What is a VMS and MSP?
We get it – these terms can be like a whole other language! But don’t worry, we’re here to break it down for you.
Defining VMS & MSP in Health Systems
AI and automation are transforming healthcare staffing in 2025 by streamlining recruiting, accelerating credential verification, and optimizing scheduling. These technologies predict staffing needs, reduce time-to-hire, and improve candidate matching while allowing human recruiters to focus on relationship-building. AI-powered tools help hospitals fill roles faster, maintain compliance, and reduce burnout—making staffing more efficient and responsive to patient care demands. This integration of AI is now essential for competitive healthsystems.
VMS and MSP platforms are no longer static tools but are being enhanced by cutting-edge technologies that address today’s urgent challenges like labor shortages, compliance complexity, and operational efficiency.
What is VMS (Vendor Management Software)?
Vendor Management Software, or VMS, is the software hospitals use to submit requests for temporary assignments, but it does significantly more for the MSP who uses it to communicate and distribute orders to partnering agencies. The software also handles various aspects of workforce management, including invoicing hospitals, storing employee profiles, managing onboarding documents, credentials and schedules. It’s increasingly used by hospital staffing departments to reduce fees and encourage a free market for labor.
What is a MSP (Managed Service Provider)?
A Managed Service Provider, or MSP, is an external group that handles contract, or contingent, labor management. They work with a network of individual agencies to provide travel or per diem workers. MSPs act as intermediaries between hospitals and agencies, charging a fee to the agencies to participate, sort of like a credit card processor. Workers pass through the MSP on their way from a sub-contracting agency to a hospital, and the MSP keeps a transaction fee paid by the agencies.
Often, this service appears “free” to the hospital. The MSP is funded by the fee charged to the agencies, often called a VMS Fee or Technology Fee. We call this the hidden tax.
Key Differences Between MSP vs VMS in Hospital Workforce Management
Hospitals managing contingent labor often consider both Managed Service Providers (MSP) and Vendor Management Systems (VMS) as complementary solutions that address different needs within workforce management.
| Aspect | MSP (Managed Service Provider) | VMS (Vendor Management System) |
|---|---|---|
| Type | Service provider managing staffing processes | Software platform managing vendor and contingent labor processes |
| Primary Role | Manages recruitment, onboarding, vendor relations, compliance, and sourcing | Provides tools for requisitions, scheduling, invoicing, and documentation control |
| User Responsibility | MSP handles day-to-day staffing operations under hospital guidelines | Hospital controls vendor relationships and staffing decisions using software |
| Ideal For | Hospitals with high vendor volume, recurring shift needs, or complex processes | Hospitals with strong internal teams needing automation and visibility |
| Cost Structure | MSP fees often embedded in agency costs, possible hidden fees | Software licensing fees; reduces agency fees by increasing competition |
| Benefits | Expertise, vendor management, strategic sourcing, efficiency | Transparency, automation, reporting, vendor-neutral management |
| Risks | Potential loss of control, higher costs if not vendor-neutral | Requires internal resources to manage and optimize effectively |
Examples Use Cases for Health Systems
Multi-location Management
MSPs coordinate across multiple facilities, standardizing vendor contracts, rates, and ensuring consistent coverage.
VMS provides centralized visibility and control over hospital-wide staffing requirements and compliance.
Compliance Handling
MSPs oversee credentialing, regulatory compliance, and risk mitigation across agencies.
VMS automates credential tracking and provides audit-ready documentation storage.
Contingent Workforce Optimization
MSPs actively source, onboard, and fill shifts with vetted candidates, optimizing fill rates and reducing administrative burden.
VMS platforms route orders to multiple agencies for competitive bidding and real-time scheduling updates.
Using both MSP and VMS in tandem often delivers the best outcomes: MSPs bring strategic and operational services, while VMS platforms provide the technological backbone for transparency and control. Hospitals can choose either to self-manage with a VMS or outsource comprehensive management to an MSP based on their size, needs, and resources.
This layered approach helps health systems improve staffing efficiency, control costs, maintain compliance, and ultimately support better patient care.
Integration Models for Implementing VMS/MSP in Hospitals
Hospitals typically implement VMS/MSP solutions using one of two primary models: agency-owned MSP or hospital-owned MSP with a VMS. Each model offers different levels of control, cost implications, and operational impact.
Agency-Owned MSP
In this common model, an external MSP manages the contingent labor supply chain, acting as an intermediary between hospitals and staffing agencies. The MSP uses a VMS platform to streamline ordering, credentialing, and vendor management.
While this reduces the hospital’s administrative burden, it can lead to higher labor costs due to MSP fees and potential lack of vendor neutrality. Hospitals gain efficiency but may experience less transparency and control.
If you’re partnered with an MSP and are using their VMS to submit orders, you’re likely in the most common scenario, perhaps without even realizing it. In this model, the MSP serves as a middleman between your hospital and the staffing agencies, while the VMS software handles crucial functions like storing nurse credentials, scheduling, and onboarding. The MSP effectively becomes the sole intermediary between the hospital and the agencies.
This model introduces automation, such as allowing nurses to conveniently upload their documentation via a portal or mobile app, with the VMS acting as a central hub for these documents. While this can alleviate workload for the hospital, it also can lead to loss of transparency, or worse, an agency-owned MSP (we’ll talk about that a little later.)
Because there’s a service layer between your hospital and the agencies, travel and per diem rates tend to be higher compared to a self-managed model.
In-House Hospital-Owned MSP with VMS
Hospitals that prefer direct control establish their own MSP using VMS technology to manage staffing procurement and compliance internally. This model requires investment in infrastructure and trained staff but offers greater cost savings by eliminating external MSP fees. It improves vendor neutrality and transparency, enhances compliance oversight, and provides faster responsiveness across multi-site operations. Scalability and integration with HRIS and EMR systems are critical to success.
This approach strikes a balance by leveraging VMS technology while also retaining administrative control internally. Here, a facility’s internal team uses a VMS directly, bypassing the need for an MSP and resulting in lower travel and per diem rates. The facility has the autonomy to select preferred agencies and collect VMS fees directly from sub-contracting agencies.
Agencies are accustomed to paying VMS fees ranging from 2-6%. Therefore, paying these fees to a hospital instead of an MSP doesn’t pose a significant disruption.
Although implementing this method requires an initial investment to tailor a program that aligns with each hospital’s needs, many opt for self-management with a VMS as it allows them to divert the 2-6% of every dollar spent on contract labor previously retained by the MSP. This newfound budget flexibility empowers hospitals to finance additional staffing initiatives, such as establishing a float pool or even “nice to haves” that were never in their financial grasp.
Self-Managed (No VMS, No MSP)
Kudos to you if you’re managing contract labor in-house without relying on a VMS or MSP. In the early days of contract labor, this was the norm; hospitals directly engaged with vendor agencies. You likely have a dedicated internal team wrangling spreadsheets, tackling processes manually and juggling agency contracts, each with their own negotiated rates & rules.
While this approach may initially save on upfront costs, it’s challenging to scale and can lead to duplicate work and potential errors. However, it does offer the advantage of lower rates for travelers and per diem shifts, given the absence of the MSP markup.
Health Systems Benefit From Being Their Own MSP
15%
Reduction in vendor costs
20%
Improvement in credential compliance
25%
Reduction in time-to-fill temporary positions
How is the contract labor ordering process different between agency-owned and hospital-owned MSPs?
Agency Owned MSP (Outside Hospital)
The hospital places an order.
An external MSP distributes the order in line with their priorities, eventually taking a 5% cut of the order revenue.
Commissioned internal recruiters try to fill the order with their own nurses first even if it means hiring a traveler.
If they can't fill it with their own supply, they then wait for the highest bidder and eventually release the order to the rest of the agencies (many who may have local workers).
Hospital Controlled MSP
The hospital places an order.
The hospital controlled MSP releases the order to all parties simultaneously, and passes through 100% of the order revenue.
All agencies receive the order simultaneously and can bid, giving the hospital the best rate, fit, and time to fill without hidden fees.
By controlling the MSP, the hospital gains back the 5% in revenue lost to the external MSP, in addition to faster times to fill, better candidates, and lower rates.
Additional Frequently Asked Questions
Why did the MSP model take off?
Although MSPs offer benefits such as managing vendor relationships and contract negotiations, the VMS is arguably the primary selling point. The technology empowers MSPs to accomplish tasks efficiently, raising questions about why hospitals cannot adopt similar software solutions independently.
Why is vendor neutrality important for a MSP using a VMS?
We mentioned agency-owned MSPs, and they come into play when discussing vendor neutrality. So, what is vendor neutrality, sometimes referred to as being vendor agnostic? Glad you asked.
An agency-owned MSP may prioritize filling orders internally before considering external agencies in their network. This approach can potentially increase costs and time-to-fill.
Being vendor neutral, or vendor agnostic, means that no preference is given to any agency. In a vendor-neutral system, all agencies receive orders simultaneously, with equal opportunity to fill them. This fosters fair competition and ensures that the best candidates are selected based on merit rather than internal biases.
Sometimes, when an agency-owned MSP fills an order:
“They’re not going to send you the best people, they’re going to send you the people they want to send you” – Joe C.
How to choose a VMS when you're ready to build an internal MSP.
One acronym, one word. VMS Features. There are multiple VMS systems on the market today. Look for one that includes the following features. Request live demos of multiple options, starting with BlueSky , but look for these features with any vendor you’re planning to evaluate.
Credentialing.
A VMS typically has a user-friendly portal where nurses can upload their own credentials to a centralized repository that is automatically synced to the main database. These should be kept in accordance with your facility’s Joint Commission policies.
- Tip: Opt for a VMS that provides timely alerts to both you and the worker when credentials are nearing expiration, preventing non-compliance issues.
Scheduling.
A VMS typically has a user-friendly portal where nurses can upload their own credentials to a centralized repository that is automatically synced to the main database. These should be kept in accordance with your facility’s Joint Commission policies.
Vendor management.
Effectively manage agency relationships, contracts, and communications within a centralized database, promoting transparency and collaboration.
Automated Notifications.
Automated reminders for both facility staff and contract workers play a crucial role in maintaining compliance and facilitating efficient shift management.
Reporting.
A reputable VMS enables comprehensive tracking of contract labor expenses, providing accurate reporting and metrics to inform data-driven decision-making.
Mobile accessibility.
Workers on assignment shouldn’t be burdened with additional paperwork. Staff should be able to manage their own availability, clock in and out, submit timesheets and update credentials seamlessly from their mobile device.
- Tip: Look for mobile apps that offer geolocation features to ensure caregivers are within the facility perimeter before clocking in, enhancing accountability and compliance.
Highly integrated.
To be fully integrated, a VMS should seamlessly connect to your timekeeping, payroll, background screening and other vendors to create a single-source-of-truth for managing contract labor.
Invoicing and MSP Statement of Pay.
Accurate and automated invoice compilation to be send to your AP team as well as a statement of what you are going to pay the agencies, eliminating the hassle of bill reconciliation.
Submission Packages.
Look for a vendor that easily collects all required compliance documentation, that can easily be sent to hiring managers for review.
Proposals with rate bids.
Easily manage candidate proposals from vendor agencies, including the ability to underbid the target bill rate to the facility.
In conclusion...
Adopting a Vendor Management System (VMS) in healthcare offers numerous benefits for streamlining credential management, enhancing visibility and control over staffing operations, ensuring compliance with regulatory standards, and improving scheduling efficiency.
By leveraging the capabilities of a VMS, healthcare organizations can optimize their workforce management processes and focus on delivering high-quality patient care, while collecting a fee previously paid to an MSP.
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