Navigating the Minefield of Insuring Healthcare Staffing Agencies

As labor shortages continue to plague the healthcare industry, providers are increasingly relying on staffing agencies to fill the gaps. How does this strategy impact liability? Obtaining the right coverage for a healthcare staffing agency can be more complicated than meets the eye.

The Healthcare Worker Shortage

The skilled labor shortage in the U.S. healthcare sector is a persistent issue. While the pandemic exacerbated the problem, the shortage has been a concern for years. Factors such as burnout, retirements, and declining interest in the field contribute to this ongoing crisis. Despite these challenges, a long-term solution remains elusive.

In response, healthcare providers—including hospitals, nursing homes, and correctional facilities—have turned to healthcare staffing agencies to alleviate acute staffing shortages. This strategy is not without its complications. While some use of third-party agencies is expected, an over-reliance on them can create significant liabilities and make securing insurance coverage an uphill battle.

The Complex Dynamics of Liability

In 2023, the largest healthcare staffing firms generated $61.7 billion in revenue. However, insuring these agencies is complex due to the business dynamics involved. In the healthcare industry, a claim can involve multiple co-defendants, including physicians, nurses, anesthesiologists, and staffing agency employees. If a healthcare personnel member named in a claim is part of a staffing agency, the healthcare facility may attempt to shift blame to the staffing company, often resulting in the agency assuming a disproportionate share of the liability.

Additionally, the involvement of multiple providers, each covered under separate policies, treating the same patient complicates liability assessment. Furthermore, some agencies subcontract smaller staffing agencies to fulfill larger contracts, further muddying the waters.

Achieving Adequate Protection

Insuring healthcare staffing agencies involves navigating a wide array of coverages, including general liability, medical professional liability, and hired/non-owned auto. Separate abuse coverages may also be necessary due to documented abuse cases. Excess and umbrella coverage are often required, as larger providers seek to shift as much liability as possible to the staffing agency. Many hospitals also require staffing agencies to maintain certain coverage limits as a condition of their agreements. The recent rollback in standard market capacities has made fulfilling these requirements more expensive.

Moreover, few carriers are willing to provide necessary endorsements like Primary and Noncontributory, Waiver of Subrogation, or Separation of Insured on professional and general liability policies, which many contracts demand.

Choosing the Right Carrier

Selecting the optimal carrier for healthcare staffing agencies is another challenge. The market for insuring these agencies is small, with few carriers finding it profitable. New entrants often lack the expertise to navigate the risks involved, offering more affordable coverage with fewer exclusions initially, but this often leads to temporary market disruption. Consequently, prices are rising, and underwriters demand more detailed submissions while deploying numerous exclusions, especially for high-risk areas like correctional facilities and labor and delivery.

Staffing agencies operating primarily in senior care face additional challenges. Temporary staff members are more likely to make mistakes leading to lawsuits due to unfamiliarity with facility-specific protocols. Agencies working with physicians also need higher limits, as physicians are held to a higher standard of care. Many retailers inadvertently expose their clients to significant risks by not understanding these nuances.

Hostile Legal Environment

The legal landscape further complicates this marketplace. Premiums can double simply due to a staffing agency’s location. Regions labeled “judicial hellholes” by the American Tort Reform Foundation (ATRF), such as New York City, California, and Georgia, see more nuclear verdicts exceeding $10 million and litigation tourism that allows lawsuits against out-of-state defendants.

A long-term study of nuclear verdicts from 2010-2019 revealed a 27.5% increase in the median nuclear verdict. States like Florida, California, Texas, New York, Illinois, and Pennsylvania account for 63% of these verdicts despite their population percentages. Courts are increasingly draconian in their treatment of corporate defendants, with evolving societal attitudes favoring plaintiffs. The trend of massive verdicts is expected to continue, particularly in healthcare lawsuits, which tend to generate some of the largest awards.

The Bottom Line

The healthcare industry continues to grapple with staffing shortages, making operations challenging. Reliance on third-party staffing agencies helps but complicates coverage. Insuring these agencies has proven unprofitable in recent years, and the trend toward increased litigation makes navigating this market alone risky. Hostile courts, complex contract terms, and difficult renewal processes present numerous pitfalls that can have devastating consequences, including bankruptcy.

DOXA’s Expertise

Partnering with a dedicated healthcare broker like DOXA, equipped to guide you through every step of the process, is crucial for securing the right coverage for healthcare staffing agencies. DOXA is one of the few wholesale brokerages with a dedicated healthcare team that handles this business daily. Leveraging our experience is one of the smartest decisions a retailer can make when placing coverage for healthcare staffing agencies. Reach out to DOXA today to learn how we can help.