The developments in the Hertel & Brown Physical and Aquatic Therapy fraud case will greatly affect the healthcare industry. This case highlights the consequences of non-compliance and unethical billing practices. It is essential to analyze the key takeaways from this case and examine the broader implications for outpatient therapy clinics.

The Hertel & Brown Case

Hertel & Brown Physical and Aquatic Therapy is an outpatient therapy provider in Erie County, Pennsylvania. A federal grand jury indicted twenty individuals on conspiracy charges related to wire fraud and healthcare fraud. This group was involved in fraudulent billing practices for 14 years, allegedly systematically overbilling Medicare, Medicaid, and private insurers using the highest-paying billing codes. Additionally, it was identified that unlicensed employees delivered therapy services while the clinic billed as if licensed therapists had performed the treatments.

Recently, the clinic’s Compliance Officer pleaded guilty to conspiracy to commit wire fraud and healthcare fraud. The compliance officer was responsible for ensuring that the clinic adhered to all relevant laws and regulations. In her plea, she provided evidence implicating the two business owners, Aaron W. Hertel and Michael R. Brown, who signed off on the fraud. This improper billing resulted in approximately $22 million in overbilling—fraudulent charges for services never provided and billing for more treatment time than could realistically happen in a single workday.

The prosecution also highlighted 21 “impossible days,” instances where the clinic billed for more hours than employees could have physically worked. These “impossible days” were discovered, showing that the total hours billed on several occasions greatly exceeded the clinic’s actual operational hours. According to the indictment regarding the “impossible days,” “treatment time that was more than the entire treatment time that employees working at the specific location of Hertel & Brown on that date could have billed, even if the employees billed every minute the location was open without any reductions in billing times for breaks, paperwork completion and other similar non-treatment times.”

Currently, 14 defendants have reached plea deals (12 had pleaded guilty to a felony count of conspiracy to commit wire fraud and health care fraud), admitting to various fraudulent billing practices. These include inflating treatment times and using unlicensed employees to perform services. Some defendants acknowledged that they routinely submitted inflated claims, with physical therapists often billing for more hours than they could work in a single day. The remaining defendants are set to face trial, with jury selection beginning on March 3, 2025. The government has argued that evidence from the guilty pleas further strengthens the case, as those who have admitted guilt are expected to testify against their co-defendants.

Key Takeaways from the Hertel & Brown Case

  • Failure of Compliance Leadership: The compliance officer, who should have enforced ethical practices, instead participated in fraud. This shows the importance of compliance roles to be independent and held accountable.
  • Intentional Overbilling Practices: Employees were directed to use the most expensive billing codes, regardless of the services provided, and the therapists complied. The owners reportedly encouraged this practice.
  • Illegal Use of Unlicensed Employees: Unlicensed employees performed therapy services, but the clinic billed them as if licensed therapists had provided the care—an outright violation of healthcare regulations.
  • Evidence of “Impossible Days”: Prosecutors presented proof that Hertel & Brown billed insurers for more hours than possible in a workday. The fraudulent practice inflated revenue but ultimately led to federal charges and plea deals from many employees.
  • Broader Impact on Insurance Providers: Fraud affected not only government programs like Medicare and Medicaid but also private insurers. This case will likely lead to stricter oversight and audits across the industry for all payers.

Implications for Outpatient Therapy Clinics

The magnitude of this case acts as a wake-up call for outpatient therapy clinics everywhere. It emphasizes the importance of ethical billing and compliance measures to avoid legal and financial issues. Below are some potential impacts:

  • Expect More Audits and Compliance Reviews: Both government and private insurers will likely increase their review of billing and compliance practices.
  • Revaluation of Staffing Models and Licensing Policies: Many outpatient therapy clinics rely on support staff to improve efficiency. However, as seen in this case, using unlicensed employees for therapy services has resulted in legal and financial consequences. Clinics must reassess their staffing structures to ensure compliance with licensing regulations.
  • Changes in Scheduling and Billing Practices: Accurate billing is essential for maintaining integrity and avoiding potential legal issues. Outpatient therapy clinics should ensure that billed services align with the services provided. This is a commitment to transparency.  

Best Practices for Outpatient Therapy Clinics

Therapy clinics must take proactive steps to maintain compliance and prevent similar issues. Here are some best practices:

  • Engage an Independent Compliance Consulting Firm: Regular audits by an independent consulting firm can help identify potential risks before they become significant issues. Consultants can provide unbiased assessments of billing, documentation, and compliance practices.
  • Enhance Internal Compliance Programs: Outpatient therapy clinics should designate dedicated compliance officer(s) with the training, experience, and authority to enforce regulations and ethical practices without interference or pressure from ownership. Continuous training programs should be implemented, focusing on appropriate billing, ethical services, and documentation practices.
  • Transparency in Billing and Documentation: Implementing electronic health records (EHR) with real-time monitoring enables healthcare providers to ensure that billed services appropriately reflect patient service delivery, thereby minimizing discrepancies. Accurate documentation is not just a regulatory requirement; it is a commitment to honesty and integrity that helps prevent fraud and ensures compliance with regulations.
  • Employee Education and Training: Train all employees, including management, therapists, and administrative staff, on ethical billing and patient care standards. Accountability is vital for the integrity of the clinic and the quality of patient care.
  • Encourage Employee Communication: Employees should have a safe and anonymous way to report unethical practices. Educating employees about the company’s whistleblower policy ensures that fraudulent concerns are raised before they lead to legal issues.

The Hertel & Brown case serves as a lesson for the healthcare industry. While maximizing revenue is essential for any business, cutting ethical corners can have devastating consequences. Fraudulent billing may bring short-term financial gains, but the long-term damage—including legal consequences, damage to reputation, and loss of business—is far worse. To safeguard the future of outpatient therapy, clinics must take proactive steps to ensure compliance, transparency, and ethical practices to protect businesses and ensure quality patient care.

LW Consulting, Inc. (LWCI) offers a comprehensive range of services that can assist your organization in maintaining compliance, identifying trends, providing education and training,  or conducting documentation and coding audits. For more information, contact LWCI to connect with one of our experts!