By Stephanie Lai
Hong Kong, 10 June 2021: Under the Employees’ Compensation Ordinance, Cap.285 (“ECO”) in Hong Kong, it is mandatory for employers to take out insurance (commonly referred to as “EC Insurance”) and provide compensation for employees who sustain work injuries or death, regardless of whether employees have committed acts of faults or negligence in the workplace.
All employees must be covered with no exception for part-time workers, seasonal workers, employed family members, apprentices, contract employees or part-time local domestic helpers.
While this no-fault EC system serves as a safety net to provide for assistance to injured employees, typically through payment for medical expenses, periodical payment of wages, other compensation benefits and rehabilitation facilitation, there has been rising concern about fraudulent claims. These may involve prolonged sick leave and treatment, false claims and champerty perpetrated by third parties such as medical and legal providers, recovery agents and even employers who conspire with employees to falsify a claim to lower premium payments.
The current EC legal regime in Hong Kong was reviewed in a recent Information Note published by the Research Office of the Legislative Council Secretariat. Concerns have grown over whether the existing anti-fraud measures can tackle the evolving EC fraud trends owing to the following shortfalls:
- The Labour Department is not empowered to take further actions in adjudicating any EC disputes, which often leads to lengthy and costly litigation procedures to resolve disputes.
- Unlike some overseas jurisdictions, there is neither an insurance law nor specific provisions that expressly define and address EC fraud, which limits prosecutions in insurance fraud.
- The lack of remediation provisions for employers to recover overpayment of compensation obtained through fraud and other dishonest means.
- Medical treatment decisions and sick leave certificates issued by doctors are often based on the subjective complaints of the injured workers, which raises concerns of malingering and exaggeration of injuries by the worker.
- The current regime centres on financial compensation rather than workplace rehabilitation to practically help speed up recovery and thus prevent litigation and abuse of EC compensation.
The Information Note further examines anti-fraud efforts conducted in overseas jurisdictions, namely California in the US and New South Wales in Australia. Some selected features are highlighted below:
- Implementation of a dedicated statute pertaining to EC fraud, targeting not just workers but also stakeholders, including medical and legal providers, employers and claims administrators, punishable by imprisonment for 1-5 years and a fine of up to HK$1.2 million.
- The Insurance Code provides for remediation of EC fraud on the recovery of overpayments and restitution of any medical treatment services arising from fraudulent claims.
- Safeguards on the independence of medical opinion by introducing a utilization standard for medical providers for the treatment and evaluation of injured workers under the EC system, guided by objective medical guidelines on what should be considered as reasonable and necessary treatment for the work injury.
- To determine whether the proposed treatment requested for the injured worker is medically necessary, the injured worker goes through a “Utilization Review” (“UR”) process, which is designed to validate the necessity, duration and efficiency of medical services/treatment requested by the treating physician; hence, reducing the risk of unnecessary and protracted treatments.
New South Wales
- Establishment of the State Insurance Regulatory Authority (“SIRA”), a one-stop agency for investigating and handling reports of EC fraud. SIRA is also empowered to issue an order for refund of overpayments (whether or not the person has been convicted for fraud) arising from fraudulent claims.
- The Workers Compensation Commission (“WCC”) acts as a tribunal dedicated in dealing with EC disputes, including entitlements to weekly compensation and medical payments. The WCC can also determine on issues of whether an injury has occurred, the necessity of medical treatment and amount of compensation. EC disputes lodged with the WCC may also be resolved through informal and formal conciliations conducted by an arbitrator, decision of which becomes legally binding.
- Return-to-work (“RTW”) programmes to assist injured workers to make a quick and safe transition back to the workplace. RTW coordinators liaise with employers and medical providers to assist with the recovery of injured workers by providing suitable work options and identifying appropriate modifications for proper reintegration.
EC fraud claims affect not only the business viability of insurers but also negatively affect policyholders who end up paying higher insurance premiums. Fraudulent claims with prolonged sick leave and over-treatment have implications on public healthcare and the judicial system. Notably, claims are often pursued using public legal aid funding.
Hong Kong has remained largely passive in tackling fraudulent EC claims/doubtful cases, particularly in the enactment of targeted laws against evolving EC fraud claims. To that end, approaches adapted in California and New South Wales in their legal framework, such as enforcement, non-judicial dispute resolution and other prevention strategies, are of great reference value to Hong Kong in combatting EC fraud.
Stephanie Lai has been an Associate with BC&C since 2017. She focuses primarily on Insurance & Personal Injury work but has experience across a broad spectrum of practice areas including commercial matters, employment, criminal law, debt recovery and wills and probate. She can be contacted at StephanieLai@boasecohencollins.com.