I become wise to the amount of money locum tenens agencies were charging the hospitals and groups I was working with. With the typical agency commissions, if I was being paid $150 an hour, the hospital was probably paying $200 to $220 per hour, and a substantial portion was withheld before I collected a check.
When you consider the fact that I did this for two years and put a lot of hours in, I probably earned a couple hundred thousand dollars for those agencies. It’s no wonder they don’t stop e-mailing, calling, and even texting. Landing one doc for an assignment of several months’ duration can be worth tens of thousands of dollars to the agency.
Could there be a better way? Could physicians reduce the overhead and even profit themselves from the agency fees?
The remainder of this post was written by a group who proposes an intriguing alternative to the status quo in the world of locum tenens. We’ll refer to them as the Locums Coop Initiative.
A Physician-Owned Locum Tenens Co-op?
We are fellow physician entrepreneurs with extensive experience in the locum tenens industry. This industry is still dominated by the locums agency middlemen and opaque business practices.
Some nascent developments like technology enabled marketplaces that can empower individual physicians are coming into the market, but at the same time, a trend has emerged of further consolidation in the form of MSP (Managed Service Providers). This has introduced yet another middleman to the process! It seems everyone is stepping in to get a cut of the value we create as physicians.
While pondering this and considering whether we can restore some balance to the industry and allow physicians to capture more of the benefits of their work, we thought, what about a technology-enabled locum tenens marketplace that is truly physician-owned?
As in a physician-owned and controlled co-op that is open, transparent & puts the power in our hands? Thus the ‘locums co-op initiative’ was born!
Wait a minute, you may say! Co-ops are for farmers markets and real estate, right? Not necessarily! Co-ops work well in a variety of situations including finance, food, energy, and transportation. [PoF: And breweries]
In researching this, we spoke to a leading co-op expert Adam Schwartz. This is what he had to say about it:
“The cooperative is the best business model because it has both an economic and social purpose. Over my years working with co-ops in the USA and around the world I have seen successful co-ops in all types of businesses and in every sector of the economy except the military. They can range in revenue from several million dollars to over $30 billion.”
He seemed quite enthused and thought this would work. He gave us parallel examples including his own ‘consulting co-op’! Buoyed by his response, we thought the idea may have some legs after all. So we tried to think this through further.
How A Physician-Owned Locum Tenens Co-op Could Work
So how would this work? In simple terms, physicians would purchase shares (membership interests) in the co-op to raise the capital needed to set up and run the co-op. Depending upon the amount of capital raised, the co-op may need to seek some loan financing too.
As members, the physicians would also commit to working a minimum number of clinical hours through the co-op.
The co-op will be managed by a co-op board elected by its members. The board will decide the strategy, the operational parameters and will select professional management to do the day-to-day running of the co-op.
The capital raised by the sale of membership interests will be used to invest in a technology-enabled marketplace where physicians would find locums work and hospitals/medical practices would post needs.
The physicians and employers would directly negotiate their prices and the co-op will charge a booking fee to the employers. This booking fee will be used to:
- Cover operating expenses,
- Provide cashback bonus to the physicians working the shifts, and
- Pay dividends to the shareholder members.
The co-op board may decide that non-member physicians could still use the platform and negotiate great rates, but they would not receive any cash back or dividends, nor would they have any say in the matters of running the coop.
Running Some Numbers
Here are some numbers we worked out to illustrate the concept.
Let’s say a capital raise of $10MM is required to get this co-op off the ground (to build or buy the technology and for operating capital). Let’s assume that $5MM of that can be financed. The co-op will need to raise $5MM from physicians.
If each member invests $5,000, then this means that 1,000 physicians would need to sign up. If more physicians sign up, or if members invest more than $5,000 on average, the additional capital would be used to reduce the financing amount and make the numbers look even better.
We also assume that each member will promise to do minimum of 20 shifts a year using the co-op, and that it will have at least 20,000 shifts available. Let’s also assume that an average shift is negotiated at $2,000 and the co-op charges the medical practices only 15% in booking fees (booking fees are set at a low level of 15%, as most locum companies have margins between 30 and 40%, by contrast).
Let’s say, in the first year the co-op will have $2MM in expenses and finance charges.
Even with a small utilization rate of 25% (each member physician does only 5 shifts a year on average and a fraction of the shifts are done by non-members), the co-op will manage to cover its operating expenses to become cash flow neutral.
In the second year, the co-op, now established in the market with physician-members and physicians dedicated to working shifts, becomes even more attractive to hospitals and medical practices and books around 12,000 shifts for members and 4,000 shifts for non members. This is about 9 shifts per member per year by factoring in the membership growth, and will result in revenue of about $4MM! Cash flow positive!
If the co-op board decides to return 4% cashback on shifts worked by members, a member doing 24 shifts will get about $2,000 in cashback payments. Almost half of his or her investment! And the more a physician works through the co-op, the greater the return.
Here is a table that has some back-of-the-envelope calculations for you. (Obviously, if this idea is to be converted into reality, a detailed financial analysis will have to be done).
Putting Physicians Back in Control
In the current environment of consolidation and corporate ownership, physician ownership of their practices is becoming rarer. Becoming members of a co-op would allow physicians to have an ownership interest in the healthcare marketplace and reclaim that sense of independence and ownership and control over our professional services.
The gig economy is everywhere, even in workforce management. We see marketplaces for handymen, technology workers, babysitters, and in-home caregivers. We have also seen the advent of the locums marketplaces. But having a marketplace that is owned and operated by physician members, now that would be interesting!
What do you think? Is this workable? Is this something that interests you? We would like to hear from you. We want your brutally honest opinion.
Co-ops, after all, are community endeavors and only succeed if the community feels strongly about it!
If you are currently doing locums or planning on doing so in the near future, please let us know by completing the survey below. You can take the survey anonymously. The first 100 physicians completing the survey will get a $10 gift card for amazon.com. [Update: the quota has been reached. Survey responses are appreciated, but unfortunately, the early birds got the goods. We would still love to hear from you, particularly if you have done locums or are considering working as a locum tenens physician in the future.]
Take the Survey
If you were among the first 100 responders, rest assured that your email will only be used for sending you the card. It will not be sold or shared otherwise with any one to market to you, neither will you be spammed.
The survey also allows you to indicate if you would like to receive a detailed proposal for joining this type of co-op if it were to materialize. You will be sent such material only if you give your consent.
We want to thank our friend Physician on FIRE for allowing us to reach you. Please feel free to email us at [email protected] . We will try to address any questions you have as best as we can.
The Locums Co-op Initiative
[PoF: What do you think? Could this be a viable alternative to the traditional locum tenens agency? Charging groups and hospitals at most half of the traditional fees, allowing physicians to negotiate higher rates, and allowing physician co-op members the opportunity to share in the profits?
What pitfalls do you see? If this were to come to fruition, would you willing to put up $5,000 to support the project?
I will let you know when 100 surveys have been completed and will publish the results of the survey at a later date. ]
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