Much still can be learned from the saga of the drug treatment center, where there were numerous red flags. Experts say one of the fastest-growing areas of health care fraud involves substance abuse testing and treatment.

Tessa had no doubt her test results were wrong. She had stopped drinking weeks before starting alcohol addiction treatment at Liberation Way, an outpatient center a few miles from her home in Newtown Township.

But every time Tessa was pulled out of therapy at the Yardley treatment center to give a urine sample, the results came back positive for alcohol byproducts.

Those tests ended up costing her $2,500 in insurance copays, something she said Liberation Way assured her wouldn't happen.

Then one day, a staff member took her into a room to explain that since she kept failing urine tests, she would be moved into an inpatient program at an affiliated sober living home.

Tessa had enough. She bolted out the back door and never looked back.

Nothing about the treatment she received made sense to her, Tessa said — until last month.

That's when criminal charges were filed against 11 people and nine businesses in Pennsylvania and New Jersey, following an 18-month grand jury investigation into Liberation Way. Prosecutors allege the for-profit drug and alcohol treatment business exploited people with addictions through ineffective treatment and unnecessary testing, and defrauded private insurers out of more than $100 million. On Friday, Life of Purpose, which absorbed Liberation Way's operations late last year, said it was preparing to close its treatment programs in Pennsylvania, New Jersey and Florida, after the private equity firm that owns it decided to cut loose its drug and alcohol treatment holdings.

“It all makes sense now,” said Tessa, who has been sober for a year. She asked that her last name not be used. “It was a scam.”

But red flags involving Liberation Way and its questionable practices appeared on the state radar long before the arrests late last month.

In the first two years it was open, the number of licensing violations at the Yardley center doubled from seven to 16, according to online records. Instead of penalizing the company for noncompliance, the Pennsylvania Department of Drug and Alcohol Programs, known as DDAP, allowed it to expand. The company also opened affiliated sober living homes in Pennsylvania, where such homes are unregulated, and in New Jersey, where they must be licensed as a boarding house. A state database there has no records of Liberation Way as a license holder.

Pennsylvania records show that after Liberation Way expanded operations, the total number of licensing violations nearly doubled from 50 to 93 between 2017 and 2018, state inspection records show. So did gross revenues, from nearly $11 million to $23 million, according to one company founder.

State records also show DDAP did not take formal action against licenses for Liberation Way until March 2018, months after it had forwarded concerns to the Pennsylvania Attorney General’s Office, which opened its investigation.

The company's ability to circumvent state and federal drug treatment regulations for so long without consequences did not surprise health care fraud experts.

The lingering opiate and opioid epidemic and emerging methamphetamine resurgence has created increased public demand for drug testing and treatment options. But the state agencies charged with licensing those programs often are working with limited resources and authority over licensed program providers, according to experts.



The situation has created a perfect storm for unscrupulous operators looking to cash in, they said.



“Drug treatment has always been an issue with fraud. It’s the nature of addiction treatment that it is challenging, from a regulations point of view,” said Lou Saccoccio, executive director of the National Health Care Anti-Fraud Association in Washington, D.C. “A lot of this is check-the-box kind of things. They have this number of counselors. They seem to have the required training. Here is our treatment plan. But it’s a piece of paper. Is anyone actually doing that? You almost have to have people on-site constantly to monitor.”

Violations road map

DDAP assumed drug and alcohol treatment licensing from the Pennsylvania Department of Health in 2012. Since then, the number of licenses it has issued jumped 45 percent, from 570 to 824. Thirty percent of that growth occurred between 2015 and last year, the same time frame in which Liberation Way operated, according to state data.

About a year after opening its Yardley outpatient center in 2015, Liberation Way added two Montgomery County locations and five more outpatient program licenses, including drug detoxification.

The first hint of problems surfaced during the first routine license renewal inspection at the Yardley house in February 2016. Inspectors found seven more patients enrolled than the center’s license allowed.

Eight months later, DDAP heard clients were being required to live in affiliated sober living homes in Montgomery County as part of their treatment, although the company was licensed only as an outpatient center.

In response to the citations, Liberation Way submitted plans to correct the violations. But it's unclear if DDAP consistently followed up to ensure compliance before subsequent inspections.

In November 2017, DDAP ordered Liberation Way to immediately stop “unauthorized and unpermitted” maintenance activities involving buprenorphine “out of concern for the safety of your patients” at its outpatient centers, records show. Buprenorphine, which includes Suboxone, is a narcotic used in the treatment of opiate disorders.

During an inspection the following month, however, Fort Washington staff provided DDAP with charts identified as current “maintenance” patients at the Yardley location, and couldn’t provide “accurate and updated” medication logs for their own location, according to records. DDAP cited 18 violations there, including one in which the center failed to notify DDAP and local law enforcement about a theft of methadone that occurred in July, four months after DDAP approved the outpatient detox program, records show.

Another three months passed before DDAP ordered the immediate closing of new admissions to the Fort Washington outpatient center, as detailed in a March 22, 2018, letter to now former Liberation Way CEO Jason Gerner and CFO Branden Coluccio. The agency also ordered the Fort Washington and Yardley centers to reduce the total number of patients from 20 to five and 105 to 25, respectively.

Gerner, of Shamong, New Jersey, and Coluccio, of Doylestown Township — who are among those charged in the insurance fraud investigation — were again told to immediately discontinue “use of any authorized treatment activities in each respective location to ensure client safety.”

“The actions of Liberation Way have violated state and federal regulations which compromised patients’ safety and confidentiality,” wrote Wenona Wake, a former manager of DDAP's Bureau of Quality Assurance for Prevention and Treatment.

But online inspection records show when DDAP returned to Fort Washington weeks later, it found staff were still providing Suboxone to clients, although its federal certification as an opioid treatment program had expired. The center also ignored directives to obtain state Department of Health licensing to perform urine and blood screening and testing at the center.

An April 2018 inspection also noted a “repeat citation” after the center failed to notify DDAP after three clients overdosed off-site using methadone stolen from the center, an incident that resulted in police presence there.

DDAP approved yet another plan of correction, which was virtually identical to one approved in December 2017, according to records.

Limited authority

While it is responsible for drug and alcohol program oversight, the only leverage DDAP has to force compliance with state regulations is the ability to reduce or pull licenses. But it’s a tool the agency rarely uses.

DDAP has never permanently revoked a license, nor does it track how often it issues more limited provisional licenses, according to spokeswoman Rachel Kostelac. The agency has no standards for when a provisional license is triggered, either; decisions are at the agency’s discretion, Kostelac said.

An estimated 10 to 20 provisional licenses are active at any given time during the year, Kostelac said. No Bucks or Montgomery county programs currently are operating on provisional licenses, according to a review of online inspections.

While the number of licenses has increased in recent years, the number of inspectors, known as “licensing specialists,” remains at 19, a roughly 1:43 ratio of inspectors to licenses.

Such limited authority is why some fraud experts are skeptical that states can provide effective monitoring of drug testing and treatment without necessary resources, enforcement triggers and progressive penalties. Unscrupulous operators know where regulatory weak spots exist and how to exploit them, experts said.

Meanwhile, government and the insurance industry have only recently started to compile data on the depth and breadth of scams, said James Quiggle, a spokesman for the Coalition Against Insurance Fraud.

The biggest areas of fraud in addiction treatment involve drug testing, sober living homes and outpatient services, which are often cross-owned and cross-managed, allowing for the “inbreeding of referrals,” Quiggle said.

“Policymakers need to wake up to the severity of the problem. More people, more corruption, creates more money and attracts more scammers,” he said. “Until fraud investigators wrap their arms around these crimes and enact resources that take out the legal rewards and insert unsustainable risk, the system cannot begin to clean itself up.”

State regulators also may be reluctant to limit or close programs at a time when the public is demanding greater access to drug and alcohol treatment, said Carla Jackie Sampson, associate director of health care management programs at Temple University’s Fox School of Business.

She added that the way the health care industry reimburses for services, based on numbers and volume instead of patient outcomes, encourages health care fraud, especially where there is weak regulatory checks and balances.

“We just are going to check a box that services were delivered and the money will flow,” Sampson said. “If they can continue to operate, if you have nothing that follows up, the money will just walk out the door and we won’t get it back.”

New start and ending



Two months after DDAP halted patient admissions at Fort Washington, it lifted the ban, but downgraded Liberation Way's full license to a provisional one.

Patient capacity was capped at eight for detox activities and 10 each for outpatient programs. No action was taken against licenses for Yardley or another center in Bala Cynwyd.

The orders were outlined in a June 8, 2018, letter to Andrew Rothermel, who replaced Gerner as CEO of Liberation Way the previous month. Before he took over at Liberation Way, Rothermel was CEO of Life of Purpose, which operates outpatient drug and alcohol treatment programs in New Jersey and Florida that specialize in treating young adults.

The decision to oust Gerner was made by Fulcrum Equity Partners, a private Atlanta firm that had purchased majority interest in Liberation Way in December 2017 for a reported $40 million.

Fulcrum has denied the company was aware of any of Liberation Way's questionable activities or practices before acquiring it, and has cooperated with state and federal fraud investigators.

In a recent phone interview, Rothermel said the management team at Liberation Way misled him about the seriousness of the violations. It wasn’t until he met with state regulators that he learned the extent of the issues and how little was done to fix them, he said.

The Fort Washington center had its full license and capacity reinstated in September, the same month Fulcrum Equity announced it was adding Life of Purpose to its substance abuse treatment holdings. In November, Fulcrum changed the name of the centers from Liberation Way to Life of Purpose.

But a new name and new licenses could not fix past damage.

Late Friday, Rothermel confirmed that Life of Purpose and its holding company, City Line Behavioral Health LLC, had closed new patient admissions. He said they will begin shuttering their Pennsylvania, Florida and New Jersey outpatient programs, a loss of 120 treatment slots. Employees learned of the pending closure in an email Friday.

The "size and scope" of the alleged fraud and the legal uncertainty involving the criminal charges led Fulcrum Equity to decide that it is not a good business decision to invest in drug and alcohol treatment program and it is removing those companies from its holdings, Rothermel said.

Center employees will now focus on finding new placements for patients and ensure continuity of care, before surrendering its licenses to DDAP, Rothermel said.

Future plans remain uncertain, including whether the company will consider filing for bankruptcy protection and reorganize, Rothermel said.

One thing he was certain about was the continued need for accessible and affordable drug treatment.

"Very proud of the work this team was doing," he said.

Staff writer Marion Callahan contributed to this report.