Contract analysis

I. EXECUTIVE SUMMARY Calderwood & Harkness LLP ("C&H" or the "Firm") has prepared this memorandum to present the results of a comprehensive assessment of the physician compensation arrangements, referral relationships, and vendor contracts maintained by Arbor Health Technologies Inc. ("AHT" or the "Company") under the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (the "AKS"), and applicable regulatory safe h

1. Meridian Diagnostics Per-Scan Facility Access Fee. The per-scan fee structure ($185 per scan, generating $777,000 in FY2022) creates compensation that varies directly with the volume of imaging referrals from AHT physicians to Meridian. This arrangement cannot satisfy the space rental or equipment rental safe harbors and presents the highest individual AKS risk among all arrangements reviewed.

2. Pinnacle Laboratory Services — No-Cost Electronic Lab Interface and CME Sponsorship. Pinnacle provides AHT with a laboratory interface valued at approximately $120,000 per year at no charge, and sponsored $86,000 in CME events for AHT physicians in FY2022. These transfers of value from a significant referral recipient to AHT and its physicians constitute remuneration that, under the "one purpose" test, could be vi

3. Above-FMV Medical Director Compensation. Across AHT's thirty-eight (38) independent contractor and medical director arrangements, the effective average hourly compensation rate of $501.28 per hour exceeds the 90th percentile for comparable positions according to MGMA and SullivanCotter benchmark data. Twenty-two (22) of these arrangements are classified as high-risk. Above-FMV compensation to physicians who are in

4. ConnectiCare Physicians Network MSA Arrangements. The percentage-based management fee structure (15% of collected net revenue), combined with the flow of ancillary service referrals from managed practices to AHT-owned services, creates a financial relationship that may fail the "one purpose" test despite potential technical compliance with the management contracts safe harbor.

5. Dr. Karen Ellsworth's 4.2% Equity Interest in Pinnacle Laboratory Services. The spousal relationship between Dr. Karen Ellsworth and AHT CEO Dr. Nathan Ellsworth, combined with the laboratory's referral relationship with AHT, creates an indirect inducement concern and significant conflict of interest.

6. Lakeview Legacy Arrangements. Multiple physician employment agreements, medical director agreements, and office leases assumed in the August 2022 acquisition of Lakeview Medical Associates lack FMV substantiation and may contain compensation formulas that do not satisfy AKS safe harbor requirements. Federal Healthcare Program Revenue at Risk. AHT reported $214.3 million in net revenue for fiscal year 2022, of whic

II. BACKGROUND AND SCOPE A. Arbor Health Technologies Inc. — Corporate and Operational Overview Arbor Health Technologies Inc. is a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138. The Company operates a network of twenty-three (23) outpatient clinics (branded as "Arbor Health Clinics") across four states in the northeastern United States: fourteen (14) clinics in M

III. LEGAL FRAMEWORK A. The Anti-Kickback Statute — 42 U.S.C. § 1320a-7b(b) The federal Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration — including any kickback, bribe, or rebate — directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or reward the referral of an individual to a person for the furnishing or arr

1. Employment — § 1001.952(i). Protects amounts paid by an employer to an employee in a bona fide employment relationship, provided the employment relationship satisfies applicable tax and labor law standards, compensation is paid for services actually rendered, and compensation is not determined in a manner that takes into account the volume or value of referrals.

2. Personal Services and Management Contracts — § 1001.952(d). Protects compensation paid under a personal services or management contract, subject to detailed requirements regarding written agreements, specified services, minimum term, FMV compensation set in advance, and the prohibition on volume-or-value-based compensation.

3. Space Rental — § 1001.952(b). Protects rental payments for the use of office space, subject to requirements regarding written agreements, specified premises, minimum term, FMV rental charges set in advance, and the prohibition on volume-or-value-based rental.

4. Equipment Rental — § 1001.952(c). Protects rental payments for the use of equipment, with requirements parallel to the space rental safe harbor.

5. Referral Services — § 1001.952(f). Protects certain referral services, subject to specific conditions.

6. Investment Interests — Small Entity — § 1001.952(a)(2). Protects certain investment interests in small entities, subject to conditions regarding investor referral obligations, marketing to investors, and entity size and revenue thresholds.

7. Value-Based Arrangements — §§ 1001.952(ee), (ff), (gg). Three new safe harbors for value-based arrangements, effective January 19, 2021, protecting (i) care coordination arrangements, (ii) value-based arrangements with substantial downside financial risk, and (iii) value-based arrangements with full financial risk, respectively. Each safe harbor is analyzed in detail in the relevant substantive section of this mem

IV. ANALYSIS OF PHYSICIAN EMPLOYMENT ARRANGEMENTS A. W-2 Employed Physicians (147 Physicians)

1. Employment Safe Harbor — 42 C.F.R. § 1001.952(i). The AKS employment safe harbor protects amounts paid by an employer to an employee who has a bona fide employment relationship with the employer for employment in the furnishing of any item or service for which payment may be made, in whole or in part, under a federal healthcare program. The safe harbor requires that the employment relationship satisfy applicable t

2. Compensation Structures. AHT's employed physicians are compensated under a base salary plus productivity bonus structure. For purposes of this analysis, we reviewed the compensation data for all 147 employed physicians, organized by specialty. The median total compensation figures are as follows: • Primary care physicians: Median total compensation of approximately $278,000 per year. • Specialty care physicians (c

3. Findings. The majority of AHT's 147 employed physician arrangements appear to fit within the employment safe harbor. The standard AHT physician employment agreement template uses a wRVU-based productivity bonus formula that captures only personally performed services and does not incorporate ancillary service revenue. For physicians operating under this standard template, the safe harbor analysis is straightforwar

1. Pre-Acquisition Deficiencies. The fourteen (14) physicians acquired through the Lakeview Medical Associates transaction on August 15, 2022 — twelve (12) employed physicians and two (2) independent contractors — present particular AKS compliance concerns. These physicians' compensation arrangements were carried forward from the pre-acquisition Lakeview entity without FMV re-evaluation at the time of closing. This w

2. Post-Acquisition Status. Since the August 2022 closing, the fourteen Lakeview physician arrangements have continued under their original terms during the integration period. No amendments or replacement agreements have been executed. FMV opinions from Northbridge Valuation Advisors are pending for all fourteen arrangements and, once received, will provide the basis for restructuring. Recommendation: AHT should ame

V. ANALYSIS OF INDEPENDENT CONTRACTOR AND MEDICAL DIRECTOR ARRANGEMENTS A. Overview of 38 Arrangements AHT maintains thirty-eight (38) independent contractor and medical director arrangements across its twenty-three-clinic network. These arrangements cover a range of specialties and geographic locations and are designed to provide medical oversight, quality assurance, peer review, regulatory compliance assistance, an

1. The arrangement must be set out in a written agreement signed by the parties;

2. The agreement must specify the services to be provided by the contractor;

3. If the agreement provides for services on a periodic, sporadic, or part-time basis, the agreement must specify exactly the schedule of such intervals, their precise length, and the exact charge for such intervals;

4. The term of the agreement must be for not less than one year;

5. The aggregate compensation paid over the term of the agreement must be set in advance, consistent with fair market value in arms-length transactions, and not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under a federal healthcare program; and

6. The aggregate services contracted for must not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services. Each element is analyzed below as applied to AHT's medical director arrangements. C. Safe Harbor Analysis — Element-by-Element

1. Written Agreement and Specified Services. Our review of all thirty-eight (38) agreements reveals significant variation in the specificity of duty descriptions. Approximately fourteen (14) agreements contain only vague duty descriptions such as "provide medical direction as needed," "oversee clinical quality," or "advise on medical matters." These vague descriptions are insufficient to satisfy the safe harbor requi

2. Term. Multiple agreements are currently operating on a month-to-month holdover basis, having expired without formal renewal. Several additional agreements have terms of less than one year. The three Lakeview legacy medical director agreements ($45,000, $60,000, and $72,000 annual stipends) were assumed in the August 2022 acquisition without execution of new agreements and continue under their original (now-expired

3. Compensation Set in Advance and Consistent with FMV. This element represents the most significant AKS risk area for AHT's medical director arrangements. The effective average hourly rate of $501.28 per hour is flagged as exceeding the 90th percentile for medical director compensation across multiple specialties, based on widely recognized benchmark data sources including the Medical Group Management Association ("

4. Volume or Value of Referrals. AHT's medical director arrangements generally use a fixed annual stipend structure. A fixed stipend does not, by its terms, vary with the volume or value of referrals and therefore technically satisfies the safe harbor requirement that compensation not be "determined in a manner that takes into account the volume or value of referrals." However, as discussed above, the safe harbor req

5. Commercial Reasonableness. Several of AHT's medical director arrangements lack documentation supporting the legitimate business need for medical director services at the compensated level. In some cases, the clinical operation supervised by the medical director is relatively small (e.g., a single-physician clinic), raising the question of whether a separately compensated medical director position is commercially r

1. Obtain and apply Northbridge FMV opinions to all thirty-eight (38) arrangements.

2. Execute revised independent contractor/medical director agreement templates incorporating detailed duty descriptions, one-year minimum terms, FMV-compliant compensation, and AKS compliance provisions.

3. Prepare commercial reasonableness memoranda for all positions.

4. Implement prospective hours tracking and require monthly time logs documenting hours spent and duties performed.

5. Institute annual recertification of FMV and commercial reasonableness for all medical director arrangements.

VI. ANALYSIS OF MERIDIAN DIAGNOSTICS FACILITY ACCESS FEE ARRANGEMENT A. Arrangement Description Pursuant to a Services Agreement dated March 1, 2021 (the "Meridian Agreement"), AHT provides facility access to Meridian Diagnostics LLC ("Meridian") at four AHT clinic locations in Connecticut. Under the arrangement, Meridian deploys mobile MRI and advanced diagnostic imaging equipment and services at the AHT clinic site

1. AHT physicians refer patients to Meridian for MRI and advanced diagnostic imaging;

2. Meridian performs the scans at AHT facilities using Meridian's mobile equipment;

3. For each scan performed, Meridian pays AHT a $185 facility access fee;

4. Therefore, the more patients AHT physicians refer to Meridian, the more scans Meridian performs, and the more facility access fees AHT receives. This creates a circular financial incentive in which AHT derives direct, volume-proportional financial benefit from its physicians' referrals to Meridian. Under the "one purpose" test, the per-scan facility access fee could be viewed as remuneration paid by Meridian to AH

1. The lease be in writing and signed by the parties;

2. The lease specify the premises covered by the lease;

3. If the lease is for periodic, sporadic, or part-time use, the lease specify exactly the schedule of such intervals, their precise length, and the exact rental charge for such intervals;

4. The term of the lease be for not less than one year;

5. The aggregate rental charge be set in advance, be consistent with fair market value in arms-length transactions, and not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties; and

6. The aggregate space rented not exceed that which is reasonably necessary. Element 5 Failure: The per-scan facility access fee of $185 per scan is, by definition, determined by the volume of scans performed — which is directly correlated with the volume of referrals from AHT physicians to Meridian. The aggregate rental charge is not "set in advance" in the sense contemplated by the safe harbor because the total amo