If you are working as an independent or locum tenens physician, there’s a good chance you’ve found yourself wondering: Am I being paid fairly for my time and expertise? Unlike employed physicians, whose compensation is often shaped by established benchmarks and internal HR formulas, independent and locum tenens doctors are frequently left to navigate negotiations on their own—often with limited information.
Understanding what constitutes “fair market value” in this context is essential not only for securing fair compensation, but also for ensuring compliance with federal laws that govern physician compensation. It can also give you peace of mind that you’re not leaving money on the table.
What is fair market value—and why should you care?
In the health care world, “fair market value” (or FMV) has a very specific meaning—especially when it comes to contracts between physicians and health care entities. The Stark Law, a federal statute designed to prevent financial conflicts of interest, defines FMV (called “general market value” in the statute) as “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.”
The rub, of course, is that locum tenens physicians are not generally well-informed as to their real worth.
And there’s another layer: the Stark Law also requires “commercial reasonableness.” The Stark regulations provide a very helpful description of this concept:
The key question to ask when determining whether an arrangement is commercially reasonable is simply whether the arrangement makes sense as a means to accomplish the parties’ goals… the determination that an arrangement is commercially reasonable does not turn on whether the arrangement is profitable; compensation arrangements that do not result in profit for one or more of the parties may nonetheless be commercially reasonable.
This concept is hugely helpful in locum tenens negotiations. The bottom line is that a hospital cannot claim that it is violating Stark if it is paying you more money than it is bringing in.
So how do you know what you’re worth?
That’s the tricky part. As an independent physician, you likely don’t have access to a neatly packaged salary schedule. But there are a few ways to estimate what your services are truly worth.
One approach is to think about what it would cost a hospital to replace you with a full-time, employed physician. This is not just about salary: it includes health and vision/dental benefits, disability insurance, continuing medical education, call compensation, vacation, and signing and relocation bonuses. Benefits are generally assumed to be an additional 20 percent to 30 percent over the compensation paid to the physician.
For example, based on current MGMA data, a family medicine physician might earn just under $300,000 annually, but looking at an hourly rate and accounting for PTO and benefits, the hourly cost to the employer could exceed $215. That figure doesn’t even include indirect costs like recruiting or onboarding.
The math looks like this (all figures represent MGMA median benchmarks nationally):
- Total compensation: $297,746
- Total PTO: 216 hours
- Total hours worked (2,080 – 216): 1,864
- Compensation per hour ($297,746 / 1,864): $159.73
- Benefits at 30 percent: $47.92
- Total hourly cost for an employed physician: $207.65
These figures do not include signing bonuses and relocation allowances, which represent a median of $32,500 combined. If you assume these bonuses are generally forgiven over two years, you can add half that figure ($16,500) to the annual cost. Assuming 1,864 hours, that comes to an additional $8.72 per hour, for a total cost per hour for an employed physician of $216.37.
I would view this as the minimum acceptable rate for a family medicine locum tenens physician.
While a savvy CFO might point out that physicians don’t really work just 1,864 hours per year, I think it’s reasonable to point to the benchmarks. I doubt many CFOs will want to argue that their physicians are worked to death, and basically only see patients, chart, eat, and sleep. That does not seem like a good way to entice a locum tenens to join the team.
Here’s where the commercial reasonableness factor comes into play. Look at the hospital’s perspective. If your absence means a department can’t run effectively, or if patients are walking away and referral streams are drying up, the financial hit can be significant.
It’s fair to consider the desperation of the hospital. Maybe you’re filling a role in a rural area where no one else wants to go. Or maybe you’re the only physician in your specialty for miles. If a hospital is struggling to recruit or retain providers, your presence can be critical to patient care—and that should be reflected in your compensation.
What to keep in mind before you sign
As tempting as it is to accept the first rate you are offered, it’s important to do your homework. Know what an employed physician in your specialty and region might earn—and remember, your compensation as an independent physician should be equal to or greater than that number, never less.
Also, don’t be afraid to ask smart questions: How long has the facility been trying to fill this position? How urgent is the need? Are you stepping into a tough-to-staff environment? Answers to those questions can give you leverage—and a better understanding of the institution’s willingness to negotiate.
Finally, remember this: fair market value isn’t just a legal term. It is a reflection of the respect and recognition your work deserves. Being proactive about compensation isn’t about being difficult; it’s about ensuring your contributions are properly valued.
Let’s make sure you’re getting paid what you’re truly worth.
Dennis Hursh is a veteran attorney with over 40 years of experience in health law. He is founder, Physician Agreements Health Law, which offers a fixed fee review of physician employment agreements to protect physicians in one of the biggest transactions of their careers. He can also be reached on Facebook and LinkedIn.
Dennis is a frequent lecturer on physician contracts to residency and fellowship programs and has spoken at events sponsored by numerous health systems and physician organizations, including the American Osteopathic Association, the White Coat Investor, the American College of Rheumatology, the Pennsylvania Medical Society, the Pennsylvania Society of Cardiology, and the American Podiatry Association.
Dennis has authored several published articles on physician contractual matters on forums such as KevinMD and Medscape. He is also the author of The Final Hurdle – A Physicians’ Guide to Negotiating a Fair Employment Agreement which is considered the go-to resource on physician contract negotiation.
