I’m running a group of three PCs through White Plume Mountain and Sir Bluto captured them by knocking the barbarian to 0 HP and holding his sword to his throat and ordering the rest to surrender. He took them to Keraptis’s indoctrination center that I made up on the fly and I ended the session with the PCs partly disarmed and Keraptis behind a Wall of Force bullying them into guarding the mountain for him. 

I’m trying to figure out what to do next. I’m thinking that “Keraptis” is really a Simulacrum because he’s a smart Archmage and he didn’t get to be hundreds of years old by being reckless or careless. Plus that way the PCs have a chance of defeating him in combat if they’re careful. 

Any thoughts or suggestions please? I don’t want to TPK, and I also don’t want to wave my hand and let them escape.

Thanks in advance. 

That's not a bad idea. Semi-officially he split himself into parts kind of like horcruxes. He made clones of himself with copies of his personality so that he could figure out eternal life.

How do you plan to keep the party hostage? What is keeping the party from running away?

If another party shows up, do your PCs defeat them so now that replacements are available, they can go free? Or do they team up with them against Keraptis and the dungeon? Do they get defeated and get transported to a "waiting room" with other guards to be put out when needed?

The module actually covers this scenario :)

"If, for some foolish reason, the party decides to comply with Keraptis's request and go with Nix and Nox to the Indoctrination Center, you will have to play it by ear. It's not too difficult-use your imagination and make it up as you go. Just make sure that the characters are extremely sorry they ever decided to submit to Keraptis's demands. They probably will end up as the brainwashed new guards in Keraptis's renewed version of White Plume Mountain's dungeon."

So, do you want them to become brainwashed new guards? :)

Other than that, why would Sir Bluto spare the barbarian after everyone else so kindly surrendered? 

"One of the most remote locations inside White Plume Mountain is the hideout of a band of criminals led by the fallen champion Sir Bluto, an alleged mass murderer and a fugitive. Sir Bluto and his companions will do everything in their power to ensure that anyone who happens upon their sanctum doesn't live to tell of it."

Anyway, now that they are stuck, if you decide to give them a chance to escape, it should be very challenging. Keraptis' indoctrination center shouldn't be easy to escape and perhaps you should put some semi-permanent consequences like a curse in place.

I would probably have a multistage process. Kerpatis uses magic to brainwash and indoctrinate the characters. They are forced to do manual labour to repair the complex in work gangs while being indoctrinated. Keraptis would never depend on what he says to force the characters to obey. He would use a combination of magic herbs and various domination spells to create new patterns of thought. Days or weeks could go by. Perhaps one or more of the party finds that they aren't as affected (roll saves individually and privately giving them a hint that the wine and food they are given have a funny taste but the water from the trough seems ok). They have to start drinking trough water and eating something other than the food provided and their mind clears a bit. Whichever characters these are might be able to start helping to free the minds of their companions by encouraging them to not drink the wine or eat the food. They still need to pass a save against the weekly indoctrination spell and fake their way through any loyalty tests. Weeks should pass and this should not be a pleasant experience.  They can scout, locate where their gear is stored, make some sort of plan and escape the indoctrination center. Perhaps, try and leave them with the knowledge that surrendering in this situation was not a good idea. In particular, you may want them to realize that they have just escaped from a fate that would have been worse than dying.

P.S. The main issue with this is that it could extend the module by at least a session or two as you play it out.

Thank you for the suggestions.  Fortunately I have another week before our next session.  I want to make it challenging for them and not kill them all.  If I wouldn't have had Sir Bluto demand that they surrender he would have killed the other two and it would have been a TPK.

This is going to lead to a grand finale encounter to end a campaign that started in Saltmarsh at first level with the PCs retiring.   So I have to put in some work to keep from killing them off.  Sadly the party goofed, they have/had all 3 of the legendary weapons and they're only using one of them, and they didn't even identify it until they had captured all three of them!