The FBI got help from the inside in its investigation that led to the indictment of the Erie-based Hertel & Brown Physical & Aquatic Therapy.
A former employee and a current employee were among the four people whose information prompted the FBI to open and expand its probe in the $22 million health care fraud case, according to newly unsealed search warrants. The warrants also show that the FBI used an undercover agent as part of the investigation.
The four people, unnamed in the warrants but identified as cooperating witnesses, or CWs, provided information that supported allegations that Hertel & Brown routinely overbilled Medicare, Medicaid and private insurers over 14 years, according to the warrants. One of the core claims, according to the search warrants and the indictment, is that Hertel & Brown billed the insurers for services as if they were performed by licensed physical therapists when they were actually performed by unlicensed technicians or aides. The FBI alleges that fraud started in January 2007, shortly after Hertel & Brown's founding, and lasted until this past October.
A driving force for the scheme, according to allegations in the warrants, was for Hertel & Brown and its founders and co-owners, Michael R. Brown and Aaron W. Hertel, to make more money. The profit margins, according to the warrants, were higher if the practice billed insurers for the work of licensed therapist making $60,000 a year when the work was really done by an unlicensed technician making half that amount.
"A physical therapist's salary is significantly higher than an aide's or technician's salary," according to the affidavits of probable cause attached to the search warrants. "Thus, there is a significant profit motive for a physical therapy practice to utilize physical therapy aides or technicians to perform the work legally reserved for only physical therapists and then bill that work as if a physical therapist performed it. In doing so, a physical therapy practice illegally reaps the higher bills of a physical therapist while saving money paying an aide or technician."
The search warrants and their affidavits were unsealed in U.S. District Court in Erie on Friday. The affidavits are nearly identical, though one is 51 pages and the other is 41 pages.
The FBI used the warrants to seize records from Hertel & Brown's five offices on Feb. 23, and, on that same day, to seize electronic records associated with Hertel & Brown's treatment documentation system, called WebPT.
The five offices searched are in the West Erie Plaza, in Millcreek Township, which is the main office; 8270 Peach St., Summit Township; 4472 Buffalo Road, Harborcreek Township; 3911 Avonia Road, Fairview; and 2 Farm Colony Drive, Warren. The Warren office closed in May, according to the indictment. Hertel & Brown remains in operation at the other locations, according to its website.
With the seized records as part of the probe, a grand jury issued the indictment on Nov. 9, charging Hertel & Brown, Hertel and Brown as individuals and 18 employees. All the defendants are accused of the felonies of health care fraud and conspiracy to commit wire fraud and health care fraud.
None of the defendants was taken into custody, and all have been ordered by summons to appear for their arraignments in federal court in Erie starting on Nov. 30. The defendants have also started to retain lawyers, according to court records. The lawyer for Aaron Hertel, Charbel Latouf, has said his client maintains his innocence and will fight the charges.
With 21 defendants and what the FBI alleges is a loss to insurers of at least $22 million, the Hertel & Brown case represents one of the largest white-collar crime cases prosecuted in U.S. District Court in Erie. Assistant U.S. Attorney Christian Trabold, the lead federal prosecutor in Erie, is handling the case. His opponents will include as many as 21 defense lawyers. The case is assigned to U.S. District Judge Susan Paradise Baxter.
The four cooperating witnesses
An investigation of Hertel & Brown's billing practices first started in April 2016, when a complaint was lodged with the Office of the Inspector General of the U.S. Department of Health and Human Services, according to the affidavits attached to the search warrants. The affidavits state that the Office of the Inspector General closed the investigation of Hertel & Brown, or HB, "due to a lack of evidence."
The FBI received a tip about Hertel & Brown's billing practices in 2020, and in November 2020, the FBI opened the investigation. At least in the initial stages, the probe came to rely on the four cooperating witnesses: CW1, CW2, CW3 and CW4. According to the affidavits for the search warrants:
CW1 is a person who had worked for Hertel & Brown as a non-licensed employee or an aide. The FBI opened its investigation in November 2020 "after CW1 came forward with allegations that HB, Aaron Hertel and Michael Brown had engaged in a pattern and practice of filing false claims for payment" related to the physical therapy practice.
CW2 was contacted by the FBI agent handling the case, Michael Thoreson. That cooperating witness, according to the affidavits, did not work for Hertel & Brown but is a licensed physical therapist who agreed to provide Thoreson with information about the physical therapy business, including billing practices and legal regulations. CW2 was not connected to the fraud scheme.
CW3 was working as a licensed physical therapist at Hertel & Brown when the FBI wrote the search warrants in February. Thoreson in the affidavits wrote that he interviewed CW3 twice in January, and that, after the first interview, the person retained a lawyer and the U.S. Attorney's Office reached a deal with that person.
CW4 was a patient at Hertel & Brown. Thoreson interviewed that person on Feb. 11, about two weeks before the FBI served the search warrants.
The undercover FBI agent visited Hertel & Brown's main office, in the West Erie Plaza in Millcreek Township, on Feb. 11. The agent posed as a potential patient and asked for a tour of the facilities. The observations helped the FBI gauge how many employees worked in that office, and the observations helped corroborate the information from CW3 and CW4, according to the affidavits.
Information from inside and out
Each of the four confidential informants provided information and insights that Thoreson used to support that the FBI had enough probable cause for the search warrants, which a federal magistrate judge signed.
CW2 acted as a kind of guide for Thoreson, as that person explained how physical therapy is supposed to be billed.
CW1, the unlicensed aide and former Hertel & Brown employee, explained to Thoreson how that person also worked at another physical therapy practice, and how that practice had a rule against unlicensed employees providing physical therapy.
CW1 told Thoreson, according to the affidavits, "that this was the opposite of the training and guidance provided by HB. While at HB, CW1 was authorized by HB to, and in fact did, provide physical therapy to patients. Despite working at HB as an unlicensed aide, CW1's physical therapy treatment of patients was billed by HB as if CW1 was a licensed physical therapist."
CW4 gave Thoreson a patient's perspective. That person explained the type of treatment the person had received at Hertel & Brown's Harborcreek office. Thoreson wrote that an examination of the bills that Hertel & Brown submitted for the patient's treatment pointed to overbilling, based on the amount of treatment CW4 said employees had performed.
"CW4," according to the affidavits, "described the Harborcreek location as very busy, pushing through patients, with an emphasis on making money through volume."
The other cooperating witness, CW3, provided the information as a person who still worked at Hertel & Brown as a licensed therapist when the FBI interviewed that person. That person, according to the affidavits, linked Hertel and Brown to what the FBI alleges was the fraudulent behavior.
According to the affidavit: "CW3 indicated that not every HB person is treated by an unlicensed aide. However, according to CW3, it is common for unlicensed aides to be providing treatment at HB. CW3 was trained that it is acceptable for aides to engage in treatment activity. CW3 also indicated that Aaron Hertel and Michael Brown are fully aware that unlicensed aides are engaged in treating patients at HB."
Minutes and money
Running throughout the affidavits is the allegation that Hertel & Brown engaged in fraud to make more money.
The affidavits state that, in 2019, Aaron Hertel earned $318,454 and Michael Brown earned $341,139. "In the hundreds of white-collar investigations your affiant has investigated or been part of," Thoreson wrote in the affidavits, "your affiant does not recall ever investigating or charging a business owner who drew a small salary."
While the FBI alleges that Hertel & Brown made money by billing for work that licensed physical therapists did not perform, the FBI also alleges that the practice overbilled for the amount of time actually spent with patients. The indictment charges Hertel & Brown and its licensed employees regularly recorded and billed for treatment time in excess of the accurate amount of treatment time spent with patients.
The affidavits offer examples of what the FBI says was Hertel & Brown billing for excessive hours. The affidavits also state: "Total minutes with patients are directly proportional to revenue. Total minutes of treatment are one of the most critical avenues of income for a physical therapy practice. Treatment minutes can make or break a physical therapy practice."
The fraud the FBI alleges occurred at Hertel & Brown had more than a financial aspect, according to the affidavits. Patients who went to the practice expecting to pay for the care of licensed physical therapists were shortchanged, according to the affidavits.
"When patients and health insurance providers pay for services rendered by a physical therapist, they expect a highly trained licensed professional who has undergone four years of college, plus another three years of specialized training," Thoreson wrote. "Licensed professionals are regulated in every facet of society, and for good measure."