Contract analysis

I. EXECUTIVE SUMMARY You have asked Calderwood & Harkness LLP to provide a standalone, detailed analysis of the facility access fee arrangement between Arbor Health Technologies Inc. ("AHT") and Meridian Diagnostics LLC ("Meridian") under the federal Anti-Kickback Statute (the "AKS"), 42 U.S.C. § 1320a-7b(b), and the Physician Self-Referral Law (the "Stark Law"), 42 U.S.C. § 1395nn. This memorandum constitutes that a

1. Restructure the arrangement. AHT should restructure the Meridian facility access fee arrangement by replacing the per-scan fee with a fixed monthly facility rental set at fair market value. Northbridge Valuation Advisors LLC has already been retained (February 2023) and the Meridian facility fee is within the scope of the fair market value opinions communicated to Northbridge. The restructured arrangement should b

2. Terminate the per-scan fee structure. The existing per-scan fee mechanism should be terminated as expeditiously as practicable, ideally within sixty to ninety days of the date of this memorandum, to arrest the accumulation of additional compliance exposure.

3. Evaluate voluntary disclosure. The Meridian arrangement is among the highest-risk items being evaluated for potential voluntary self-disclosure under the CMS Stark Self-Referral Disclosure Protocol ("SRDP") and the OIG Self-Disclosure Protocol ("SDP"). Our separate companion memoranda address those disclosure evaluations in detail; this memorandum provides cross-references to the relevant analysis at appropriate p

4. Position for Ridgeline Capital exit. Given that Ridgeline Capital Partners Fund IV, L.P. ("Ridgeline Capital"), AHT's 72% equity owner, is contemplating an exit or sale process in late 2024, remediation of this arrangement prior to any formal sale process is strongly recommended to avoid adverse findings in buyer due diligence that could materially impact valuation or transaction certainty. The remainder of this m

II. FACTUAL BACKGROUND A. The Parties

1. Arbor Health Technologies Inc. Arbor Health Technologies Inc. ("AHT") is a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138. AHT operates twenty-three outpatient clinics branded as "Arbor Health Clinics" across four states: fourteen clinics in Massachusetts, four clinics in Connecticut, three clinics in Rhode Island, and two clinics in New Hampshire. The clinics p

2. Meridian Diagnostics LLC. Meridian Diagnostics LLC ("Meridian") is a Connecticut limited liability company with its principal place of business at 88 Trumbull Street, Hartford, Connecticut 06103. Its Employer Identification Number is 82-4019673. Meridian provides mobile MRI and advanced diagnostic imaging services to healthcare facilities in Connecticut and neighboring states. Meridian's ownership structure is as

III. APPLICABLE LEGAL FRAMEWORK A. The Stark Law (42 U.S.C. § 1395nn)

1. General Prohibition. The Physician Self-Referral Law, commonly known as the Stark Law, is codified at 42 U.S.C. § 1395nn. Section 1395nn(a)(1)(A) provides that, subject to certain exceptions, a physician who has a financial relationship (or whose immediate family member has a financial relationship) with an entity may not make a referral to that entity for the furnishing of designated health services for which pay

2. Relevant Definitions. Several key definitions under the Stark Law are relevant to our analysis: "Referral." Section 1395nn(h)(5) defines a "referral" to include the request by a physician for, or ordering of, any item or service for which payment may be made under Medicare Part B, including the request for or ordering of diagnostic imaging services such as MRI. Each time an AHT physician orders an imaging study th

3. Applicable Exceptions. The Stark Law provides numerous exceptions that, if satisfied in their entirety, permit an otherwise prohibited referral. The exceptions relevant to our analysis of the Meridian arrangement include the following: Space Rental Exception (42 C.F.R. § 411.357(a)). This exception applies to payments made by a lessee to a lessor for the use of office space. To qualify, the arrangement must satisf

1. General Prohibition. The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that prohibits the knowing and willful offering, paying, soliciting, or receiving of any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward referrals of items or services reimbursable under federal healthcare programs, including Medicare

2. Applicable Safe Harbors (42 C.F.R. § 1001.952). Congress directed the OIG to promulgate regulatory safe harbors that define categories of arrangements that, notwithstanding their technical implication of the AKS's broad prohibition, will not be treated as criminal offenses. Compliance with a safe harbor provides absolute protection from AKS prosecution; failure to satisfy a safe harbor does not automatically mean

1. Rental or compensation must be set in advance. Both regimes require that the aggregate compensation or rental be fixed in advance for the term of the arrangement or determined pursuant to a formula that is itself set in advance and does not vary with the volume or value of referrals or other business generated. A per-scan, per-click, or per-unit-of-service fee, by definition, produces an aggregate payment that flu

2. Rental or compensation must be consistent with fair market value. Both regimes require that the compensation be consistent with fair market value as determined in arm's-length negotiations. This requirement serves as a check against the use of above-market or below-market pricing as a vehicle for disguising referral inducements.

3. Rental or compensation must not take into account the volume or value of referrals. This is the most frequently litigated and enforced of the common requirements. It prohibits any compensation methodology that correlates payments with referral volume or the dollar value of referred services. A per-scan fee inherently correlates aggregate payments with scan volume.

4. The arrangement must have a term of at least one year. Both the Stark Law exceptions and the AKS safe harbors require a minimum term of one year (or, in certain circumstances, compliance with holdover provisions).

5. The arrangement must be commercially reasonable. The arrangement must serve a legitimate business purpose independent of the referrals between the parties.

6. Space or equipment must be identified and specified. Both regimes require that the leased premises or equipment be specifically described in the governing agreement. These shared requirements establish the framework against which the Meridian arrangement must be evaluated.

IV. STARK LAW ANALYSIS OF THE MERIDIAN ARRANGEMENT A. Threshold Question: Is There a Financial Relationship? Before the Stark Law's referral prohibition applies, there must be a "financial relationship" between a referring physician and the entity to which the referral is made. As noted in Section III.A.2 above, a financial relationship includes both ownership or investment interests and compensation arrangements. Th

1. Element-by-Element Analysis. Element 1: Written agreement signed by the parties. The Services Agreement dated March 1, 2021 is in writing and was signed by authorized representatives of both AHT and Meridian. This element is satisfied. Element 2: Term of at least one year. Based on our review of the Services Agreement, the initial term of the arrangement is three years, running from March 1, 2021 through February

2. Conclusion on Space Rental Exception. The Meridian facility access fee arrangement does not satisfy the Stark Law space rental exception. The arrangement fails on at least two critical elements: the rental is not "set in advance" as required, and the rental "takes into account the volume or value of referrals" between the parties. These deficiencies are structural and inherent in the per-scan fee model; they canno

V. ANTI-KICKBACK STATUTE ANALYSIS OF THE MERIDIAN ARRANGEMENT A. Threshold Question: Is There Remuneration? The AKS applies to any arrangement involving the payment of "remuneration" to induce or reward referrals of items or services reimbursable under federal healthcare programs. "Remuneration" is defined broadly to include any payment or transfer of value, in cash or in kind, directly or indirectly. Meridian pays A

1. Element-by-Element Analysis. Element 1: Written agreement signed by the parties. Satisfied. The March 1, 2021 Services Agreement is in writing and signed by authorized representatives of both parties. Element 2: The lease covers all of the premises leased between the parties and specifies the premises covered. The Services Agreement references four AHT clinic locations in Connecticut but does not contain the speci