Has anyone used this? Since there are no enemy boarding actions, the only time I've ever lost crew members is to the "Emergency Shield Recharge" action on the Fleet Actions screen. Anybody have any reasons to choose this?

As of now, that is the only event wherein this upgrade comes into play repeatedly. Several Explore Planet events, a plague and a storm, can kill crew as well, so I would assume that it helps there too, but yeah, a fairly useless upgrade, all things considered.

This upgrade comes from the time (Smugglers 4) where you didn´t needed boarding shuttles to board ships. Since Smugglers 5 you need boarding shuttles OR ALTERNATIVELY pirate crew members. This means the ship hospital can be used to heal crew members after boarding a ship with pirates. You can hire pirates on pirate hideouts / space stations.

In the next update the ship hospitals will be able to save a lot more crewmen. At this point they seem to heal too few.