New Requirements and Limitations for Iowa Health Care Employment Agencies

In Iowa, House File 2521 was enacted and went into effect on July 1, 2022.  This law places requirements and limitations on health care employment agencies doing business in the state of Iowa.  This follows an emerging trend across the country with states introducing legislation that is intended to regulate staffing agencies—especially in the wake of health care staffing shortages arising out of the COVID-19 pandemic.

This new law (Iowa Code § 135Q.2) shifts compliance and record-keeping requirements from health care entities onto the health care employment agency and prohibits certain contract provisions that some view as anti-competitive.  To that end, Iowa Code § 135Q.2 undoubtedly tips the staffing balance in favor of health care entities. 

Who Is Covered?

Iowa Code § 135Q.2 defines “health care employment agencies” and “health care entities” broadly, pulling nearly all health care staffing agencies into the ambit of the legislation.

• “Health care employment agencies” is defined as any agency that “contracts with a health care entity in this state to provide agency workers for temporary, temporary-to-hire, direct hire, or other contract or employee placements.”
• “Health care entity” means a “licensed or certified facility, organization, or agency operated to provide services and supports to meet the health or personal care needs of consumers.”

What Is Required?

Iowa health care employment agencies must now:

• Annually register with the Iowa Department of Inspections and Appeals (IDIA) and, if approved, pay a $500 annual registration fee.
• Ensure agency workers meet and comply with all applicable health requirements and qualifications.
• The agency must document that each agency worker meets minimum licensing, certification, training, health requirements, and continuing education standards required for that agency worker’s health care position.
• Notably, an agency that knowingly provides services through an agency worker who obtained or received a diploma, registration, license, certification, or background check illegally or fraudulently is subject to immediate revocation of registration.
• Maintain records for each agency worker and report, file, or otherwise provide the required documentation to external parties or regulators that would otherwise be the responsibility of the health care entity if the agency workers were employed by the health care entity.
• Maintain professional and general liability insurance coverage with minimums of $1,000,000 per occurrence coverage and aggregate coverage of $3,000,000 to insure against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence or malpractice in the provision of services by the agency or agency worker.
• Submit quarterly reports to IDIA for each health care entity participating in Medicare or Medicaid with which the agency contracts. Reports must contain the following information, by provider type: (1) a detailed list of the average amount charged to the health care entity for each individual agency worker category; and (2) a detailed list of the average amount paid by the agency to agency workers in each individual agency worker category.

An agency in violation of any of the above requirements could have its registration denied or revoked for a 1-year period and could be subject to a $500 monetary penalty for a first time offense.  Any subsequent offenses will result in a $5,000 per offense penalty.

What Is Prohibited?

Turning to the law’s prohibitions, health care employment agencies are prohibited from:

• Restricting in any manner the employment opportunities of an agency worker by including a non-compete clause in any contract with an agency worker or health care entity. This means generally that non-competes in employment agreements between the agency and the worker are not allowed.  Likewise, such provisions should not be included in agreements between health care entities and agencies.
• Requiring payment of liquidated damages, employment fees, or other compensation if the agency worker is subsequently hired as a permanent employee of the health care entity—commonly referred to as a “finder’s fee” provision. Presumably this also includes non-solicitation clauses.

Importantly, the law states that any contract containing such a prohibited clause is unenforceable in court.

Notably, the law contains a provision that reaches agreements entered into on, or after, January 1, 2019 on a retroactive basis.  As a result, health care entities and agencies should review current agreements that were entered into on or after January 1, 2019 to ensure compliance with the new law. 

What Now?

While additional questions and challenges to these new requirements are sure to arise, moving towards compliance should be a priority—especially given the enforceability provision.  The plain language of the statute indicates that any agreement that violates the new law is invalidated in its entirety. It is unclear, at this time, whether such violations would, in fact, void the entire agreement if the agreement contains a Severability Clause.  Generally, a Severability Clause (or Savings Clause) states, if one part of the agreement is illegal or unenforceable, then that part will be struck from the agreement, but the remainder will remain valid and enforceable.  Additional guidance from IDIA will be needed to determine how the new law interacts with an agreement containing a Severability Clause.

The IDIA is expected to provide administrative rules interpreting the law’s provisions, including establishing a deadline for when existing agencies will need to come into compliance with the new requirements. 

In the meantime, employment agencies and health care entities alike should be proactive in compliance efforts and watch for the release of rules and guidance relating to the new law.  Baird Holm attorneys will be monitoring for updates.