How Hospitals Can Reduce Locum Agency Costs Without Compromising Care

[12 min read | Marketplace vs Agency | May 2026]

TL;DR: Australian hospitals face significant locum agency expenses, with costs rising dramatically in recent years. Strategies to reduce these costs include building in-house locum coordination, using direct-to-doctor platforms, creating preferred locum panels, forecasting demand with data, and investing in permanent retention. These approaches can help manage budgets without compromising patient care or staffing levels. For more details, visit NSW Government.

How much do Australian hospitals spend on locums?

Australian hospitals are experiencing substantial financial pressure due to increasing locum costs. In NSW, the annual expenditure on locum doctors has reached A$240 million, with agency commissions alone accounting for A$37 million in 2022-23. Tasmania's locum bill has tripled in just three years, escalating from A$57 million to A$182 million. This trend reflects a broader national increase of 65% in locum costs between 2020-21 and 2023-24, as detailed by Medical Republic.

Queensland's health services have also reported significant overspending, with locum costs contributing to a combined financial deficit of A$960.6 million in 2024-25. The Queensland Audit Office highlights that health services exceeded their expenditure budgets by A$1.72 billion, with locum expenses playing a major role. These figures underscore the urgent need for cost-effective solutions in managing locum staffing.

Where does the money actually go?

Locum agencies typically charge hospitals a 10-30% markup on top of the doctor's pay. For instance, a seven-day rural FACEM locum shift advertised at A$3,000 per day results in the agency keeping a significant portion of the total payment. With a 15% markup, the doctor receives A$17,850, while the agency retains A$3,150. This margin increases with higher percentage markups, compounding costs across numerous shifts annually.

The 2023 Kruk Report identified workforce shortages as a key factor driving the overuse of higher-cost services like locums. This pattern exacerbates year on year when unaddressed. For a deeper understanding of how agency fees impact doctors, see the real cost of locum agencies.

Why do locum costs keep rising despite awareness?

Several structural factors contribute to the persistent rise in locum costs. Workforce shortages are a primary driver, with unfilled emergency specialist vacancies reported in every state and territory by ACEM in 2024. GP shortages are projected to exceed 5,500 FTE by 2033, and similar gaps exist in psychiatry, anaesthetics, and obstetrics. These shortages give agencies significant pricing power.

Bidding wars between public hospitals further inflate costs. The NSW Health review highlighted "untenable" bidding wars, where hospitals compete for the same locum pool, driving rates upward. Additionally, last-minute bookings attract premiums of 20-40%, directly linked to poor workforce planning. Post-COVID, pandemic-era premiums have become the new baseline, with agencies having little incentive to lower rates.

What are forward-thinking hospitals doing to reduce costs?

Building In-House Locum Coordination

NSW is pioneering efforts to reduce locum agency costs by developing a government-run locum agency. This initiative aims to bring recruitment in-house, eliminating the agency margin typically charged on each shift. By managing a direct pool of pre-credentialed locum doctors, hospitals can save on the 15-25% agency commission.

Using Direct-to-Doctor Platforms

Direct-to-doctor platforms are gaining traction, offering hospitals a cost-effective alternative to traditional agencies. These platforms connect hospitals directly with locum doctors, replacing percentage-based markups with flat-fee or subscription models. This approach benefits both hospitals and doctors by reducing intermediary costs.

Creating Preferred Locum Panels

Hospitals that establish panels of pre-credentialed, returning locum doctors benefit from faster deployment, lower rates, and better clinical continuity. These panels eliminate credentialing delays, reduce urgency premiums, and ensure that returning doctors are familiar with the department and team.

Forecasting Demand with Data

Predictive rostering based on historical patterns helps hospitals avoid last-minute bookings. By anticipating seasonal peaks, training rotation start dates, and annual leave clusters, hospitals can plan shifts weeks in advance, reducing costs. Some health services are now using workforce analytics to model demand throughout the year.

Investing in Permanent Retention

Reducing locum dependency involves investing in permanent staff retention. Competitive salaries, flexible rostering, professional development opportunities, and rural incentives are crucial investments. These measures help retain permanent staff, reducing the need for locum hires.

What does this mean for locum doctors in New South Wales?

For locum doctors in New South Wales, the state's efforts to develop an in-house locum agency represent a significant shift. By managing recruitment directly, NSW aims to reduce reliance on traditional agencies, potentially offering more direct and stable opportunities for locum doctors. This approach could lead to more predictable work patterns and potentially better remuneration as agency margins are eliminated.

Locum doctors may find increased opportunities for direct engagement with hospitals, offering a more streamlined process for securing shifts. As hospitals focus on building preferred locum panels and forecasting demand, locum doctors who establish strong relationships with hospitals may benefit from more consistent work and reduced competition for shifts.