[slide 1]
Arbor Health Technologies Inc. — AKS/Stark Self-Assessment: Interim Findings
Arbor Health Technologies Inc. — Anti-Kickback Statute / Stark Law Self-Assessment
Interim Findings Presentation
AHT Board Compliance Committee Meeting — April 18, 2023
Presented by: Miriam Calloway, Partner & Christopher Aiken, Senior Associate — Calderwood & Harkness LLP
PRIVILEGED & CONFIDENTIAL — Attorney-Client Privilege / Attorney Work Product
Calderwood & Harkness LLP Matter No. 1010-00003
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Agenda
1. Engagement Overview and Scope Recap
2. Self-Assessment Methodology
3. Arrangement Inventory: Risk Tier Summary (40 Arrangements)
4. High-Risk Arrangement Deep Dives: Meridian Diagnostics, Pinnacle Laboratory Services, Medical Director Compensation, Lakeview Legacy Arrangements, ConnectiCare MSA
5. Value-Based Arrangement Review — Covenant Health Plans
6. State Law Overlay — Massachusetts and Connecticut
7. Preliminary Remediation Recommendations
8. Remaining Work Streams and Timeline
9. Discussion and Questions
[slide 3]
Engagement Overview and Scope Recap
Engagement authorized by Board Resolution No. 2023-01-004 (January 24, 2023); opened January 30, 2023; estimated completion mid-2023
Triggered by Lakeview Medical Associates acquisition (August 15, 2022, $11.4M asset purchase) and Grayson Whitaker gap assessment report (GW-AHT-2022-Final, December 12, 2022)
Grayson Whitaker identified 17 high-risk and 23 moderate-risk arrangements requiring legal review
Scope: Comprehensive review of all physician compensation arrangements, referral relationships, and vendor contracts under federal AKS (42 U.S.C. § 1320a-7b) and Stark Law (42 U.S.C. § 1395nn)
Deliverables: Arrangement review & risk scoring, safe harbor/exception analyses, policy & contract template remediation, voluntary disclosure evaluation, and training materials
Northbridge Valuation Advisors LLC retained for independent FMV opinions (52 physician arrangements, 2 office leases, Meridian facility fee)
[slide 4]
AHT at a Glance — Key Metrics
23 outpatient clinics across 4 states: 14 MA, 4 CT, 3 RI, 2 NH
FY2022 net revenue: $214.3 million
Medicare/Medicaid revenue: $130.7M (61% of net revenue) — drives AKS and Stark applicability
Commercial payer revenue: $83.6M (39%); largest commercial payer: Covenant Health Plans at $38.6M (18%)
ArborConnect SaaS platform: $8.9M annual subscription revenue from 42 external practices
147 W-2 employed physicians; 38 independent contractor / medical director arrangements
Approximately 1,340 total employees (clinical + administrative)
Portfolio company of Ridgeline Capital Partners Fund IV, L.P. (72% equity, acquired January 2021 for $185M)
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Self-Assessment Methodology
Step 1: Compiled complete document production — all physician agreements, vendor contracts, MSAs, referral data, compensation records, leases, policies
Step 2: Cross-referenced Grayson Whitaker gap assessment (40 flagged arrangements) and identified 12 additional physician compensation arrangements (52 total)
Step 3: Mapped each arrangement to applicable Stark Law exceptions (42 C.F.R. § 411.350 et seq.) and AKS safe harbors (42 C.F.R. § 1001.952)
Step 4: Risk-scored each arrangement (High / Moderate / Low) based on FMV compliance, safe harbor/exception fit, referral nexus, and remuneration flow direction
Step 5: Engaged Northbridge Valuation Advisors for independent FMV opinions where deficiencies identified
Step 6: Developing remediation recommendations — policy revisions, contract template updates, restructuring proposals
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Arrangement Inventory — Risk Tier Summary
Total arrangements reviewed to date: 40 (per Grayson Whitaker) plus 12 additional identified by Calderwood & Harkness
High-Risk: 17 arrangements — significant safe harbor/exception gaps; remediation required
Moderate-Risk: 23 arrangements — partial compliance; targeted remediation recommended
Low-Risk: To be finalized upon receipt of Northbridge FMV opinions
27 of 40 arrangements (68%) implicate both AKS and Stark — dual compliance required; 8 Stark only; 5 AKS only
Key risk categories: (1) Physician compensation above FMV, (2) Per-unit/per-referral fee structures, (3) No-cost remuneration exceeding Stark limits, (4) Post-acquisition holdover agreements, (5) Indirect compensation chains
[slide 7]
High-Risk Deep Dive: Meridian Diagnostics — Per-Scan Facility Access Fee
Arrangement: Services agreement (March 1, 2021) with Meridian Diagnostics LLC (Dr. Franklin Osei, 60%; Gerald Pratt, 40%) — mobile MRI/advanced imaging at 4 AHT clinics
Structure: Meridian pays AHT a $185 per-scan facility access fee; FY2022: 4,200 scans × $185 = $777,000
FY2022 referral volume: AHT physicians referred ~$2.8 million in imaging services to Meridian
AKS concern: Per-scan fee creates remuneration varying with referral volume — does not fit space or equipment rental safe harbors (rent must be set in advance, not adjusted by volume/value)
Stark concern: Fails space and equipment rental exceptions for the same reason — compensation must not vary with volume or value of referrals
Bilateral remuneration/referral nexus: $777K flowing to AHT + $2.8M in referrals flowing to Meridian
Preliminary recommendation: Restructure to fixed monthly facility rental at FMV; engage Meridian's counsel (Linden & Pryor / Thomas Beckett) to negotiate
[slide 8]
High-Risk Deep Dive: Pinnacle Laboratory Services — Three Interrelated Concerns
Concern 1 — No-Cost Lab Interface: Pinnacle provides $0 electronic lab interface integrated into ArborConnect; estimated market value $120,000/year vs. Stark non-monetary remuneration limit of $459/year (CY2023) — exceeded by ~260x
Concern 2 — CME Sponsorship: Pinnacle sponsored 4 CME events for AHT physicians in FY2022, total value $86,000 — potential AKS remuneration to induce referrals
Concern 3 — CEO Spouse Equity Interest: Dr. Karen Ellsworth holds 4.2% passive equity in Pinnacle; Dr. Nathan Ellsworth (AHT CEO) may influence referral patterns — Stark ownership/investment and AKS investment safe harbor analysis required
FY2022 referral volume from AHT clinics to Pinnacle: $1.65 million
Total identifiable remuneration: $206,000+ ($120K interface + $86K CME) plus equity returns to CEO's spouse
Preliminary recommendation: Convert lab interface to FMV license; separate CME from referral relationship; require CEO conflict-of-interest disclosure and recusal from lab vendor decisions
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High-Risk Deep Dive: Medical Director Compensation — Above-FMV Effective Rates
38 independent contractor / medical director arrangements currently in effect; annual stipend range: $25,000 – $110,000/year
Aggregate annual medical director compensation: $1.92 million
Mean documented hours: 8.4 hours/month per arrangement; total annual hours: 3,830.4
Effective average hourly rate: $1.92M ÷ 3,830.4 hours = $501.28/hour — exceeds 90th percentile for multiple specialties (MGMA, SullivanCotter data)
AKS/Stark risk: Compensation exceeding FMV may constitute remuneration to induce referrals; fails personal services safe harbor/exception FMV requirement
Preliminary recommendation: Restructure — increase and document actual hours, reduce stipends to FMV range, standardize duty descriptions, obtain Northbridge FMV opinions for all 38 arrangements
[slide 10]
High-Risk Deep Dive: Lakeview Legacy Arrangements — Post-Acquisition Integration Gaps
Lakeview Medical Associates, P.C. acquired August 15, 2022 — $11.4M asset purchase; pre-acquisition revenue: $18.2M/year (60% Medicare/Medicaid)
Arrangements assumed: 14 physician agreements (12 employed, 2 ICs), 3 medical director agreements ($45K, $60K, $72K), 2 office leases (Worcester, Shrewsbury)
Gap (a): No FMV substantiation for any physician compensation arrangement
Gap (b): Multiple expired agreement terms operating in holdover without compliant rollover provisions
Gap (c): Non-compliant compensation formulas — productivity bonuses tied to referral volume rather than wRVU
Gap (d): Office leases lack FMV rent certifications
Dr. Vivian Chao (former Lakeview managing partner, now AHT Regional Medical Director) — compensation requires restructuring
Preliminary recommendation: Replace all legacy agreements with revised AHT templates; obtain Northbridge FMV opinions; address holdover compliance under 42 C.F.R. § 411.357(c)
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High-Risk Deep Dive: ConnectiCare MSA — Indirect Compensation Analysis
AHT provides management services (billing, coding, practice management, IT) to 9 independently owned physician practices in Hartford area through ConnectiCare Physicians Network, LLC
Management fee: 15% of collected net revenue; FY2022 managed practice revenue: $31.53M; AHT fee revenue: $4.73M
Stark concern: Managed practices refer patients to AHT-owned ancillary services (lab, imaging, PT) — unbroken chain creates 'indirect compensation arrangement' under 42 C.F.R. § 411.354(c)
AKS concern: Percentage-of-revenue fee may not satisfy management contracts safe harbor (42 C.F.R. § 1001.952(d)) — aggregate compensation must be set in advance, not account for referrals
Connecticut state law: Conn. Gen. Stat. § 20-7a(d) referral fee prohibition may independently apply
Preliminary recommendation: Restructure fee formula to fixed-fee or blended model; implement referral tracking safeguards; add Stark indirect compensation compliance provisions to MSA template
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Moderate-Risk Arrangements: Covenant Health Plans Value-Based Arrangements
Covenant Health Plans Inc. — AHT's largest commercial payer: $38.6M in FY2022 revenue (18% of net revenue)
Value-based payment incentive bonuses: $2.1M received in FY2022 tied to quality metrics
Stark analysis required under value-based enterprise exceptions (42 C.F.R. § 411.357, as amended by 2021 modernization rules, 85 Fed. Reg. 77492)
Preliminary assessment: Structure appears potentially compliant with value-based arrangement exceptions, but documentation needs strengthening
Massachusetts anti-kickback law (M.G.L. c. 175H, § 3) may apply — broader scope covering all payers, not just federal programs
Risk tier: Moderate — requires documentation remediation, not full restructuring
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State Law Overlay — Massachusetts and Connecticut
Massachusetts — M.G.L. c. 175H, § 3: State anti-kickback law applies to all payers (not limited to federal programs); covers AHT's 14 Massachusetts clinics and commercial payer arrangements including Covenant ($38.6M)
Connecticut — Conn. Gen. Stat. § 20-7a(d): Referral fee prohibition applicable to AHT's 4 Connecticut clinics and ConnectiCare MSA arrangements
Rhode Island and New Hampshire: Under review — no immediately analogous statutes identified to date
Key takeaway: Federal safe harbor compliance alone is insufficient — AHT must also satisfy state-level requirements in each operating jurisdiction
Full state law analysis memoranda in progress — will be included in final deliverables
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Preliminary Remediation Recommendations — Summary
1. Meridian Diagnostics: Restructure per-scan fee to fixed monthly rental at FMV; draft agreement shared with Meridian's counsel (Linden & Pryor / Thomas Beckett)
2. Pinnacle Laboratory: Convert no-cost lab interface to FMV license; restructure CME sponsorship; require CEO conflict-of-interest disclosure re: Dr. Karen Ellsworth's 4.2% equity interest
3. Medical Director Agreements (38): Restructure compensation to FMV using Northbridge opinions; increase documented hours; standardize duty descriptions; deploy revised template
4. Lakeview Legacy (14 employment + 3 MD + 2 leases): Replace with revised AHT templates; obtain Northbridge FMV opinions; cure holdover issues
5. ConnectiCare MSAs (9 practices): Restructure fee formula from percentage to fixed or blended model; add referral tracking and indirect compensation safeguards
6. Policy Overhaul: Redraft 7 policy documents — compliance manual, physician compensation, referral, vendor, gifts/meals/entertainment, FMV procedures, non-monetary remuneration tracking
7. Contract Templates: Redraft 6 templates — physician employment, IC/medical director, office lease, equipment lease, MSA, vendor agreements
8. Voluntary Disclosure: Evaluate CMS SRDP or OIG SDP filing once all analyses complete
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Remaining Work Streams and Timeline
April–May 2023: Receive and integrate Northbridge FMV opinions (52 physician arrangements, 2 office leases, Meridian facility fee)
April–May 2023: Finalize all policy and procedure redrafts (7 policy documents) and contract templates (6 templates)
May 2023: Transmit Meridian restructured agreement to Linden & Pryor LLP; transmit Pinnacle restructuring request letter
May–June 2023: Complete CMS SRDP and OIG SDP evaluation memoranda, including overpayment calculations and penalty exposure estimates
May–June 2023: Finalize Massachusetts and Connecticut state law analysis memoranda
June 2023: Prepare AKS/Stark compliance training materials for all AHT physicians and staff
Late June 2023: Final Report and Remediation Roadmap presentation to Board Compliance Committee (targeted June 27, 2023)
Target engagement completion: July 2023
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Key Considerations for the Committee
No prior enforcement actions — AHT has no Corporate Integrity Agreement and no pending OIG Advisory Opinions
Proactive self-assessment positions AHT favorably in any future government inquiry
Ridgeline Capital exit readiness: Clean compliance posture essential for anticipated late-2024 exit/sale — buyer due diligence will scrutinize all physician arrangements
Timely remediation may avoid need for voluntary self-disclosure filing (CMS SRDP or OIG SDP)
60-day repayment obligation (42 U.S.C. § 1320a-7k(d)): Once an overpayment is identified, AHT has 60 days to report and return — clock management is critical
Budget: Engagement fee estimate remains $475,000 – $625,000 per January 30, 2023 engagement letter
Committee should consider authorizing management to begin implementing remediation steps in parallel with final analysis
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Discussion and Questions
Questions from Committee members
Derek Huang — status of internal compliance gap remediation efforts underway
Patricia Yamamoto — any additional arrangements not previously flagged
Ridgeline board designee input — exit timeline considerations
Action items and next steps
Next meeting: Final Report presentation targeted for June 27, 2023
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Appendix A: Regulatory Framework Reference
Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)): Prohibits knowing and willful solicitation or receipt of remuneration to induce referrals for federal healthcare program services
AKS Safe Harbors (42 C.F.R. § 1001.952): Employment, personal services, space rental, equipment rental, management contracts, investment interests
Stark Law (42 U.S.C. § 1395nn): Prohibits physician referrals for designated health services to entities with financial relationship, unless exception applies
Stark Exceptions (42 C.F.R. § 411.350 et seq.): Employment, personal services, FMV, space rental, equipment rental, in-office ancillary services, indirect compensation, value-based enterprise
CMS Stark Modernization Final Rule: 85 Fed. Reg. 77492 (eff. January 19, 2021)
AKS Safe Harbor Modernization Final Rule: 85 Fed. Reg. 77684 (eff. January 19, 2021)
OIG Compliance Guidance: 65 Fed. Reg. 59434 (physician practices)
Massachusetts: M.G.L. c. 175H, § 3 (all-payer anti-kickback)
Connecticut: Conn. Gen. Stat. § 20-7a(d) (referral fee prohibition)
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Appendix B: Key Personnel and Advisors
AHT: Dr. Nathan Ellsworth (CEO), Patricia Yamamoto (GC), Derek Huang (CCO), Dr. Vivian Chao (Regional Medical Director, Central MA)
Ridgeline Capital: Claudia Sorrento (Managing Director), Marcus Whitmore (Principal)
Calderwood & Harkness LLP: Miriam Calloway (Partner), Joel Strauss (Partner), Christopher Aiken (Senior Associate), Amy Whitfield (Associate)
Westbrook Hale LLP: Elena Marchetti (Partner) — AHT general outside counsel
Grayson Whitaker & Associates LLP: Carolyn Fitch (Principal) — compliance gap assessment
Northbridge Valuation Advisors LLC: Sandra Kilpatrick (Managing Director) — FMV appraisals
Halsted Accounting Group LLP: Ronald Desmond (Engagement Partner) — external auditor
Linden & Pryor LLP: Thomas Beckett (Partner) — counsel to Meridian Diagnostics
Meridian Diagnostics LLC: Dr. Franklin Osei (Managing Member, 60%), Gerald Pratt (Member, 40%)
Pinnacle Laboratory Services Inc.: Warwick, RI (Dr. Karen Ellsworth, 4.2% passive equity holder)