Part 5: “Money-Money-Money, Mun..nney” ♬
[AKA, Legal & Financial Considerations]

In Part 5 of Locumpedia’s No-BS Guide to Locum Tenens, we’ll cover:

• Why you should read your locum tenens contract
• The basics of locum tenens contracts
• How locum tenens compensation works
• How to set up your independent-contractor practice
• How tax season is different for locum tenens clinicians

You took the long way and became a doctor. Unfortunately, lawyers still might be required. Needless to say (but we will, anyway), life is complicated in the 21st Century.

As if the student loans (most of) you will drag along for the next decade or so weren’t enough, you must think about ‘real-world’ issues like CONTRACTS and TAXES and INSURANCE — oh, my!

You think, “No problem,” right? You know this is part of adult life today and it’s no big deal. That is until the unanticipated happens and you need assurance your “6” is covered…

Through our No-BS Guide to Locum Tenens, we’re here to help. As The White Coat Investor® (WCI) James M. Dahle, MD, FACEP, noted in a multi-segment blog post from late November 2020, “Done properly, locum work can provide a huge boost to your financial situation.”

Here’s hoping we can help with the “done properly” caveat.

How many times in a given week; month or year, do you think, you acknowledge having received and read legal documents you’ve barely skimmed through — if you even opened what you’re “signing off on” at all?

When you want to read an article online or download an app to your mobile phone or computer, do you even open up and scroll through the “terms and conditions” the website or app creator asks you to agree to (or tells you that you are agreeing to) if you continue?

In completing paperwork at a doctor’s office or healthcare facility, do you actually READ the provider’s HIPAA statement and financial policy? Or do you simply sign the documents?

If you’ve ever purchased a home, how many hours did you spend reading through that pile of documents before signing each one? (Personally, I seem to remember a signature ‘assembly line’, with all parties at the table resisting the prospect of said “closing” costing anyone involved an extra minute at the closing table.)

According to BusinessInsider.com, “If you’ve ever tapped ‘I agree’ to a ‘legal terms and conditions’ agreement after hardly giving it a glance, you’re not alone:

“A Deloitte survey of 2,000 consumers in the US found that 91% of people consent to legal terms and services conditions without reading them. For younger people, ages 18-34, the rate is even higher, with 97% agreeing to conditions before reading…”

Two researchers from disparate universities studied how far consumers could be “conned” into going. They created a fake social-networking site called “NameDrop,” and wrote up a “terms and services agreement” for users to agree to before signing up.

“In the agreement they included the disclosure that users give up their first-born child as payment, and that anything users shared would be passed along to the NSA,” BusinessInsider noted. “A whopping 98% of participants agreed.

“This is an extreme example that existed only in an academic experiment. The real agreements are usually there to protect the company from legal trouble.”

So…to what extent are YOU willing to ‘expose yourself’ to enjoy clinical practice on your own terms?

In his April 5, 2019, blog post about locum tenens contracts, Vladimir Dzhashi, MD (“The Locum Tenens Guy”), cautions, “You may be thinking: I’ve got better things to do with my life than reading the contracts. Wrong! The truth is that you ALWAYS have to look at the contract. Medicine is a risky business, so you want to cover all your bases!”

Meanwhile, TWCI Dahle describes “a typical physician contract” as having 3 main components:

1. Job Description — “The more descriptive, the better,” Dahle says, because, “it will dictate where you will work, how many hours a day and days a week you will work, how many patients you will see, what kind of breaks you will get, and how much call you will take.”
2. Compensation — the section(s) of the agreement describing what you receive for doing the work described. Noting this includes a salary of some kind, Dahle urges you to “make sure you understand exactly how it is calculated,” suggesting possible bases for calculation including per-shift payment (what if you stay late or do charts from home?), Relative Value Units (RVUs), hours billed, or revenue generated. (For the last 3, — what’s the staff-physician average?)WCI also asks if you’ll be paid as an employee or as an independent contractor. “If [as] a contractor, it will be much easier to open your own retirement plan and acquire your own benefits package,” Dahle writes. “Remember that independent contractors must pay both the employee and employer halves of payroll taxes like Social Security and Medicare, as well as cover their own benefits. That means you need to be paid more as an independent contractor than as an employee for the compensation packages to be equivalent.”
3. Termination — What happens if you don’t like the job? What happens if they don’t like you? How much notice must you give and vice versa? What happens if you lose your license or hospital credentials? Under what grounds can they fire you “for cause”?

Locum tenens clinical practice can pay you handsomely for practicing medicine within the parameters you set for yourself. Word to the wise, however: Do your due diligence to ensure you don’t compromise your personal or financial life for contracted professional commitments.

For your own professional (and personal) preservation, never sign ANYTHING you, or a business advisor you trust, hasn’t read all-the-way through. (Hard STOP!) Too many practitioners sign locum tenens contracts without fully understanding their implications — and some live to regret it.

According to Jack A. Gordon and Andrew E. Sarti (attorneys with Kent, Beatty, & Gordon, LLP) a well-drafted locum tenens contract

•  Protects the physician’s (clinician’s) interests beyond compensation.
•  Anticipates and addresses disputes.
• Limits risks.

“Although agencies market themselves as physicians’ advocates, their primary loyalty is to the clients that pay their fees — the facilities they represent,” the authors point out. “This is why hiring attorneys well-versed in drafting and negotiating locum tenens agreements is a good idea.”

Although most locum tenens work comes through staffing firms, sometimes physicians (like our friend The Locum Tenens Guy) develop networks of facilities that need locum tenens coverage regularly. Of course, the main advantage here is the possibility to negotiate higher pay by eliminating “the middle man,” Gordon and Sarti note.

They add that some facilities, when contracting directly, ask the physician to draft the locum tenens agreement, “making it imperative to retain knowledgeable counsel. Conversely, if the healthcare facility has its own form of agreement, the physician should have it vetted by counsel before putting pen to paper,” the attorney-authors say.

“Locum tenens contracts vary among agencies and facilities. Some use blanket master services agreements, usually signed before clinicians are placed. Employers then supplement by written locum tenens assignments (e.g., work orders, statements of work, confirmations) specifying facility location, dates of engagement, compensation, and possible modifications to the master services agreement.”

WCI Dahle recommends that, “at least for your first contract or two, you have it reviewed by either legal counsel in the state where you will be practicing or by a national physician contract review service.”

Dr. Dahle says the contract review serves four purposes (our nomenclature, not his exactly):

1. Education (as in “interpretation”) about what the contract’s language means.
2. Problem Identification. These can be items already in the contract or items that should be — things that will need to be changed or clarified through…
3. Negotiation — highlighting opportunities to avoid ambiguity or better ‘level the playing field.’
4. Calibrating Compensation — ensuring the offer is competitive with current physician compensation trends.

According to Global Medical Staffing (GMS) Senior Director Tim Smart, “In the simplest terms, “the agreement defines the working relationship between the agency and a provider — all of the generalities that protect both the physician and GMS through the course of their term doing locums.”

It also includes a few conditions the physician must meet. “For example, you agree to complete the assignment once you accept it, and to cooperate in the credentialing process by providing accurate and complete information,” the company says in an October 2020 blog post.

Interestingly, GMS also highlights what some locum tenens agreements prohibit the physician from doing: “Physicians should also know that the agreement only allows you to perform clinical work in your assignments. For example, a physician CAN NOT provide administrative services while on assignment. Additionally, locum tenens physicians can’t profit directly from billing.”

Another SCORE for locum tenens medical practice, right?

Term

Term So, for what length of time, generally, must a physician commit to “fill in” under a locum tenens contract?

“A basic, but still important, provision in any locum tenens agreement is its term — i.e., how long it remains in effect,” according to attorney-authors Gordon and Sarti. “An ‘evergreen clause’ automatically renews the term for successive periods of time. Evergreen provisions present advantages and disadvantages for physicians.”

Advantages include not having to renew the agreement in writing every time the end of an assignment term approaches.

“Career locum tenens physicians are often parties to numerous contracts with different agencies and healthcare facilities, and keeping track of them all can be a burden,” Gordon and Sarti write. “Evergreen provisions not only eliminate this administrative burden, but also help the physician avoid the unintended risk of providing medical services without an active agreement in place.”

The attorney-authors say many of their law firm’s career locum tenens clients prefer including evergreen provisions in their contracts.

The downsides of these clauses include physicians’ neglecting to terminate their agreements with agencies that are not providing enough work. This can be a mistake when contract covenants either restrict them from accepting other job opportunities for an extended period, or add unnecessary administrative work.

“It is also worth noting that notifying the counter-party of one’s intent to terminate sometimes helps restart negotiations and often leads to negotiating an unfavorable locum tenens arrangement into a more rewarding one,” Gordon and Sarti advise.

Restrictive Covenants

The authors explain: “Restrictive covenants prohibit the physician from competing within a fixed geographic area, at certain facilities, or both for a period of time. They are governed by state law, which varies.

“Many residents and fellows are under the misconception that ‘noncompete clauses’ are unenforceable,” the authors suggest. “However, New York, New Jersey and many other states enforce ‘noncompetes’ when the restrictions are reasonable. In determining reasonableness, courts look at the scope of services, the agreement’s duration, and the geographic limitations.”

According to Dr. Dzhashi, “In a nutshell, the noncompete clause doesn’t allow you to work with the hospital through another locum company, or directly, for a certain period of time. Here, you have to make sure the term is no longer than 2 years after the official end of the agreement.”

He offers a couple of examples: “A few years after my last shift at one local hospital, I decided to pick up some shifts there again. This time I wanted to connect with them directly to have a long-term gig close to home. Guess what?

“Since I didn’t terminate my contract with an agency that placed me there in the first place, I either had to use them again (which kills the point) or terminate my agreement and wait for 2 years.

“Another example: if your agency loses the contract with the hospital, a non-compete clause will not allow you to work at that facility either as a ‘per-diem’ or through another agency’s services.

“In my situation, I ended up terminating my contract and had to wait for the 2-year noncompete clause to expire.”

In the company’s October 2020 blog post about locum tenens agreements, GMS underscores that its non-compete “doesn’t preclude you from working for other staffing agencies or recruiting firms — just from working for those specific clients where you’ve had assignments with GMS or were presented for assignments by GMS. However, if a physician is interested in accepting a permanent position at the facility, there is a provision in Global Medical’s client agreements for the client to initiate a contract buyout.”

Termination

Regarding termination provisions, which allow either party to end the contract, attorney-authors Gordon and Sarti say these can vary widely based on the reason for termination.

“ ‘Without cause’ means one party can terminate the agreement and/or assignment for no reason, usually following a specified period of written notice. The standard period calls for 30 days’ advance written notice, but the main consideration is what works best for you.

“ ‘For cause’ means the healthcare facility can terminate you either immediately, or after a ‘cure period’ of time if the triggering issue is not adequately addressed during that time period,” Gordon and Sarti offer. “The list of for-cause events often includes reasons like ‘failure to perform physician’s duties to the reasonable satisfaction of the hospital.’ For these ‘curable breaches’ it is important the physician insists on notice and an opportunity to cure.”

Attorney William P. Sullivan relays a story of how “(A) locum tenens contract with a clause allowing immediate termination of a physician’s services resulted in a huge pay loss for one physician.

“A client consulted me regarding several locum tenens shifts that were abruptly canceled by the locum tenens company with which she was working,” Sullivan writes. “The physician had canceled jobs with other facilities and accepted shifts at a facility being staffed by ‘Company X’. As an incentive to take those shifts, the physician was offered a bonus.

“The night before her scheduled shifts were to begin, Company X sent the physician a notice stating that the hospital had requested the physician be removed from the schedule. The agency therefore canceled the shifts with less than 24 hours’ advance notice. As a result, my client could not schedule additional shifts and wound up losing nearly $20,000 in income.”

Sullivan explains, “Company X’s contract language requires that the physician give 60 days notice before canceling a shift. However, the agency can cancel a shift with no advance notice if a hospital requests such cancellation. Unfortunately, such inequitable language is common in locum tenens contracts.”

He then highlights several staffing firms whose vague — or even predatory — contract language regarding termination could lead to similar losses if those firms choose to exercise their legal rights under the contract.

Sullivan highlights one provision indicating the agency doesn’t have to pay the physician if the hospital, clinic or practice doesn’t pay the staffing firm. (Ouch!)

Sullivan says his physician client is considering a breach-of-contract claim against Company X. His advice in summary:

•  “Read your contracts carefully.
• “Consider whether you want to use single locum tenens assignments as your sole source of income.
• “Consider whether you want to work with a locum tenens company that is not a NALTO member or that does not adhere to NALTO ethical standards.”

Staffing firm GMS advises, “Another important stipulation in the agreement is the requirement that you provide notice if you are unable to fulfill an assignment once you’ve accepted it. Global Medical is sensitive to the fact that situations can arise that are out of your control, and we do what we can to work with you wherever possible.

“You can request a notice of termination from us,” says GMS Senior Director Smart. “We’re going to do our best to ensure a fair and balanced outcome.”

Malpractice Insurance

According to the American Medical Association¹, 1 in 3 physicians has faced a medical liability lawsuit in their career². That number jumps up to nearly half for physicians aged 55 and older.

“When applying for a position in a medical facility or signing medical employment contracts, physicians should request and review a ‘Certificate of Insurance’ for the hospital program,” attorney-author Sullivan explains. “Unfortunately, the terminology in a Certificate of Insurance (also sometimes referred to as a ‘Certificate of Coverage,’ ‘Certificate of Liability Insurance,’ or ‘Certificate of Liability Coverage’) can be difficult to interpret.”

I’ll say! We almost can’t BELIEVE what this attorney points out in the following paragraphs:

“The first section of the COI prohibits you from relying upon the information contained in the COI. The COI is supposed to be a summary of the insurance policy, but this language states that the information does not form a contract for coverage between the entity being insured and the insurance company or agent.

“Simply stated, you are hoping that the insurance broker correctly completed the COI, but if not, the terms of the actual insurance policy are what is binding, NOT the COI.” The policy language also applies regardless of the language about insurance provided pursuant to your medical contract.

“The second section of the COI states that if the entity on the certificate is an ‘additional insured’ (i.e. not the ‘Named Insured’ on the policy — like a business entity you formed as an independent contractor, perhaps?), there must be an endorsement (or ‘rider’ – an amendment to the policy) that includes that certificate holder.

“Just because an entity is named on the COI does not mean that the person has insurance coverage unless there is an endorsement on the actual policy.”

WHAT???

WHAT??? Way to clarify what Shakespeare meant (back in the 16th Century, no less) when “The Bard” wrote in Henry VI, “First…let’s kill all the lawyers,^{3 4}

According to fellow attorney-authors Gordon and Sarti, “Medical malpractice insurance is a standard provision, but which party provides the coverage, the policy type, its term, the policy limits, tail coverage, and other important aspects vary widely. Even for the most prudent and skilled physicians, the threat of a malpractice suit is very real. This is why physicians must both understand and confirm the terms of malpractice coverage set forth in the locum tenens agreement.”

The two main types are “occurrence” and “claims-made” policies, and it’s critical to understand how they differ.

Occurrence policies cover the physician for incidents that occur when the policy is in effect, regardless of when the claim is made, while claims-made policies cover the physician if the policy is in effect when the claim is made.

Occurrence policies generally offer better protection, with a decreased risk of coverage gaps compared to claims-made policies. Because occurrence coverage generally costs more, however, Gordon and Sarti note, “This type of policy is more frequently offered when physicians contract directly with a large facility like a hospital or a ‘supergroup.’ ”

The attorneys say claims-made policies, the kind often provided by agencies, “cover the physician if the policy is in effect when the claim of malpractice is made. For example, say a physician was insured under a claims-made policy effective from January 1, 2019 to December 31, 2019. There would be no coverage if the incident occurred on February 1, 2019, but no claim was made until after the policy expired, say on January 15, 2020. Simply put, when the claims-made policy expires so does the coverage for everything that occurred during the effective period.

“Accordingly, if the claims-made policy is not renewed, the physician is exposed to a gap in coverage. To avoid this, physicians should ensure that their agreements include an extended reporting endorsement, commonly referred to as ‘tail coverage’ when the agreement calls for a claims-made policy.”

Writing for Kent, Beatty & Gordon, LLP, the authors explain that the “tail” extends the reporting window for any malpractice claims arising from when the claims-made policy was in effect but made after the policy period has ended. “Depending on the tail’s term, it basically turns a claims-made policy into an occurrence policy.”

Gordon and Sarti caution that, “(W)hile many locum tenens agencies provide adequate tail coverage, some do not, which is why physicians must analyze the malpractice insurance provisions as well as the policy specifics.”

The attorney-authors urge locum physicians to review carefully the contract provisions regarding what happens to malpractice coverage if the locum tenens agreement is terminated. They note that some standard agreements provide malpractice tail coverage that “survives” termination, while others exempt the agencies from maintaining tail coverage upon the assignment’s termination.

Word to the wise, folks (once again): SCRUTINIZE THOSE CONTRACTS!

Compensation and Expenses

“Arguably one of most desirable benefits of locum tenens work is the opportunity to earn compensation based on hours of work,” Gordon and Sarti write. “Locum tenens physicians almost always earn more than their full-time counterparts.

“Pay for locum tenens positions is usually on a per-diem (daily or shift) or hourly basis, and the amounts are driven by market forces.”

Our experts note examples of these variables including:

• Contracting through an agency or directly with the facility
• Location and type of facility
• Demand for, and supply of, the specialty,
• Physician’s experience and skillset
• Urgency of assignment
• Case or patient loads
• Type of shifts required
• Assignment length

Physicians must understand that pay rates for locum tenens work are negotiable,” Gordon and Sarti suggest. “Generally speaking, the first offer is rarely the best offer.” They add that knowing this, understanding one’s value and allowing for the lack of benefits, some physicians are still timid when it comes to negotiating. This works against these physicians’ best interests because “it is certain that if you do not ask for it, you will not get it.”

In his blog post from September 2018, Dr. Dzhashi acknowledges, “We’ve all been in the awkward situation when we felt we were not getting paid what we deserved, but due to lack of the business training and experience, we just accepted whatever was offered.

“My first conversations with recruiters were pretty stressful since every time, I failed to get what I thought was a fair deal for the type of hospitalist gig I signed up for,” Dr. Dzhashi writes. “Over the years I got really good at negotiating and have been consistently getting higher pay rates than most of my colleagues.”

Bottom line, according to attorney-authors Gordon and Sarti: “Remember, when it comes to negotiating compensation or any provision in a locum tenens contract, the best and most successful negotiator is the most prepared one.”

Gordon and Sarti outline several provisions physicians should consider incorporating — like

• Rate premiums: for example, shift differentials; holiday, on-call or “call-back pay”
• Escalators: automatic pay-rate increases under agreed-to conditions, like a certain percentage increase at the contract’s annual renewal under an evergreen clause
• Covered expenses: insurance, licensing, credentialing and privileging fees; travel and housing costs

The authors encourage negotiating a higher pay rate when benefits like housing costs aren’t needed.

“Boilerplate” Provisions

Gordon and Sarti warn that seemingly innocuous clauses usually found at the end of the agreement can significantly affect both the locum work experience and the contract’s legal ramifications.

“An ‘entire agreement clause’ or ‘merger clause’ states that the written contract is the complete expression of the parties’ agreement,” the attorney-authors write. “This means the provider should not expect any statement not included in the written contract to be enforceable.

“ ‘Choice of law’ and ‘forum selection’ clauses affect the outcome of a contract dispute, as well as the amount and type of relief,” according to Gordon and Sarti. “Substantive and procedural law vary among jurisdictions and court systems. Usually both the governing law and the forum are in the same jurisdiction, although they can differ (e.g., the governing law could be in a corporate home office, while the venue is the agency’s location). Physicians often find they agreed to litigate disputes far from either their home or their normal place of work.

“A ‘force majeure’ clause should shield a physician against liability from failure to perform if the inability to perform is caused by a specified event beyond the physician’s reasonable control.”

Conclusion

“Physicians should understand that agencies and hospitals hire expert legal counsel to draft their locum tenens contracts to protect their interests,” Gordon and Sarti conclude. “Physicians should retain their own attorneys to safeguard and uphold theirs.”⁵

¹ https://www.ama-assn.org/practice-management/sustainability/1-3-physicians-has-been-sued-age-55-1-2-hit-suit
² Five things physicians should consider when creating their financial plan (physicianspractice.com)
³ Most definitely NOT including attorney-author William P. Sullivan, or fellow lawyers Gordon and Sarti, in this case!
⁴ Find more dissection of physician employment contracts here.
⁵ This article is for informational purposes only. It is not legal advice.

Most doctors are well-compensated for their roles in keeping patients healthy. They are among the highest-paid and most-educated professionals in our country. In fact, many physician jobs were among the highest-paying of 2020, with general physicians reporting a mean⁶salary of $196,490 per year. The high salary makes sense, given their work’s importance and the responsibility and liability that come with it.

In its Annual Compensation and Employment Survey, for which the survey was conducted in September 2020, LocumTenens.com found the average⁷ physician salary to be noticeably higher, at $360,1046⁸.

Regardless of whether the average (staff/full-time) physician earns closer to $200K or $400K, doctors don’t start out wealthy: The average medical-school debt a physician carries out of medical school and residency is roughly $215,000.

To help doctors decide where to practice (to enable them to pay off that debt), WalletHub compared the 50 states and the District of Columbia across 19 key metrics. Its data set ranged from the average annual physician wage to the number of hospitals per capita to public hospital system quality. Follow the links to review the complete ranking, additional expert commentary, and a full description of WalletHub’s methodology.

Find the company’s ranking of the 10 best states in which to practice medicine (as of March 2021) here, with the top 5 including Montana, Minnesota, Idaho, Wisconsin and Kansas.

Irrespective of where the “mean” and “average” physician salaries fall, most staff physicians are paid similarly, regardless of medical specialty:

• Annual salary
• Life, health and disability benefits
• Retirement plan

• Other “perks”

Locums Comp Differs

In an October 2018 article for Physicians Practice, CompHealth President Lisa Grabl explains that compensation for locum tenens physicians works a bit differently.

“Unlike doctors in salaried, staff-physician jobs, locum tenens physicians are independent contractors, usually paid a flat hourly rate for the time they work, whether it’s a weekend shift in an emergency department or a six-month stint as a hospitalist,” Grabl writes. “Locum tenens physicians are usually paid directly by the locum tenens staffing firm. Payment rates vary depending on factors like

•  Demand for the specialty – With locum jobs available in more than 100 specialties, there’s an ongoing need for internal medicine physicians; hospitalists; psychiatrists; nurse practitioners and physician assistants, to name a few. Typically, facilities will pay more for those practicing in specialties chosen by fewer clinicians.
• Location and type of facility – There are open locum tenens positions across the country. Generally, rural facilities or those having trouble attracting permanent candidates will pay more than facilities in popular urban locations.
• Skill set and patient load – Positions requiring complicated procedures or specialized skills often pay more than general assignments. Patient load also plays a role: slower-paced assignments tend to pay less than those with heavy workloads.
• Type of shifts needed – Assignments can last just a few shifts, a weekend or months at a time. Working weekends or holidays or being on-call may result in a higher hourly locum tenens pay rate for those types of shifts.

“Combined, all of these factors determine the hourly pay rate, which may result in a locum tenens orthopedic surgeon making substantially more in a rural hospital in North Dakota than in an urban Los Angeles facility,” Grabl says.

She notes that because locum physicians are independent contractors who don’t receive traditional benefits, they’re usually paid a higher hourly rate than their “permanent” counterparts. “A locum physician could conceivably make between $20 and $50 more per hour than a permanent doctor in the same facility,” Grabl writes.

To give you an idea of the hourly pay rates for different specialties, the company she leads offers the following graphic:

An experienced locum tenens hospitalist himself, Dr. Dzhashi says a locum tenens hospitalist shouldn’t earn less than $150/hr. He shares his complete negotiation process — and even the “scripts” he uses, or that the reader could use — in a September 2018 blog post. In the Q&As with other physicians following the article, he really gets ‘into the nitty gritty’ of working around barriers often thrown up by agency recruiters or vendor management firms when physicians try to follow his advice and negotiate the highest hourly rate possible.

Look Beyond the Paycheck

Non-salary locum tenens compensation considerations include medical malpractice insurance; licensing, credentialing and privileging fees; and travel and housing costs, which the staffing agency typically covers.

“Working with an agency alleviates much of the extra work that taking locum tenens assignments may create,” CompHealth President Grabl suggests.

“Larger locum tenens companies often have in-house teams to help gather and maintain the necessary paperwork for temporary assignments. They may also know how to navigate the licensing, credentialing, and privileging processes in different facilities and states,” Grabl writes.

“Thanks to the recent efforts by the Interstate Medical Licensure Compact, it’s now faster to get a license in [some 30] US states.”

Just a point of emphasis before we move beyond the ‘compensation’ section: One thing often overlooked in considering your potential locum tenens hourly rate is the lack of “traditional benefits” (like life, health and disability insurance) to which Grabl referred earlier.

Consider the following from CompHealth:

“What is NOT covered by the locum tenens agency?

“Locum tenens physicians are independent contractors. That means they are not employed by the locum tenens agency or the facilities where they take assignments. That also means they are responsible to take care of taxes, medical insurance, and benefits on their own:

“Taxes – State, federal, Medicare, or Social Security taxes are not taken out of locum tenens paychecks. As a result, physicians are responsible for making estimated tax payments.

“Also, locum tenens physicians generally must pay income taxes in each state where they work. Fortunately, a state tax credit for the nonresident state tax liability is generally available to reduce the home state tax (state of residence generally taxes all income). This credit should fully or partially eliminate any double state taxation. Read more about locum tenens taxes here.

“Medical insurance and benefits – Locum tenens providers are responsible to fund their own benefits, including health and life insurance or retirement plans. This isn’t an issue for providers working locum tenens in addition to a permanent position.

“Full-time locum tenens typically purchase health insurance through a health exchange or use a spouse’s plan.

“As an individual independent contractor, locum tenens providers have more opportunity to claim work-related expenses than the typical employee, including travel, meals, housing, work tools and supplies and continuing education.”

⁶Mean = half of reported salaries were higher than the mean, while half were lower.
⁷Average = total dollar amount of all reported salaries (and bonuses, in this case) combined, divided by the total number of salaries reported.
⁸Compensation results consist of only full-time, permanent employees and consider only annual salary and bonuses.

According to “The Locum Tenens Guy,” Dr. Dzhashi, here’s what you need to do once you’ve decided to try for a locum tenens career.

“First, if you plan on working full-time locum tenens, make sure to set up your ‘safety net,’ which includes life, disability and health insurance — and a cash reserve,” Dr. Dzhashi says.

Dr. Dzhashi emphasizes the cash reserve is “the most important locum tenens insurance” for both ensuring you feel secure, and providing a strong negotiating basis for hourly rates with an agency or hospital.

“A good rule of thumb is to save enough cash to cover at least six months of your basic expenses,” Dr. Dzhashi writes. “However, this might not be necessary for a married physician whose spouse has a stable full-time job.”

In addition to the ‘cash-on-hand’ insurance, Dr. Dzhashi suggests you secure disability, life and health insurance to complete your safety net.

Saying he considers disability insurance “an absolute ‘MUST’,” our ‘Guy’ notes “the average American female has a 24-percent chance of becoming disabled for three months or longer, and males have a 21-percent chance during their lifetime,” according to the US Social Security Administration.

Find his advice on life and health insurance here.

For a top-three locum tenens agency’s perspective on becoming an independent locum tenens practitioner, click here.

Insure Only Against Financial Catastrophes

The White Coat Investor® (WCI), Dr. Dahle, believes insurance is a critical aspect of any financial plan. “Just because you do not have an employer offering it, does not mean you do not need it,” he writes.

“Insurance can be purchased to protect you against all kinds of events. However, as a general rule, you should only insure against financial catastrophes. Financial catastrophes are those very expensive possible outcomes that you cannot afford to pay for yourself. Being hit by a truck and having to spend 2 weeks in an ICU is a financial catastrophe. Dropping your phone in the toilet or having to replace your leaf blower should not be.”

Dr. Dahle lists 5 financial catastrophes that most doctors will need to insure against, at least for part of their lives:

1. Liability
2. Illness/Injury
3. Disability
4. Death
5. Loss of expensive property

WCI Dahle continues, noting, “On average, insurance is a losing proposition. It must be for an insurance company to stay in business.

“An insurance company only has two sources of income — the premiums it receives from its policyholders and the investment return on its portfolio of money that has not been paid out as insurance benefits. With this income it must pay all of the insurance benefits, cover all of its expenses, and, if it is a for-profit company, leave something extra for the shareholders of the company.

“Thus, it cannot pay out in benefits every dollar it receives in premiums. On average, it must pay out less. Since insurance is a losing proposition, you should not buy insurance that you do not absolutely need.”

WCI so effectively explains how to protect yourself (as an independent locum tenens contractor), your family and your assets that we won’t attempt to compete with, or even paraphrase, his advice. Check it out yourself by clicking here.

Self-Employment Business Structure

Since most locum tenens physicians are paid as independent contractors, neither the facilities in need nor the agencies facilitating their assignments actually employ these physicians, WCI emphasizes. “They are in business for themselves. The locum tenens agency serves as one of the clients of the business owned by the physician. As such, the agency sends your company gross paychecks and generally does not provide a traditional slate of benefits.

“Your company now becomes responsible for determining and paying any taxes due on that income. Agencies send simple 1099 forms at the end of the year as required by law. While some doctors mistakenly refer to themselves as ‘1099 employees’, they are not employees at all. They are completely separate businesses.”

Therefore, WCI Dahle suggests:

• Getting a federal Employer Identification Number (EIN), available from the IRS here.
• Opening a separate bank account, and perhaps even a credit card, for the business to allow you to keep personal expenses and income separate from business expenses and income.
• Making quarterly estimated income tax payments to the IRS, since there’s no employer withholding taxes for you.

He goes on to highlight the legal options for structuring your self-employment, with the basic choices including⁹:

• Sole Proprietorship
• Partnership
• C Corporation
• S Corporation
• Limited liability company (LLC)

The Sole Proprietor

WCI describes the sole proprietorship as “the simplest and easiest business structure…and [the one] the majority of locum doctors choose.”

Dr. Dahle acknowledges that, as long as you have no employees, you really don’t even need an EIN here: You can simply provide the entity paying you with your name, address, and SSN on a W-9 form and the paychecks and 1099s will be issued to you directly.

“You’ll report your business income and expenses on a simple ‘Schedule C’ on your personal taxes. If your spouse is doing similar work, they can have their own sole proprietorship and when filing taxes you simply have two Schedule Cs included with your taxes. If you do not deliberately choose another business structure, by default you will be a sole proprietor.”

Form a Partnership with Your Spouse?

“Some doctors wonder if a partnership might be the right business structure for their locum tenens work, thinking that if their spouse is doing something similar, they can just form a partnership and avoid a second Schedule C. However, the truth is that a partnership must file an entirely different tax return, a complex five-page partnership return (Form 1065). Thus, this is a terrible reason for forming a partnership.”

Dr. Dahle writes that other doctors think having their spouses do some of their “admin” work (lining up assignments or travel arrangements, doing bookkeeping, etc.) will enable setting up another retirement account — and perhaps a larger Social Security benefit — down the road.

“Even if you want to have another retirement account, this is probably a bad way to go about it,” he says. “You can always just form a sole proprietorship and employ your spouse, or even contract with your spouse’s sole proprietorship, to get another retirement account without having to do a Form 1065. However, even this is likely a bad idea for a one-doctor couple because the cost of that retirement account is simply too high.

“If your spouse has no other income, you will need to pay Social Security taxes (both the employer and employee half, 12.4% total although half of it is tax-deductible) on all of their income up to the 2020 wage limit of $137,700. That cost is likely to be higher than the benefit of having another retirement account, or at a minimum, will dramatically reduce the benefits of the account.”

Let TWCI Dahle walk you through the other business-structure options for your self-employment here.

⁹ TWIC notes, “In some states, a doctor providing physician services is required to form special entities called a ‘Professional Corporation’ or ‘Professional LLC’ (PLLC). However, there’s little difference between a regular corporation, or LLC, and a professional one.”