Contract analysis

I. EXECUTIVE SUMMARY This memorandum summarizes the principal healthcare regulatory compliance findings arising from our ongoing due diligence review of Lakewood Regional Health Partners, LLC ("Lakewood" or "LRHP") in connection with the proposed acquisition of substantially all of Lakewood's assets by Crestline Packaging Solutions LLC ("Crestline" or "CPS"). The proposed transaction contemplates a total purchase pri

II. MEDICARE AND MEDICAID ENROLLMENT A. Current Enrollment Status — CMS Certification Numbers Lakewood maintains active Medicare enrollment for each of its eleven clinic facilities. We have verified the enrollment status of each facility through the CMS Provider Enrollment, Chain, and Ownership System (PECOS) and through review of enrollment documentation maintained in the data room. The following table sets forth th

III. STARK LAW AND ANTI-KICKBACK STATUTE COMPLIANCE A. Overview of Applicable Law The Stark Law, codified at 42 U.S.C. § 1395nn, generally prohibits a physician from making referrals for certain "designated health services" ("DHS") payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, unless the arrangement satisfies one of the statute's enumerated exc

1. Equity-Based Compensation of Dr. Alcott and Dr. Petrosian. Upon closing of the asset acquisition, the equity interests held by Dr. Alcott and Dr. Petrosian in Lakewood will be extinguished, and both physicians will receive their respective portions of the purchase price consideration. Post-closing, both physicians have agreed to provide consulting and transitional services to Crestline pursuant to individual consu

2. Independent Contractor Physician Agreements. As noted above, approximately seven physicians are currently engaged under independent contractor agreements, at least three of which have expired and are operating without current written agreements. All of these arrangements must be either converted to Crestline employment agreements or restructured under new independent contractor agreements that fully comply with th

3. Medical Directorship and Administrative Services Agreements. The three existing medical directorship and administrative services agreements must be reviewed for compliance with the AKS personal services and management contracts safe harbor. As noted above, we have identified potential concerns regarding whether the compensation under these arrangements reflects fair market value for the services actually rendered.

IV. HIPAA AND HITECH ACT COMPLIANCE A. Covered Entity Status Lakewood qualifies as a "covered entity" under HIPAA, specifically as a "health care provider" that conducts certain standard electronic transactions, including the electronic submission of claims for payment to Medicare, Medicaid, and commercial health plans. 45 C.F.R. § 160.103. As a covered entity, Lakewood is subject to the HIPAA Privacy Rule (45 C.F.R.

V. NEW YORK STATE LICENSURE — ARTICLE 28 DIAGNOSTIC AND TREATMENT CENTER LICENSES A. Current License Status Lakewood operates eight outpatient clinic facilities in the State of New York under Diagnostic and Treatment Center ("D&TC") operating certificates issued by the New York State Department of Health ("NY DOH") pursuant to New York Public Health Law Article 28 and 10 NYCRR Part 600 et seq. The following table set

VI. PENNSYLVANIA STATE LICENSURE — OUTPATIENT CLINIC LICENSES A. Current License Status Lakewood operates three outpatient clinic facilities in the Commonwealth of Pennsylvania under facility licenses issued by the Pennsylvania Department of Health ("PA DOH"). The following table sets forth the license number for each Pennsylvania facility: We have confirmed the current active status of each of these licenses through

VII. PENDING OIG INQUIRY — SYRACUSE FACILITY (CMS CERTIFICATION NO. 33-7024) A. Background and Current Status The Syracuse facility (NY Article 28 Operating Certificate No. D&TC-4824; CMS Certification No. 33-7024) is the subject of a pending inquiry by the Office of Inspector General ("OIG") of the U.S. Department of Health and Human Services. The inquiry relates to allegations of systematic upcoding of evaluation a