[slide 1]
Arbor Health Technologies Inc. — AKS/Stark Self-Assessment Final Report and Remediation Roadmap
Anti-Kickback Statute & Stark Law Self-Assessment — Final Report and Remediation Roadmap
Presented to the AHT Board Compliance Committee
June 27, 2023
Presented by: Miriam Calloway, Partner & Christopher Aiken, Senior Associate — Calderwood & Harkness LLP
PRIVILEGED & CONFIDENTIAL — Attorney-Client Communication / Attorney Work Product
Calderwood & Harkness LLP Matter No. 1010-00003
[slide 2]
Agenda
1. Engagement Recap and Scope Summary
2. Final Self-Assessment Findings — Risk Tier Summary
3. High-Risk Arrangement Deep Dives (Meridian, Pinnacle, Medical Director Compensation, Lakeview Legacy, ConnectiCare MSAs)
4. State Law Overlay — Massachusetts and Connecticut
5. Voluntary Disclosure Evaluation — CMS SRDP and OIG SDP Conclusions
6. Completed Policy and Procedure Revisions
7. Contract Template Remediation Summary
8. Third-Party Restructuring Status (Meridian Diagnostics, Pinnacle Laboratory)
9. 90-Day Implementation Roadmap
10. Exit Readiness Considerations
11. Questions and Next Steps
[slide 3]
Engagement Recap and Scope
Engagement triggered by Compliance Committee review following Lakeview Medical Associates, P.C. acquisition (closed August 15, 2022; $11.4M asset purchase)
Grayson Whitaker & Associates initial gap assessment (Report GW-AHT-2022-Final, December 12, 2022): identified 17 high-risk and 23 moderate-risk arrangements
Calderwood & Harkness engaged January 30, 2023; engagement closing target July 12, 2023
Scope: Risk scoring across all 40 flagged arrangements; AKS/Stark safe harbor and exception analyses; 52 physician compensation FMV reviews; state law analysis (MA, CT); voluntary disclosure evaluation; 7 policy documents; 6 contract templates; training materials; board presentations
Northbridge Valuation Advisors retained February 2023 for independent FMV opinions
AHT profile: 23 outpatient clinics (MA 14, CT 4, RI 3, NH 2); 147 employed physicians; 38 IC/medical director arrangements; FY2022 net revenue $214.3M (61% Medicare/Medicaid = $130.7M; 39% commercial = $83.6M)
[slide 4]
Final Self-Assessment Findings — Risk Tier Summary
40 total arrangements reviewed (per Grayson Whitaker gap assessment baseline)
Final risk tier breakdown: High Risk — 17 arrangements (require immediate restructuring or termination); Moderate Risk — 23 arrangements (require documentation cures, FMV substantiation, or template updates); Low Risk — 0 newly downgraded (all require some remediation)
Applicable statutes: AKS only (6), Stark only (9), Both AKS and Stark (25)
Key finding: No arrangement in the current portfolio fully satisfies all applicable safe harbor and exception requirements without remediation
52 physician compensation arrangements require FMV substantiation (38 IC/medical director + 14 Lakeview legacy employment agreements)
[slide 5]
High-Risk Deep Dive: Meridian Diagnostics Facility Access Fee
Arrangement: Services agreement (March 1, 2021) with Meridian Diagnostics LLC (Hartford, CT) — per-scan facility access fee of $185/scan for mobile MRI/advanced imaging at 4 AHT clinic locations
FY2022 volume: 4,200 scans × $185 = $777,000 in fees received by AHT; FY2022 referral volume from AHT physicians to Meridian: $2.8M
Meridian ownership: Dr. Franklin Osei (60%), Gerald Pratt (40%)
Key finding: Per-scan fee varies with volume/value of referrals — fails Stark space/equipment rental exception and AKS space/equipment rental safe harbor (rental must be set in advance and not vary with referrals)
Remediation: Restructured facility access agreement drafted converting to fixed monthly rental at FMV; transmitted to Linden & Pryor LLP (Thomas Beckett, counsel to Meridian) with compliance rationale letter
[slide 6]
High-Risk Deep Dive: Pinnacle Laboratory Services
Arrangement: Preferred laboratory agreement (June 15, 2020) with Pinnacle Laboratory Services Inc. (Warwick, RI)
Issue 1 — No-Cost Electronic Lab Interface: Estimated market value $120,000/year — exceeds Stark non-monetary remuneration exception limit of $459/year (CY2023) by ~260x
Issue 2 — CME Sponsorship: $86,000 across 4 events in FY2022 — raises AKS concerns as remuneration linked to $1.65M referral relationship
Issue 3 — CEO Conflict of Interest: Dr. Karen Ellsworth (spouse of AHT CEO Dr. Nathan Ellsworth) holds 4.2% passive equity interest in Pinnacle — implicates Stark ownership/investment exception and AKS investment safe harbor
Remediation: Convert lab interface to FMV license fee; separate CME sponsorship from referral relationship; formal conflict-of-interest disclosure and management protocol for Dr. Karen Ellsworth's interest
[slide 7]
High-Risk Deep Dive: Medical Director Compensation — Above-FMV Rates
38 medical director/IC arrangements across AHT network; stipend range $25,000–$110,000/year; aggregate annual compensation: $1.92M
Mean documented hours: 8.4 hours/month per arrangement; effective average hourly rate: $501.28/hour ($1.92M ÷ 3,830.4 total annual hours)
Benchmark: $501.28/hour exceeds 90th percentile for medical director compensation across multiple specialties (MGMA, SullivanCotter; confirmed by Northbridge Valuation Advisors)
Key finding: Compensation not at FMV — fails personal services safe harbor (AKS) and personal services/FMV exceptions (Stark); insufficient hourly documentation to support commercial reasonableness
Remediation: Right-size compensation to FMV ranges per Northbridge opinions; increase and document hours; standardize duty descriptions across all 38 agreements; adopt revised IC/Medical Director Agreement template
[slide 8]
High-Risk Deep Dive: Lakeview Legacy Arrangements
Lakeview Medical Associates, P.C. acquired August 15, 2022 ($11.4M asset purchase); pre-acquisition revenue $18.2M/year (60% Medicare/Medicaid)
14 physician agreements assumed (12 employed, 2 ICs) — none had current FMV substantiation at closing
3 medical director agreements assumed ($45K, $60K, $72K/year) — missing FMV opinions, vague duty descriptions, expired or holdover terms
2 office leases assumed (Worcester — 75 Belmont St.; Shrewsbury — 310 Main St., Suite 2A) — holdover status, no FMV rent evidence, non-compliant with Stark space rental exception
Dr. Vivian Chao transitioned from Lakeview managing partner to AHT Regional Medical Director (Central MA) — compensation requires FMV recertification
Remediation: All 14 employment agreements updated to revised template; 3 medical director agreements replaced; 2 leases renegotiated with Northbridge FMV rent opinions; Westbrook Hale LLP (Elena Marchetti) coordinating execution
[slide 9]
Moderate-Risk Finding: ConnectiCare MSA Indirect Compensation
ConnectiCare Physicians Network, LLC: AHT provides management services (billing, coding, practice management, IT) to 9 independently owned physician practices in Hartford, CT area
Management fee: 15% of collected net revenue; FY2022 aggregate managed practice revenue $31.53M; AHT management fee revenue $4.73M
Stark concern: Managed practices refer patients to AHT-owned ancillary services (lab, imaging, PT) — creates unbroken chain of financial relationships constituting potential 'indirect compensation arrangement' under 42 C.F.R. § 411.354(c)
AKS concern: Percentage-of-revenue fee does not satisfy management contracts safe harbor (42 C.F.R. § 1001.952(d)) because aggregate compensation varies with referral volume
Remediation: Revised MSA template with fixed-fee or blended model not varying with referrals to AHT ancillary services; referral tracking safeguards; Stark indirect compensation compliance provisions
[slide 10]
Covenant Health Plans — Value-Based Arrangement Analysis
Covenant Health Plans Inc.: AHT's largest commercial payer — $38.6M in FY2022 revenue (18% of net revenue)
Value-based incentive bonuses: $2.1M in FY2022 tied to quality metrics
Analyzed under Stark Law value-based enterprise (VBE) exceptions introduced by CMS Final Rule (85 Fed. Reg. 77492, eff. January 19, 2021)
Finding: AHT has not formally structured its Covenant relationship to qualify as a 'value-based arrangement' under the new Stark exceptions — missing required written agreement elements and VBE documentation
Remediation: Restructure Covenant provider agreement to satisfy VBE exception requirements; document quality metrics, outcome measures, and cost targets; ensure physician compensation tied to VBE does not exceed FMV
[slide 11]
State Law Overlay: Massachusetts and Connecticut
Massachusetts Anti-Kickback Law (M.G.L. c. 175H, § 3): Applies to all 14 MA clinics; broader than federal AKS — covers commercial payer arrangements (not just federal healthcare programs); Covenant's $38.6M in revenue potentially in scope
Connecticut Referral Fee Prohibition (Conn. Gen. Stat. § 20-7a(d)): Applies to 4 CT clinics and all ConnectiCare MSA arrangements; may capture management fee structures that constitute indirect referral fee payments
Key finding: Federal safe harbor compliance does not automatically satisfy state requirements
Remediation: Revised policies and contract templates incorporate state-law compliance provisions; state-specific addenda recommended for MA and CT arrangements
[slide 12]
Voluntary Disclosure Evaluation — CMS SRDP and OIG SDP
CMS Stark Self-Referral Disclosure Protocol (SRDP): Evaluated potential Stark violations for Meridian, Pinnacle, medical director above-FMV compensation, and Lakeview holdover leases
Estimated overpayment exposure calculated for DHS claims during periods of non-compliance; 60-day repayment obligation under 42 U.S.C. § 1320a-7k(d) considered
OIG Self-Disclosure Protocol (SDP): Evaluated potential AKS violations for same high-risk arrangements; assessed CMP and exclusion exposure
Recommendation: Calderwood & Harkness does NOT recommend filing a voluntary self-disclosure at this time — subject to timely completion of remediation within the 90-day roadmap
Rationale: No evidence of intentional fraud; arrangements reflect documentation/structural deficiencies rather than corrupt intent; prompt remediation mitigates enforcement risk
Critical caveat: If remediation milestones are not met within 90 days, the disclosure calculus changes significantly — ongoing non-compliance strengthens the case for voluntary disclosure
[slide 13]
Completed Policy and Procedure Revisions — Overview
1. Revised Compliance Program Manual — OIG Compliance Guidance (65 Fed. Reg. 59434); board oversight; Compliance Committee structure; hotline protocols; investigation/disciplinary procedures; annual risk assessment
2. Revised Physician Compensation Policy — FMV and commercial reasonableness standards; approved benchmarks (Northbridge, MGMA, SullivanCotter); GC/CCO approval workflow; annual recertification; AHT medians: PCP $278K/yr, specialist $412K/yr
3. Revised Physician Referral and Self-Referral Policy — In-office ancillary services governance; DHS tracking; Stark-compliant referral pathways for lab, imaging, and PT
4. Revised Vendor and Third-Party Arrangement Policy — AKS safe harbor checklists; approval authority matrix; annual compliance reviews
5. Revised Gifts, Meals, and Entertainment Policy — Thresholds aligned with OIG guidance and Stark non-monetary remuneration exception ($459 CY2023 annual limit)
6. Fair Market Value Determination Procedures — Independent appraisal requirements; internal benchmarking methodology; documentation retention; periodic refresh schedules
7. Non-Monetary Remuneration and Compliance Exception Tracking Protocol — Centralized tracking log maintained by CCO; addresses items like the Pinnacle lab interface ($120K/year vs. $459 annual limit)
[slide 14]
Contract Template Remediation — Overview
1. Physician Employment Agreement — Stark-compliant compensation (base + wRVU within FMV); FMV certification clause; compliant term/renewal/holdover per 42 C.F.R. § 411.357(c); replaces all legacy AHT and Lakeview forms
2. IC/Medical Director Agreement — Fixed compensation (not variable with referrals); specified duties/hours; FMV certification; AKS personal services safe harbor representations; designed to cure the $501.28/hr effective rate issue
3. Office Space Lease — Conforms to Stark space rental exception (42 C.F.R. § 411.357(a)) and AKS safe harbor (42 C.F.R. § 1001.952(b)); fixed term ≥1 year; FMV rent set in advance; not varying with referrals
4. Equipment Lease/Access Agreement — Conforms to Stark equipment rental exception and AKS equipment rental safe harbor; fixed term; FMV rental; specified equipment
5. Management Services Agreement — AKS management contracts safe harbor language; Stark indirect compensation safeguards; fixed-fee or blended model replacing percentage-of-revenue; for ConnectiCare-type arrangements
6. Meridian Diagnostics Restructured Facility Access Agreement (Draft) — Converts per-scan fee to fixed monthly FMV rental; 3-year term with annual FMV recertification; transmitted to Linden & Pryor LLP
[slide 15]
Third-Party Restructuring Status
Meridian Diagnostics LLC:
— Restructured draft facility access agreement transmitted to Linden & Pryor LLP (Thomas Beckett); proposed conversion from $185/scan variable fee to fixed monthly FMV rental
— Meridian response pending; follow-up meeting proposed; current arrangement should not continue beyond 90-day remediation window
Pinnacle Laboratory Services Inc.:
— Letter sent outlining three compliance concerns: (a) convert no-cost lab interface to FMV license fee; (b) separate CME sponsorship from referral relationship; (c) formal disclosure and management of Dr. Karen Ellsworth's 4.2% equity interest
— AHT should be prepared to terminate preferred lab agreement if restructuring cannot be achieved within 90 days
[slide 16]
90-Day Implementation Roadmap
Phase 1 (Days 1–30): Board adoption of all 7 revised policies; execute revised agreements for 14 Lakeview legacy physicians; finalize Northbridge FMV opinions for all 52 physician arrangements and 2 office leases
Phase 2 (Days 31–60): Execute revised medical director agreements for all 38 IC/medical director arrangements at FMV; renegotiate Worcester and Shrewsbury leases; complete ConnectiCare MSA restructuring (9 MSAs to fixed-fee model); resolve Pinnacle lab interface or terminate
Phase 3 (Days 61–90): Complete Meridian facility access restructuring or terminate; launch mandatory AKS/Stark training for all 147 physicians, 38 medical directors, and ~1,340 staff; implement non-monetary remuneration tracking log; amend Covenant provider agreement for VBE exception compliance
Post-90-Day: Annual compliance recertification cycle; quarterly Compliance Committee reporting; ongoing FMV refresh per Fair Market Value Determination Procedures
Responsible parties: Derek Huang (CCO) — implementation lead; Patricia Yamamoto (GC) — contract execution; Dr. Nathan Ellsworth (CEO) — physician communications
[slide 17]
Exit Readiness Considerations — Ridgeline Capital Partners
Context: Ridgeline Capital Partners Fund IV, L.P. (72% equity, acquired January 2021 for $185M) anticipates potential exit/sale in late 2024 — Claudia Sorrento and Marcus Whitmore have requested compliance risk assessment
Buyer due diligence considerations: Unresolved AKS/Stark arrangements could result in purchase price adjustments, escrow holdbacks, or deal failure; R&W insurance underwriters will evaluate compliance program maturity
AHT's $130.7M in Medicare/Medicaid revenue (61%) magnifies regulatory exposure and makes compliance a material diligence item — Stark violations could trigger False Claims Act exposure (treble damages + per-claim penalties)
Remediation timeline alignment: Completing the 90-day roadmap by late September/October 2023 provides ~12 months of clean compliance history before a 2024 process
Recommended exit preparation: Maintain complete remediation files; obtain updated Northbridge FMV opinions prior to marketing; prepare compliance dataroom; consider engaging Calderwood & Harkness for pre-sale diligence support
ArborConnect SaaS platform ($8.9M annual subscription revenue from 42 external practices): Ensure platform arrangements with external physician practices do not create referral-related compliance issues
[slide 18]
Summary of Deliverables
Self-Assessment & Risk Analysis: Master Arrangement Inventory & Risk Scoring Matrix; Stark and AKS Compliance Assessment Memos; Meridian, Pinnacle, ConnectiCare, Medical Director FMV, and Lakeview Legacy detailed analyses
State Law Analysis: Massachusetts anti-kickback (M.G.L. c. 175H, § 3) and Connecticut referral fee prohibition (Conn. Gen. Stat. § 20-7a(d)) memos
Voluntary Disclosure: CMS SRDP evaluation memo; OIG SDP evaluation memo
Policies & Procedures (7): Compliance Program Manual; Physician Compensation; Physician Referral; Vendor Arrangement; Gifts/Meals/Entertainment; FMV Determination Procedures; Non-Monetary Remuneration Tracking Protocol
Contract Templates (6): Physician Employment; IC/Medical Director; Office Space Lease; Equipment Lease/Access; MSA; Meridian Restructured Facility Access Agreement (draft)
Third-Party Correspondence (3): Letters to Linden & Pryor (Meridian), Pinnacle Laboratory, and Northbridge Valuation Advisors
Board Materials (2): Interim Findings (April 18, 2023); Final Report (June 27, 2023)
Training Materials (1): AKS/Stark Compliance Training slide deck and reference guide
[slide 19]
Questions and Next Steps
Immediate action items:
1. Board resolution adopting all 7 revised policies and procedures (target: next board meeting)
2. Derek Huang to initiate Phase 1 implementation plan and assign workstream owners
3. Patricia Yamamoto to authorize execution of revised Lakeview legacy agreements
4. Derek Huang to follow up with Meridian Diagnostics / Linden & Pryor on restructured agreement
5. Derek Huang to follow up with Pinnacle Laboratory on lab interface and CME restructuring
6. Dr. Nathan Ellsworth to formalize conflict-of-interest disclosure regarding Dr. Karen Ellsworth's Pinnacle equity
7. Schedule mandatory compliance training rollout (all physicians and staff)
Calderwood & Harkness engagement formally closing July 12, 2023 — available for follow-up advisory as needed
Contact: Miriam Calloway (mcalloway@calderwoodharkness.com) and Christopher Aiken (caiken@calderwoodharkness.com) — Calderwood & Harkness LLP, One Federal Street, 30th Floor, Boston, MA 02110