1010-00003 · Arbor Health Technologies Inc · Correspondence

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MEMORANDUM

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

FROM: Miriam Calloway, Partner Calderwood & Harkness LLP One Federal Street, 30th Floor Boston, MA 02110

TO: Sandra Kilpatrick, Managing Director Northbridge Valuation Advisors LLC 1600 Market Street, Suite 2800 Philadelphia, PA 19103

DATE: February 17, 2023

RE: Scope of Independent Fair Market Value Opinions — Arbor Health Technologies Inc. Physician Compensation Arrangements, Office Leases, and Facility Access Fee

C&H MATTER NO.: 1010-00003

CC: Patricia Yamamoto, General Counsel, Arbor Health Technologies Inc. Derek Huang, Chief Compliance Officer, Arbor Health Technologies Inc. Christopher Aiken, Senior Associate, Calderwood & Harkness LLP

I. PURPOSE OF THIS MEMORANDUM

Calderwood & Harkness LLP ("C&H" or the "Firm") has been engaged by Arbor Health Technologies Inc. ("AHT"), a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138, to conduct a comprehensive self-assessment of AHT's physician compensation arrangements, referral relationships, and vendor contracts under the federal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b, and the Physician Self-Referral Law (commonly known as the "Stark Law"), 42 U.S.C. § 1395nn, and their respective implementing regulations. This engagement was opened on January 30, 2023, pursuant to authorization granted by AHT Board of Directors Resolution No. 2023-01-004, adopted on January 24, 2023. The Board Resolution expressly authorized AHT's General Counsel, Patricia Yamamoto, to retain outside legal counsel to perform the self-assessment and to engage independent valuation professionals at the direction of such counsel.

The purpose of this memorandum is to specify, in detail, the particular arrangements, compensation components, and valuation methodologies for which AHT requires independent fair market value ("FMV") and commercial reasonableness opinions from Northbridge Valuation Advisors LLC ("Northbridge"). This memorandum is intended to serve as the definitive scope document governing Northbridge's valuation work in connection with C&H's legal review.

Northbridge has been retained by AHT at C&H's recommendation to provide independent FMV opinions that will support AHT's compliance with the Stark Law exceptions and AKS safe harbors. As discussed more fully in Section III below, each of the applicable Stark Law exceptions and AKS safe harbors requires, among other elements, that compensation paid or received under the arrangement be consistent with fair market value and not take into account the volume or value of referrals or other business generated between the parties. The FMV opinions prepared by Northbridge will serve as critical components of C&H's legal analysis and will inform the Firm's recommendations to AHT's Board of Directors, General Counsel, and Chief Compliance Officer regarding whether specific arrangements should be restructured, renegotiated, or terminated to ensure ongoing compliance.

In formulating the scope of this engagement, C&H has relied on the preliminary compliance gap assessment performed by Grayson Whitaker & Associates LLP ("Grayson Whitaker"), an independent healthcare compliance consulting firm retained by AHT in the fourth quarter of 2022. The Grayson Whitaker report (Report No. GW-AHT-2022-Final, dated December 12, 2022) identified seventeen (17) high-risk and twenty-three (23) moderate-risk arrangements requiring further legal review and, in many cases, independent FMV substantiation. The Grayson Whitaker report was provided to C&H at the inception of this engagement and has been instrumental in shaping the prioritization of the arrangements identified below.

In addition, AHT's external auditor, Halsted Accounting Group LLP (engagement partner: Ronald Desmond, CPA), flagged in its FY2022 management letter that certain physician compensation arrangements, particularly medical director agreements, may require independent FMV substantiation to support the reasonableness of the compensation levels reflected in AHT's financial records. While the Halsted management letter observations were directed toward financial reporting considerations, they are consistent with and corroborate the compliance concerns identified by Grayson Whitaker.

This memorandum is organized as follows: Section II provides background information on AHT's corporate structure, operations, and the Lakeview Medical Associates acquisition. Section III summarizes the regulatory context for the requested FMV opinions. Section IV sets forth the detailed scope of the FMV opinions requested, organized by arrangement category. Section V specifies the required benchmark sources and valuation methodologies. Section VI describes the expected format and deliverables. Section VII identifies the documentation that C&H will assemble and transmit to Northbridge. Section VIII addresses confidentiality and privilege considerations. Section IX discusses engagement logistics. Section X provides contact information for key personnel.

II. BACKGROUND ON ARBOR HEALTH TECHNOLOGIES INC.

A. Corporate and Operational Profile

Arbor Health Technologies Inc. is a Delaware corporation with its principal offices located at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138. AHT operates a network of twenty-three (23) outpatient clinics branded as "Arbor Health Clinics" across four (4) states in the New England region. The clinic network is distributed as follows: fourteen (14) clinics in Massachusetts, four (4) clinics in Connecticut, three (3) clinics in Rhode Island, and two (2) clinics in New Hampshire. The Massachusetts clinics represent the majority of AHT's clinical operations and revenue.

AHT's clinical service lines span primary care and several specialty care disciplines, including cardiology, orthopedics, and gastroenterology. In addition to physician services, AHT provides ancillary services at many of its clinic locations, including in-office laboratory testing, diagnostic imaging (X-ray, ultrasound, and limited CT), and physical therapy. These ancillary services generate designated health services ("DHS") revenue that is subject to the Stark Law, which is a critical consideration for purposes of this FMV engagement.

AHT also develops and licenses a proprietary electronic health record ("EHR") and practice management software-as-a-service ("SaaS") platform marketed under the brand name "ArborConnect." ArborConnect is currently licensed to forty-two (42) external physician practices, generating approximately $8.9 million in annual subscription revenue. While the ArborConnect licensing arrangements are not within the scope of this FMV engagement, C&H notes that certain referring physicians who are parties to the compensation arrangements described below may also be ArborConnect licensees, a fact that may be relevant to the overall compliance assessment.

AHT's total workforce comprises approximately 1,340 employees across clinical and administrative roles. The physician workforce consists of one hundred forty-seven (147) W-2 employed physicians and thirty-eight (38) physicians engaged under independent contractor or medical director arrangements. AHT's executive leadership includes: Dr. Nathan Ellsworth, Chief Executive Officer; Patricia Yamamoto, Esq., General Counsel; and Derek Huang, Chief Compliance Officer.

B. Revenue Profile

For fiscal year 2022, AHT reported net revenue of $214.3 million. Of this total, Medicare and Medicaid program revenue accounted for approximately sixty-one percent (61%), or $130.7 million, while commercial payer revenue accounted for the remaining thirty-nine percent (39%), or $83.6 million. AHT's largest single commercial payer relationship is with Covenant Health Plans Inc., which generated approximately $38.6 million in revenue during FY2022, representing approximately eighteen percent (18%) of AHT's total net revenue.

The high proportion of government payer revenue underscores the significance of the Stark Law and AKS compliance analysis. Both statutes are designed to protect federal healthcare programs from fraud and abuse, and the Stark Law applies specifically to referrals for designated health services payable by Medicare. Given that nearly two-thirds of AHT's revenue derives from Medicare and Medicaid, the financial and regulatory exposure associated with non-compliant arrangements is substantial.

AHT's Employer Identification Number ("EIN") is 84-3291057. Its Organizational National Provider Identifier ("NPI") is 1497253810. Its lead Provider Transaction Access Number ("PTAN") is 27MA4891.

C. Ownership Structure

AHT is a portfolio company of Ridgeline Capital Partners Fund IV, L.P. ("Ridgeline Fund IV"), a Delaware limited partnership managed by Ridgeline Capital Advisors LLC, a private equity advisory firm headquartered in Greenwich, Connecticut. Ridgeline Fund IV acquired a seventy-two percent (72%) controlling equity stake in AHT in January 2021 for an aggregate purchase price of $185 million. The remaining equity is held by management and legacy physician shareholders under a stockholders' agreement that is not material to this memorandum.

Ridgeline Fund IV is represented on AHT's Board of Directors by two designees: Claudia Sorrento, Managing Director of Ridgeline Capital Advisors LLC, and Marcus Whitmore, Principal of Ridgeline Capital Advisors LLC. Both Ms. Sorrento and Mr. Whitmore have been briefed on the compliance self-assessment and have expressed Ridgeline's full support for the engagement of Northbridge to provide independent FMV opinions.

Of particular relevance to the timing and urgency of this engagement, Ridgeline Capital Advisors LLC is currently evaluating a potential exit or sale of its equity position in AHT, with a preliminary target timeline of late 2024. Any prospective acquirer or strategic partner is likely to conduct extensive due diligence on AHT's physician compensation arrangements and regulatory compliance posture. The availability of current, well-documented FMV opinions for all material physician arrangements will be a critical component of that due diligence process and may have a direct bearing on the valuation of AHT as a going concern.

D. Lakeview Medical Associates Acquisition

On August 15, 2022, AHT closed an asset purchase of Lakeview Medical Associates, P.C. ("Lakeview"), a Massachusetts professional corporation engaged in the practice of medicine in the Worcester and Shrewsbury, Massachusetts metropolitan area. The aggregate purchase price for the Lakeview assets was $11.4 million. Lakeview's EIN prior to the acquisition was 04-3782145.

In connection with the Lakeview acquisition, AHT assumed employment and engagement relationships with fourteen (14) physicians—twelve (12) employed under W-2 employment agreements and two (2) engaged as independent contractors. AHT also assumed three (3) medical director agreements with annual compensation of $45,000, $60,000, and $72,000, respectively. Additionally, AHT assumed the leasehold interests under two (2) office space leases for clinic locations in Worcester and Shrewsbury, Massachusetts.

Prior to the acquisition, Lakeview generated annual revenue of approximately $18.2 million, of which approximately $10.9 million (approximately 60%) was derived from Medicare and Medicaid. The Lakeview physician compensation arrangements were negotiated prior to AHT's acquisition and were not subject to independent FMV substantiation at the time of closing. The acquisition was handled by Westbrook Hale LLP (Elena Marchetti, Partner), and while Westbrook Hale performed customary legal due diligence in connection with the transaction, the scope of that engagement did not include independent FMV analysis of the assumed physician compensation arrangements or real property leases.

Dr. Vivian Chao, Lakeview's former managing partner, transitioned to the role of Regional Medical Director for AHT's Central Massachusetts operations following the acquisition. Dr. Chao's compensation arrangement is among those requiring independent FMV review, as discussed in Section IV below.

The Grayson Whitaker report specifically identified the legacy Lakeview arrangements as presenting heightened compliance risk due to the absence of pre-acquisition FMV documentation and the fact that these arrangements have not yet been updated to conform to AHT's current compensation structures and policies.

III. REGULATORY CONTEXT FOR FMV OPINIONS

This Section provides a summary of the federal regulatory framework relevant to the FMV opinions requested from Northbridge. Northbridge is expected to be familiar with these regulatory requirements; this summary is provided to ensure alignment between C&H's legal analysis and Northbridge's valuation approach.

Stark Law (Physician Self-Referral Law). The Stark Law, codified at 42 U.S.C. § 1395nn, prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, unless the arrangement falls within a specified exception. A "financial relationship" encompasses both ownership or investment interests and compensation arrangements. The regulations define "fair market value" as "the value in arm's-length transactions, consistent with the general market value," and further provide that "general market value" means "the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party." 42 C.F.R. § 411.351. For compensation arrangements, FMV is the compensation that would be paid in an arm's-length transaction that is "consistent with the general market value of the subject transaction."

Each of the following Stark Law exceptions requires, as a threshold element, that compensation be set at fair market value and not take into account the volume or value of referrals or other business generated between the parties:

(a) Employment Exception (42 C.F.R. § 411.357(c)) — applies to bona fide employment relationships where compensation is consistent with FMV for the services actually provided and does not take into account the volume or value of referrals;

(b) Personal Services Exception (42 C.F.R. § 411.357(d)) — applies to personal services and management contracts where compensation is set in advance, is consistent with FMV, and does not take into account the volume or value of referrals;

(c) Fair Market Value Exception (42 C.F.R. § 411.357(l)) — a general exception for compensation arrangements that satisfy FMV and commercial reasonableness requirements;

(d) Space Rental Exception (42 C.F.R. § 411.357(a)) — applies to rental of office space where the rental payments are set in advance, are consistent with FMV, and do not take into account the volume or value of referrals; and

(e) Equipment Rental Exception (42 C.F.R. § 411.357(b)) — applies to rental of equipment where the rental payments are consistent with FMV and satisfy conditions analogous to the space rental exception.

Anti-Kickback Statute. The AKS, codified at 42 U.S.C. § 1320a-7b(b), prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals for items or services payable by federal healthcare programs. The AKS is a criminal statute with civil enforcement authority under the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a. The Office of Inspector General ("OIG") has promulgated regulatory safe harbors at 42 C.F.R. § 1001.952 that, if fully satisfied, protect arrangements from prosecution under the AKS. Relevant safe harbors include:

(a) Employment Safe Harbor (42 C.F.R. § 1001.952(i)) — protects amounts paid by an employer to a bona fide employee;

(b) Personal Services and Management Contracts Safe Harbor (42 C.F.R. § 1001.952(d)) — protects arrangements where aggregate compensation is set in advance, is consistent with FMV in arm's-length transactions, and is not determined in a manner that takes into account the volume or value of referrals;

(c) Space Rental Safe Harbor (42 C.F.R. § 1001.952(b)) — protects lease arrangements for space where rental charges are consistent with FMV, are set in advance, and are not determined in a manner that takes into account the volume or value of referrals; and

(d) Equipment Rental Safe Harbor (42 C.F.R. § 1001.952(c)) — protects lease arrangements for equipment under analogous terms.

Stark Law and AKS Modernization Rules. In November 2020, the Centers for Medicare & Medicaid Services ("CMS") and the OIG issued coordinated final rules modernizing certain Stark Law regulations and AKS safe harbors. The CMS Stark Law Modernization Final Rule was published at 85 Fed. Reg. 77492 and became effective on January 19, 2021. The OIG AKS Safe Harbor Modernization Final Rule was published at 85 Fed. Reg. 77684 and likewise became effective on January 19, 2021. Among other changes, these rules provided updated guidance on the application of FMV and commercial reasonableness determinations. The CMS Final Rule clarified that "fair market value" is to be assessed based on the specific facts and circumstances of the transaction, and that the determination should not be based solely on a single data source or benchmarking survey. The rules also emphasized that commercial reasonableness is an independent requirement, analytically distinct from FMV: an arrangement may be at fair market value but not commercially reasonable, or vice versa.

Commercial Reasonableness. In addition to establishing that compensation is consistent with FMV, several of the applicable Stark Law exceptions and AKS safe harbors require that the arrangement be "commercially reasonable" — that is, the arrangement must serve a legitimate business purpose that a reasonable entity of similar type and size would pursue even in the absence of any referral relationship between the parties. Northbridge's opinions should address commercial reasonableness as a separate and independent conclusion, distinct from the FMV analysis, for each arrangement within the scope of this engagement.

IV. SCOPE OF REQUESTED FMV OPINIONS

This Section sets forth, in detail, the specific arrangements for which Northbridge is requested to provide independent FMV and commercial reasonableness opinions. The arrangements are organized into five (5) categories.

A. Category 1: Independent Contractor and Medical Director Agreements (38 Arrangements)

1. Overview of Population. AHT currently maintains thirty-eight (38) independent contractor and medical director arrangements with physicians who provide administrative, supervisory, and clinical oversight services at various AHT clinic locations. These arrangements include medical director agreements, quality oversight agreements, and administrative services agreements with physicians who also maintain clinical practices — in many cases generating referrals of patients to AHT clinics for designated health services.

The annual stipend or compensation under these thirty-eight arrangements ranges from $25,000 to $110,000 per arrangement, per year. The aggregate annual medical director compensation across all thirty-eight (38) arrangements is $1.92 million. Based on the documentation currently available to C&H, the mean documented medical director time commitment across the thirty-eight arrangements is 8.4 hours per month per arrangement.

The effective average hourly rate implied by these figures is calculated as follows:

Aggregate annual compensation: $1,920,000

Total annual hours across all arrangements: 38 arrangements × 8.4 hours/month × 12 months/year = 3,830.4 hours/year

Effective average hourly rate: $1,920,000 ÷ 3,830.4 hours = $501.28/hour

This effective hourly rate of $501.28 has been preliminarily identified as substantially above the 90th percentile for medical director compensation across multiple physician specialties based on available published benchmark data, including the MGMA Medical Directorship Compensation Survey and the SullivanCotter Physician Compensation and Productivity Survey. While effective hourly rates vary by specialty, geography, and the scope and complexity of duties performed, a rate consistently above the 90th percentile across the entire portfolio of arrangements is a significant compliance concern.

2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the thirty-eight (38) independent contractor and medical director arrangements. Each opinion should address the following:

(a) Whether the annual stipend or compensation is consistent with FMV for the services described in the applicable agreement, taking into account the physician's specialty, the scope and complexity of the duties, and the geographic market in which the services are performed;

(b) Whether the effective hourly rate (calculated based on documented hours of service) falls within the FMV range for physicians of the same specialty providing comparable medical director or administrative services; and

(c) Whether the arrangement is commercially reasonable — specifically, whether the services described in the agreement represent legitimate, identifiable business functions that a reasonable healthcare entity of AHT's size and scope would compensate an independent physician to perform, and whether such entity would do so at the stated compensation level, absent any referral relationship between the parties.

For each arrangement, C&H will assemble and provide to Northbridge the following documentation:

(i) Fully executed agreement, including all amendments and schedules;

(ii) Job description or duty specifications, as set forth in the agreement or in any supplemental documentation maintained by AHT;

(iii) Documented hours of service, including monthly time logs where available (C&H notes that time log documentation is incomplete for a number of these arrangements, and Northbridge should identify any arrangements for which the absence of contemporaneous time documentation affects the reliability of the FMV analysis);

(iv) Physician specialty and sub-specialty;

(v) Physician credentials and relevant experience, including board certification, years in practice, and any specialized qualifications relevant to the medical director role; and

(vi) Clinical productivity data, including work relative value units ("wRVUs") and patient volume data, to the extent such data is relevant to the compensation arrangement (e.g., where the agreement contemplates a hybrid clinical/administrative role).

3. Specialty Breakdown. The thirty-eight independent contractor and medical director arrangements span the following physician specialty categories. C&H requests that Northbridge apply specialty-specific benchmarks to each arrangement within its respective specialty category, recognizing that FMV for medical director services varies materially by specialty:

• Primary Care / Internal Medicine / Family Medicine

• Cardiology

• Orthopedic Surgery

• Gastroenterology

• Other specialties (to be identified in the documentation provided)

A complete listing of the thirty-eight arrangements, including the name, specialty, and current compensation of each physician, will be provided under separate cover as part of the documentation package described in Section VII below.

4. Key Concern. As noted above, the effective average hourly rate of $501.28 across the portfolio of medical director arrangements substantially exceeds published compensation benchmarks for medical director services across all represented specialties. This finding was a central concern identified in the Grayson Whitaker report and has been corroborated by C&H's preliminary analysis. However, the aggregate figure may mask significant variation among individual arrangements. Some arrangements may be within or near the FMV range for the relevant specialty and market, while others may be significantly above the range. Northbridge's individual, arrangement-specific opinions will be critical in enabling C&H to determine which specific arrangements require restructuring — whether through a reduction in annual compensation, an increase in the number of documented hours of service, a more precise delineation of duties, or some combination of these remedial measures — and which arrangements, if any, should be terminated.

B. Category 2: Lakeview Legacy Physician Employment Agreements (14 Arrangements)

1. Overview of Population. In connection with AHT's acquisition of Lakeview Medical Associates, P.C. on August 15, 2022, AHT assumed employment and engagement relationships with fourteen (14) physicians. Of these fourteen, twelve (12) are employed under W-2 employment agreements, and two (2) are engaged as independent contractors. These physician agreements were originally negotiated and executed by Lakeview prior to the acquisition. As of the date of this memorandum, the Lakeview legacy agreements have not been updated, amended, or conformed to AHT's current physician compensation structure or policies. The fourteen physicians practice in the Worcester and Shrewsbury, Massachusetts markets.

The population of Lakeview legacy physician arrangements includes the arrangement with Dr. Vivian Chao, who served as Lakeview's managing partner prior to the acquisition and has transitioned to the role of AHT Regional Medical Director for Central Massachusetts. Dr. Chao's arrangement is of particular significance because her compensation reflects both her clinical responsibilities and her regional medical director duties, and because her role involves substantial referral activity.

Pre-acquisition Lakeview physician compensation data, including base salaries, any productivity-based bonuses or incentive payments, and benefit structures, will be provided to Northbridge as part of the documentation package.

2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the fourteen (14) Lakeview legacy physician arrangements. Each opinion should address the following:

(a) Whether the physician's total compensation — including base salary and any productivity-based bonus, quality incentive, or other incentive compensation — is consistent with FMV for a physician of the same specialty, with comparable experience and qualifications, practicing in the Worcester, Massachusetts / Shrewsbury, Massachusetts geographic market;

(b) Whether the compensation methodology employed in the agreement — whether salary-only, wRVU-based, hybrid salary-plus-productivity, or other structure — is consistent with FMV and reflects a compensation design that is common and accepted in the relevant physician labor market; and

(c) Whether each arrangement is commercially reasonable — that is, whether a reasonable healthcare entity of AHT's size and scope would employ a physician of the stated specialty, with the stated duties and responsibilities, at the stated compensation level, in the stated geographic market, absent any referral relationship.

For each arrangement, C&H will provide:

(i) Fully executed employment agreement or independent contractor agreement, including all amendments, addenda, and compensation schedules;

(ii) Current compensation schedule, detailing all components of compensation (base salary, productivity bonus, quality incentive, call coverage compensation, benefits, and any other remuneration);

(iii) Productivity data, including wRVUs generated, panel size (for primary care physicians), and patient encounter volume;

(iv) Physician specialty and sub-specialty;

(v) Years of experience in practice and post-training experience; and

(vi) Geographic market identification (Worcester, MA and Shrewsbury, MA area).

3. Benchmark Context. For context and to facilitate Northbridge's analysis, C&H provides the following data regarding AHT's current physician compensation benchmarks across its broader clinic network (excluding the Lakeview legacy arrangements):

• AHT's current median total compensation for primary care physicians: $278,000 per year

• AHT's current median total compensation for specialty physicians: $412,000 per year

These figures represent AHT's internal compensation benchmarks and are based on AHT's current compensation grid. Northbridge should assess whether the Lakeview legacy compensation levels are consistent with AHT's internal benchmarks, as well as with independent, externally published market benchmarks for the relevant specialties and geographic markets. Any material divergence between the Lakeview legacy compensation and AHT's internal or external benchmarks should be identified and quantified in each opinion.

C. Category 3: Lakeview Legacy Medical Director Agreements (3 Arrangements)

1. Overview. AHT assumed three (3) medical director agreements in the Lakeview Medical Associates acquisition. The annual compensation under these three agreements is $45,000, $60,000, and $72,000, respectively. These three arrangements are a subset of the broader population of thirty-eight (38) independent contractor and medical director arrangements described in Category 1 above. However, C&H is calling them out separately in this memorandum for two reasons: first, they were assumed as part of the Lakeview acquisition with no independent FMV substantiation at the time of closing; and second, the duty descriptions and time commitment documentation for these three arrangements may be less robust than for the medical director agreements that AHT originated directly.

2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the three (3) Lakeview legacy medical director agreements. The scope of each opinion is the same as set forth in Category 1 above:

(a) Assessment of whether the annual stipend is consistent with FMV for the described medical director services;

(b) Calculation and assessment of the effective hourly rate based on documented hours (to the extent time logs or other hour documentation is available); and

(c) Assessment of commercial reasonableness — whether the medical director duties described in the agreement represent legitimate functions and whether a reasonable entity would compensate a physician for those duties at the stated level absent referrals.

C&H will provide the following documentation for each arrangement:

(i) Executed medical director agreement (as in effect at the time of the Lakeview acquisition);

(ii) Duty descriptions and scope of services;

(iii) Documented hours of service, to the extent available; and

(iv) Physician specialty, credentials, and qualifications.

C&H notes that if time documentation is unavailable or incomplete for any of these three arrangements, Northbridge should note the evidentiary limitation in its opinion and, to the extent possible, provide an analysis of what time commitment would be necessary to bring the effective hourly rate within the FMV range for the applicable specialty.

D. Category 4: Office Space Leases (2 Arrangements)

1. Worcester Clinic Lease. AHT assumed a commercial office lease for the Worcester clinic location at 75 Belmont Street, Worcester, MA 01605 in connection with the Lakeview Medical Associates acquisition on August 15, 2022. This lease was originally entered into by Lakeview and was assigned to or assumed by AHT as part of the asset purchase. The Worcester clinic serves as a primary care and specialty care facility and is one of the clinical sites from which AHT's Lakeview legacy physicians practice and generate referrals for designated health services.

Northbridge is requested to provide an FMV opinion on the following elements of the Worcester clinic lease:

(a) The per-square-foot annual rental rate, compared to FMV rental rates for comparable medical office space in the Worcester, Massachusetts market;

(b) The aggregate annual rental payment, assessed in light of the total square footage, the quality and condition of the premises, and the terms of the lease; and

(c) Whether the lease terms — including base rent, common area maintenance ("CAM") charges, tenant improvement provisions, escalation clauses, and other material terms — are consistent with the terms that would be agreed upon by parties in an arm's-length transaction for comparable medical office space in the same market.

C&H will provide the following documentation:

(i) Fully executed lease agreement, including all amendments and extensions;

(ii) Complete lease amendment history;

(iii) square footage (rentable and usable);

(iv) Description of tenant improvements, including any medical-grade buildout;

(v) Common area maintenance charge schedule;

(vi) Any comparable market data that AHT may have obtained independently; and

(vii) Floor plan and space layout, if available.

2. Shrewsbury Clinic Lease. AHT also assumed a commercial office lease for the Shrewsbury clinic location at 310 Main Street, Suite 2A, Shrewsbury, MA 01545 in connection with the Lakeview acquisition. This lease was likewise originally entered into by Lakeview and assigned to or assumed by AHT as part of the asset purchase.

Northbridge is requested to provide an FMV opinion on the Shrewsbury clinic lease with the same scope as described above for the Worcester clinic lease, including per-square-foot rental rate analysis, aggregate annual rental assessment, and evaluation of lease terms against comparable medical office space in the Shrewsbury, Massachusetts market.

C&H will provide the same categories of documentation for the Shrewsbury lease as for the Worcester lease.

3. Regulatory Requirement. Both the Worcester and Shrewsbury clinic leases must satisfy the requirements of the Stark Law space rental exception, 42 C.F.R. § 411.357(a), and the AKS space rental safe harbor, 42 C.F.R. § 1001.952(b). These provisions require, among other elements, that:

(a) The aggregate rental charges over the term of the lease are set in advance, are consistent with fair market value in arm's-length transactions, and are not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties;

(b) The lease is commercially reasonable even if no referrals were made between the parties; and

(c) The lease covers only space that is used exclusively by the lessee when being used by the lessee, and the space does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease.

Northbridge's FMV opinions should specifically address whether the rental rates under each lease satisfy these regulatory requirements.

E. Category 5: Meridian Diagnostics Facility Access Fee

1. Arrangement Overview. Meridian Diagnostics LLC ("Meridian"), a limited liability company organized under the laws of Connecticut and headquartered at 88 Trumbull Street, Hartford, CT 06103 (EIN: 82-4019673), provides mobile MRI and advanced diagnostic imaging services at four (4) AHT clinic locations pursuant to a services agreement dated March 1, 2021 (the "Meridian Services Agreement"). Under the Meridian Services Agreement, Meridian brings mobile imaging equipment to designated AHT clinic locations on scheduled days and provides imaging services to patients referred by AHT physicians and other referring providers.

Meridian is owned by Dr. Franklin Osei, a board-certified radiologist who holds a sixty percent (60%) ownership interest, and Gerald Pratt, a non-physician investor who holds a forty percent (40%) ownership interest. Dr. Osei personally interprets the imaging studies performed at AHT's clinic locations.

Under the current fee structure, Meridian pays AHT a per-scan facility access fee of $185 per scan for the use of clinic space, utilities, ancillary support, and patient scheduling coordination provided by AHT. In FY2022, Meridian performed a total of 4,200 scans at AHT clinic locations, resulting in total facility access fees paid by Meridian to AHT of $777,000 (4,200 scans × $185/scan = $777,000).

In the same period, AHT physicians generated approximately $2.8 million in referrals to Meridian for diagnostic imaging services. The relationship between the per-scan facility access fee (which varies with scan volume and therefore, indirectly, with referral volume) and the substantial value of referrals flowing from AHT physicians to Meridian is a central compliance concern.

2. Requested Valuation Scope. Northbridge is requested to provide the following FMV opinions in connection with the Meridian arrangement:

(a) Current Per-Scan Fee. An FMV opinion on the current per-scan facility access fee of $185 per scan — specifically, whether this per-scan rate reflects FMV for the clinic space, utilities, equipment, and support services that AHT makes available to Meridian at each of the four clinic locations. This opinion should address whether the per-scan fee, as currently structured, is defensible from a valuation standpoint and whether the aggregate annual amount of $777,000 is consistent with FMV for the resources provided.

(b) Proposed Fixed Monthly Rental. An FMV opinion on the proposed restructured arrangement under which the per-scan facility access fee would be converted to a fixed monthly facility rental fee at each of the four AHT clinic locations. Northbridge should opine on the appropriate fixed monthly rental amount for the designated clinic space, equipment, and support services at each location, based on the square footage utilized by Meridian, the hours and days of scheduled use, the equipment and infrastructure made available, and the support staffing provided by AHT. The fixed monthly rental fee should be set at a level that is consistent with FMV and does not vary with the volume of scans performed or referrals generated.

(c) Commercial Reasonableness. An assessment of whether the facility access arrangement — in both its current and proposed restructured forms — serves a legitimate business purpose independent of referrals. This assessment should consider whether a reasonable healthcare entity in AHT's position would make clinic space and support services available to a mobile imaging provider on the terms described, and whether the arrangement provides genuine operational benefits to AHT and its patient population.

C&H will provide the following documentation:

(i) Executed Meridian Services Agreement, dated March 1, 2021, including all schedules, exhibits, and amendments;

(ii) Draft of the proposed restructured facility access agreement, which is currently being prepared by C&H (to be provided when available);

(iii) Description of the space and equipment made available to Meridian at each of the four AHT clinic locations, including square footage, room specifications, and any AHT-owned equipment used by Meridian;

(iv) Scan volume data (monthly and annual) for FY2021 and FY2022;

(v) Meridian's schedule of use at each clinic location (days per week, hours per day); and

(vi) Any additional information regarding support services and staffing provided by AHT.

3. Regulatory Concern. The current per-scan facility access fee structure presents a significant compliance concern under both the Stark Law and the AKS. The Stark Law space rental exception and equipment rental exception, and the corresponding AKS safe harbors, require that rental payments be set in advance and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties. A per-scan fee, by definition, varies with the volume of scans performed. Because AHT physicians are a primary source of referrals for the imaging services provided by Meridian at AHT's clinic locations, the per-scan fee structure creates a direct correlation between the volume of referrals and the aggregate amount of rental payments — precisely the type of arrangement that the Stark Law and AKS are designed to prohibit.

The conversion of the per-scan fee to a fixed monthly rental fee, set at FMV and not varying with scan volume or referral volume, is the central element of the restructuring that C&H is recommending to AHT. Northbridge's FMV opinion on the appropriate fixed monthly rental amount is essential to support the restructured arrangement and demonstrate compliance with the applicable Stark Law exceptions and AKS safe harbors.

C&H notes that Meridian Diagnostics LLC is represented by separate legal counsel: Linden & Pryor LLP (Thomas Beckett, Partner, Hartford, Connecticut). Any sharing of Northbridge's final FMV opinions with Meridian or its counsel will be authorized by AHT only after the restructured arrangement is finalized, and only with respect to those opinions directly relating to the Meridian facility access fee.

V. REQUIRED BENCHMARK SOURCES AND METHODOLOGY

This Section sets forth C&H's requirements and expectations regarding the benchmark data sources and valuation methodologies to be employed by Northbridge in preparing the requested FMV opinions. While Northbridge exercises independent professional judgment in selecting and applying valuation approaches, C&H requests that Northbridge utilize, at a minimum, the benchmark sources identified below and apply the methodological standards described herein.

A. Physician Compensation Benchmarks

For the physician employment arrangements described in Categories 1, 2, and 3, Northbridge should draw upon the following nationally recognized physician compensation and productivity surveys:

(a) MGMA DataDive Physician Compensation and Productivity Data — the most recent available year (expected to be 2022 data based on 2021 reporting);

(b) SullivanCotter Physician Compensation and Productivity Survey — the most recent available edition;

(d) Northbridge's proprietary comparable transaction database, to the extent that Northbridge maintains such a database of arms-length physician compensation arrangements in the relevant specialties and geographies; and

(e) Bureau of Labor Statistics ("BLS") Occupational Employment and Wage Statistics for physicians and surgeons in the New England region (BLS Area: Boston-Cambridge-Nashua, MA-NH NECTA; and comparable statistical areas for the relevant clinic locations).

All benchmarks should be applied on a specialty-specific and geographic-adjusted basis, with the primary geographic reference being the New England / Northeast region. Where surveys provide regional stratification, Northbridge should use New England or Northeast region data as the primary comparator. Where national data is used, appropriate geographic adjustments should be applied and documented.

B. Medical Director Compensation Benchmarks

For the medical director arrangements described in Categories 1 and 3, Northbridge should draw upon the following sources:

(a) MGMA Medical Directorship Compensation Survey — the most recent available edition, which provides data on medical director compensation by specialty, time commitment, and scope of duties;

(b) SullivanCotter medical director compensation data — to the extent that SullivanCotter reports separate data for medical director roles; and

The analysis of medical director compensation should be performed on both a per-hour and per-annum basis. The per-hour analysis should calculate effective hourly rates based on documented hours of service and compare those rates to published per-hour benchmarks by specialty. The per-annum analysis should assess whether the aggregate annual stipend is consistent with FMV for medical director roles of comparable scope, time commitment, and specialty.

The commercial reasonableness analysis for medical director arrangements should consider, at a minimum:

(i) The scope and specificity of the duties described in the agreement;

(ii) The time commitment required to perform those duties competently;

(iii) The qualifications required for the medical director role, including specialty training, board certification, and relevant experience;

(iv) Whether a reasonable healthcare entity of AHT's size, scope, and clinical service mix would engage a physician to perform the described medical director services; and

(v) Whether a reasonable entity would compensate such a physician at the stated level absent any referral relationship between the parties.

C. Office Space Rental Benchmarks

For the two office space leases described in Category 4, Northbridge should employ the following data sources and analytical approaches:

(a) Comparable medical office space lease data for the Worcester, Massachusetts and Shrewsbury, Massachusetts real estate markets, including asking rents and effective rents for recently executed leases;

(b) Larkspur Enterprises or equivalent commercial real estate database, to identify comparable transactions and current market conditions for medical office space in the relevant sub-markets;

(c) Adjustment factors to account for differences between the subject properties and comparable properties, including but not limited to: medical-grade buildout and tenant improvements (including specialized HVAC, electrical, plumbing, and data infrastructure); parking availability and ratio; location within the sub-market; property condition and age; lease term and renewal options; landlord and tenant responsibility allocations; and escalation provisions; and

(d) Per-square-foot annual rental rate analysis, with separate identification of base rent, CAM charges, and any additional pass-through costs.

D. Facility Access Fee / Equipment Access Benchmarks

For the Meridian Diagnostics facility access fee arrangement described in Category 5, Northbridge should identify and apply the following types of comparable data:

(a) Comparable mobile diagnostic imaging facility access agreements in the New England and broader Northeast markets;

(b) Per-unit-of-time rental rates (hourly, daily, weekly, or monthly, as applicable) for comparable medical imaging suite space made available to third-party imaging providers;

(c) Equipment access rates for comparable MRI and advanced diagnostic imaging modalities, to the extent that AHT-owned equipment is made available to Meridian; and

(d) Adjustments for any support services and staffing provided by AHT as the host facility, including patient scheduling, registration, preparation, and post-procedure monitoring, to the extent that such services represent a component of the overall facility access arrangement.

E. Valuation Approaches

Northbridge should apply, as appropriate, the following recognized valuation approaches:

(a) Market Approach — analysis of comparable transactions and published survey data to determine the range of compensation or rental rates that would be agreed upon by parties in arm's-length transactions for comparable services, space, or equipment;

(b) Income Approach — where relevant, analysis of the economic value of the arrangement to the parties, including an assessment of whether the arrangement is commercially reasonable based on the economics that would apply in the absence of referrals; and

(c) Cost Approach — for equipment and space valuations, analysis of replacement cost, depreciation, and other cost-based methodologies to determine the FMV of the resources being made available.

Each opinion should clearly state the valuation approach or approaches used and the rationale for the selection of each approach. Where multiple approaches are applied, Northbridge should describe how the results were reconciled to arrive at the final FMV conclusion.

VI. OPINION FORMAT AND DELIVERABLES

A. Individual FMV Opinions

Northbridge is requested to provide a separate written FMV opinion for each arrangement within the scope of this engagement. Based on the categories described in Section IV above, the total number of individual FMV opinions is fifty-five (55), calculated as follows:

• Category 1 (independent contractor and medical director agreements): 38 opinions

• Category 2 (Lakeview legacy physician employment agreements): 14 opinions

• Category 3 (Lakeview legacy medical director agreements): 3 opinions (note: these 3 are a subset of the 38 in Category 1 but are being called out separately for analytical purposes; accordingly, the 38 Category 1 opinions include these 3, and the total is 38 + 14 + 2 + 1 = 55, with the 3 Lakeview medical director opinions included within the 38)

To clarify: the thirty-eight (38) medical director and independent contractor opinions in Category 1 include the three (3) Lakeview legacy medical director agreements in Category 3. C&H requests that those three opinions be prepared with the enhanced documentation and analysis described in Category 3, but they need not be issued as separate, duplicative opinions. The total number of individual opinions is therefore calculated as:

• 38 medical director / independent contractor opinions (inclusive of 3 Lakeview legacy medical director arrangements)

MEMORANDUM
ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
FROM: Miriam Calloway, Partner Calderwood & Harkness LLP One Federal Street, 30th Floor Boston, MA 02110
TO: Sandra Kilpatrick, Managing Director Northbridge Valuation Advisors LLC 1600 Market Street, Suite 2800 Philadelphia, PA 19103
DATE: February 17, 2023
RE: Scope of Independent Fair Market Value Opinions — Arbor Health Technologies Inc. Physician Compensation Arrangements, Office Leases, and Facility Access Fee
C&H MATTER NO.: 1010-00003
CC: Patricia Yamamoto, General Counsel, Arbor Health Technologies Inc. Derek Huang, Chief Compliance Officer, Arbor Health Technologies Inc. Christopher Aiken, Senior Associate, Calderwood & Harkness LLP
I. PURPOSE OF THIS MEMORANDUM
Calderwood & Harkness LLP ("C&H" or the "Firm") has been engaged by Arbor Health Technologies Inc. ("AHT"), a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138, to conduct a comprehensive self-assessment of AHT's physician compensation arrangements, referral relationships, and vendor contracts under the federal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b, and the Physician Self-Referral Law (commonly known as the "Stark Law"), 42 U.S.C. § 1395nn, and their respective implementing regulations. This engagement was opened on January 30, 2023, pursuant to authorization granted by AHT Board of Directors Resolution No. 2023-01-004, adopted on January 24, 2023. The Board Resolution expressly authorized AHT's General Counsel, Patricia Yamamoto, to retain outside legal counsel to perform the self-assessment and to engage independent valuation professionals at the direction of such counsel.
The purpose of this memorandum is to specify, in detail, the particular arrangements, compensation components, and valuation methodologies for which AHT requires independent fair market value ("FMV") and commercial reasonableness opinions from Northbridge Valuation Advisors LLC ("Northbridge"). This memorandum is intended to serve as the definitive scope document governing Northbridge's valuation work in connection with C&H's legal review.
Northbridge has been retained by AHT at C&H's recommendation to provide independent FMV opinions that will support AHT's compliance with the Stark Law exceptions and AKS safe harbors. As discussed more fully in Section III below, each of the applicable Stark Law exceptions and AKS safe harbors requires, among other elements, that compensation paid or received under the arrangement be consistent with fair market value and not take into account the volume or value of referrals or other business generated between the parties. The FMV opinions prepared by Northbridge will serve as critical components of C&H's legal analysis and will inform the Firm's recommendations to AHT's Board of Directors, General Counsel, and Chief Compliance Officer regarding whether specific arrangements should be restructured, renegotiated, or terminated to ensure ongoing compliance.
In formulating the scope of this engagement, C&H has relied on the preliminary compliance gap assessment performed by Grayson Whitaker & Associates LLP ("Grayson Whitaker"), an independent healthcare compliance consulting firm retained by AHT in the fourth quarter of 2022. The Grayson Whitaker report (Report No. GW-AHT-2022-Final, dated December 12, 2022) identified seventeen (17) high-risk and twenty-three (23) moderate-risk arrangements requiring further legal review and, in many cases, independent FMV substantiation. The Grayson Whitaker report was provided to C&H at the inception of this engagement and has been instrumental in shaping the prioritization of the arrangements identified below.
In addition, AHT's external auditor, Halsted Accounting Group LLP (engagement partner: Ronald Desmond, CPA), flagged in its FY2022 management letter that certain physician compensation arrangements, particularly medical director agreements, may require independent FMV substantiation to support the reasonableness of the compensation levels reflected in AHT's financial records. While the Halsted management letter observations were directed toward financial reporting considerations, they are consistent with and corroborate the compliance concerns identified by Grayson Whitaker.
This memorandum is organized as follows: Section II provides background information on AHT's corporate structure, operations, and the Lakeview Medical Associates acquisition. Section III summarizes the regulatory context for the requested FMV opinions. Section IV sets forth the detailed scope of the FMV opinions requested, organized by arrangement category. Section V specifies the required benchmark sources and valuation methodologies. Section VI describes the expected format and deliverables. Section VII identifies the documentation that C&H will assemble and transmit to Northbridge. Section VIII addresses confidentiality and privilege considerations. Section IX discusses engagement logistics. Section X provides contact information for key personnel.
II. BACKGROUND ON ARBOR HEALTH TECHNOLOGIES INC.
A. Corporate and Operational Profile
Arbor Health Technologies Inc. is a Delaware corporation with its principal offices located at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138. AHT operates a network of twenty-three (23) outpatient clinics branded as "Arbor Health Clinics" across four (4) states in the New England region. The clinic network is distributed as follows: fourteen (14) clinics in Massachusetts, four (4) clinics in Connecticut, three (3) clinics in Rhode Island, and two (2) clinics in New Hampshire. The Massachusetts clinics represent the majority of AHT's clinical operations and revenue.
AHT's clinical service lines span primary care and several specialty care disciplines, including cardiology, orthopedics, and gastroenterology. In addition to physician services, AHT provides ancillary services at many of its clinic locations, including in-office laboratory testing, diagnostic imaging (X-ray, ultrasound, and limited CT), and physical therapy. These ancillary services generate designated health services ("DHS") revenue that is subject to the Stark Law, which is a critical consideration for purposes of this FMV engagement.
AHT also develops and licenses a proprietary electronic health record ("EHR") and practice management software-as-a-service ("SaaS") platform marketed under the brand name "ArborConnect." ArborConnect is currently licensed to forty-two (42) external physician practices, generating approximately $8.9 million in annual subscription revenue. While the ArborConnect licensing arrangements are not within the scope of this FMV engagement, C&H notes that certain referring physicians who are parties to the compensation arrangements described below may also be ArborConnect licensees, a fact that may be relevant to the overall compliance assessment.
AHT's total workforce comprises approximately 1,340 employees across clinical and administrative roles. The physician workforce consists of one hundred forty-seven (147) W-2 employed physicians and thirty-eight (38) physicians engaged under independent contractor or medical director arrangements. AHT's executive leadership includes: Dr. Nathan Ellsworth, Chief Executive Officer; Patricia Yamamoto, Esq., General Counsel; and Derek Huang, Chief Compliance Officer.
B. Revenue Profile
For fiscal year 2022, AHT reported net revenue of $214.3 million. Of this total, Medicare and Medicaid program revenue accounted for approximately sixty-one percent (61%), or $130.7 million, while commercial payer revenue accounted for the remaining thirty-nine percent (39%), or $83.6 million. AHT's largest single commercial payer relationship is with Covenant Health Plans Inc., which generated approximately $38.6 million in revenue during FY2022, representing approximately eighteen percent (18%) of AHT's total net revenue.
The high proportion of government payer revenue underscores the significance of the Stark Law and AKS compliance analysis. Both statutes are designed to protect federal healthcare programs from fraud and abuse, and the Stark Law applies specifically to referrals for designated health services payable by Medicare. Given that nearly two-thirds of AHT's revenue derives from Medicare and Medicaid, the financial and regulatory exposure associated with non-compliant arrangements is substantial.
AHT's Employer Identification Number ("EIN") is 84-3291057. Its Organizational National Provider Identifier ("NPI") is 1497253810. Its lead Provider Transaction Access Number ("PTAN") is 27MA4891.
C. Ownership Structure
AHT is a portfolio company of Ridgeline Capital Partners Fund IV, L.P. ("Ridgeline Fund IV"), a Delaware limited partnership managed by Ridgeline Capital Advisors LLC, a private equity advisory firm headquartered in Greenwich, Connecticut. Ridgeline Fund IV acquired a seventy-two percent (72%) controlling equity stake in AHT in January 2021 for an aggregate purchase price of $185 million. The remaining equity is held by management and legacy physician shareholders under a stockholders' agreement that is not material to this memorandum.
Ridgeline Fund IV is represented on AHT's Board of Directors by two designees: Claudia Sorrento, Managing Director of Ridgeline Capital Advisors LLC, and Marcus Whitmore, Principal of Ridgeline Capital Advisors LLC. Both Ms. Sorrento and Mr. Whitmore have been briefed on the compliance self-assessment and have expressed Ridgeline's full support for the engagement of Northbridge to provide independent FMV opinions.
Of particular relevance to the timing and urgency of this engagement, Ridgeline Capital Advisors LLC is currently evaluating a potential exit or sale of its equity position in AHT, with a preliminary target timeline of late 2024. Any prospective acquirer or strategic partner is likely to conduct extensive due diligence on AHT's physician compensation arrangements and regulatory compliance posture. The availability of current, well-documented FMV opinions for all material physician arrangements will be a critical component of that due diligence process and may have a direct bearing on the valuation of AHT as a going concern.
D. Lakeview Medical Associates Acquisition
On August 15, 2022, AHT closed an asset purchase of Lakeview Medical Associates, P.C. ("Lakeview"), a Massachusetts professional corporation engaged in the practice of medicine in the Worcester and Shrewsbury, Massachusetts metropolitan area. The aggregate purchase price for the Lakeview assets was $11.4 million. Lakeview's EIN prior to the acquisition was 04-3782145.
In connection with the Lakeview acquisition, AHT assumed employment and engagement relationships with fourteen (14) physicians—twelve (12) employed under W-2 employment agreements and two (2) engaged as independent contractors. AHT also assumed three (3) medical director agreements with annual compensation of $45,000, $60,000, and $72,000, respectively. Additionally, AHT assumed the leasehold interests under two (2) office space leases for clinic locations in Worcester and Shrewsbury, Massachusetts.
Prior to the acquisition, Lakeview generated annual revenue of approximately $18.2 million, of which approximately $10.9 million (approximately 60%) was derived from Medicare and Medicaid. The Lakeview physician compensation arrangements were negotiated prior to AHT's acquisition and were not subject to independent FMV substantiation at the time of closing. The acquisition was handled by Westbrook Hale LLP (Elena Marchetti, Partner), and while Westbrook Hale performed customary legal due diligence in connection with the transaction, the scope of that engagement did not include independent FMV analysis of the assumed physician compensation arrangements or real property leases.
Dr. Vivian Chao, Lakeview's former managing partner, transitioned to the role of Regional Medical Director for AHT's Central Massachusetts operations following the acquisition. Dr. Chao's compensation arrangement is among those requiring independent FMV review, as discussed in Section IV below.
The Grayson Whitaker report specifically identified the legacy Lakeview arrangements as presenting heightened compliance risk due to the absence of pre-acquisition FMV documentation and the fact that these arrangements have not yet been updated to conform to AHT's current compensation structures and policies.
III. REGULATORY CONTEXT FOR FMV OPINIONS
This Section provides a summary of the federal regulatory framework relevant to the FMV opinions requested from Northbridge. Northbridge is expected to be familiar with these regulatory requirements; this summary is provided to ensure alignment between C&H's legal analysis and Northbridge's valuation approach.
Stark Law (Physician Self-Referral Law). The Stark Law, codified at 42 U.S.C. § 1395nn, prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, unless the arrangement falls within a specified exception. A "financial relationship" encompasses both ownership or investment interests and compensation arrangements. The regulations define "fair market value" as "the value in arm's-length transactions, consistent with the general market value," and further provide that "general market value" means "the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party." 42 C.F.R. § 411.351. For compensation arrangements, FMV is the compensation that would be paid in an arm's-length transaction that is "consistent with the general market value of the subject transaction."
Each of the following Stark Law exceptions requires, as a threshold element, that compensation be set at fair market value and not take into account the volume or value of referrals or other business generated between the parties:
(a) Employment Exception (42 C.F.R. § 411.357(c)) — applies to bona fide employment relationships where compensation is consistent with FMV for the services actually provided and does not take into account the volume or value of referrals;
(b) Personal Services Exception (42 C.F.R. § 411.357(d)) — applies to personal services and management contracts where compensation is set in advance, is consistent with FMV, and does not take into account the volume or value of referrals;
(c) Fair Market Value Exception (42 C.F.R. § 411.357(l)) — a general exception for compensation arrangements that satisfy FMV and commercial reasonableness requirements;
(d) Space Rental Exception (42 C.F.R. § 411.357(a)) — applies to rental of office space where the rental payments are set in advance, are consistent with FMV, and do not take into account the volume or value of referrals; and
(e) Equipment Rental Exception (42 C.F.R. § 411.357(b)) — applies to rental of equipment where the rental payments are consistent with FMV and satisfy conditions analogous to the space rental exception.
Anti-Kickback Statute. The AKS, codified at 42 U.S.C. § 1320a-7b(b), prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals for items or services payable by federal healthcare programs. The AKS is a criminal statute with civil enforcement authority under the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a. The Office of Inspector General ("OIG") has promulgated regulatory safe harbors at 42 C.F.R. § 1001.952 that, if fully satisfied, protect arrangements from prosecution under the AKS. Relevant safe harbors include:
(a) Employment Safe Harbor (42 C.F.R. § 1001.952(i)) — protects amounts paid by an employer to a bona fide employee;
(b) Personal Services and Management Contracts Safe Harbor (42 C.F.R. § 1001.952(d)) — protects arrangements where aggregate compensation is set in advance, is consistent with FMV in arm's-length transactions, and is not determined in a manner that takes into account the volume or value of referrals;
(c) Space Rental Safe Harbor (42 C.F.R. § 1001.952(b)) — protects lease arrangements for space where rental charges are consistent with FMV, are set in advance, and are not determined in a manner that takes into account the volume or value of referrals; and
(d) Equipment Rental Safe Harbor (42 C.F.R. § 1001.952(c)) — protects lease arrangements for equipment under analogous terms.
Stark Law and AKS Modernization Rules. In November 2020, the Centers for Medicare & Medicaid Services ("CMS") and the OIG issued coordinated final rules modernizing certain Stark Law regulations and AKS safe harbors. The CMS Stark Law Modernization Final Rule was published at 85 Fed. Reg. 77492 and became effective on January 19, 2021. The OIG AKS Safe Harbor Modernization Final Rule was published at 85 Fed. Reg. 77684 and likewise became effective on January 19, 2021. Among other changes, these rules provided updated guidance on the application of FMV and commercial reasonableness determinations. The CMS Final Rule clarified that "fair market value" is to be assessed based on the specific facts and circumstances of the transaction, and that the determination should not be based solely on a single data source or benchmarking survey. The rules also emphasized that commercial reasonableness is an independent requirement, analytically distinct from FMV: an arrangement may be at fair market value but not commercially reasonable, or vice versa.
Commercial Reasonableness. In addition to establishing that compensation is consistent with FMV, several of the applicable Stark Law exceptions and AKS safe harbors require that the arrangement be "commercially reasonable" — that is, the arrangement must serve a legitimate business purpose that a reasonable entity of similar type and size would pursue even in the absence of any referral relationship between the parties. Northbridge's opinions should address commercial reasonableness as a separate and independent conclusion, distinct from the FMV analysis, for each arrangement within the scope of this engagement.
IV. SCOPE OF REQUESTED FMV OPINIONS
This Section sets forth, in detail, the specific arrangements for which Northbridge is requested to provide independent FMV and commercial reasonableness opinions. The arrangements are organized into five (5) categories.
A. Category 1: Independent Contractor and Medical Director Agreements (38 Arrangements)
1. Overview of Population. AHT currently maintains thirty-eight (38) independent contractor and medical director arrangements with physicians who provide administrative, supervisory, and clinical oversight services at various AHT clinic locations. These arrangements include medical director agreements, quality oversight agreements, and administrative services agreements with physicians who also maintain clinical practices — in many cases generating referrals of patients to AHT clinics for designated health services.
The annual stipend or compensation under these thirty-eight arrangements ranges from $25,000 to $110,000 per arrangement, per year. The aggregate annual medical director compensation across all thirty-eight (38) arrangements is $1.92 million. Based on the documentation currently available to C&H, the mean documented medical director time commitment across the thirty-eight arrangements is 8.4 hours per month per arrangement.
The effective average hourly rate implied by these figures is calculated as follows:
Aggregate annual compensation: $1,920,000
Total annual hours across all arrangements: 38 arrangements × 8.4 hours/month × 12 months/year = 3,830.4 hours/year
Effective average hourly rate: $1,920,000 ÷ 3,830.4 hours = $501.28/hour
This effective hourly rate of $501.28 has been preliminarily identified as substantially above the 90th percentile for medical director compensation across multiple physician specialties based on available published benchmark data, including the MGMA Medical Directorship Compensation Survey and the SullivanCotter Physician Compensation and Productivity Survey. While effective hourly rates vary by specialty, geography, and the scope and complexity of duties performed, a rate consistently above the 90th percentile across the entire portfolio of arrangements is a significant compliance concern.
2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the thirty-eight (38) independent contractor and medical director arrangements. Each opinion should address the following:
(a) Whether the annual stipend or compensation is consistent with FMV for the services described in the applicable agreement, taking into account the physician's specialty, the scope and complexity of the duties, and the geographic market in which the services are performed;
(b) Whether the effective hourly rate (calculated based on documented hours of service) falls within the FMV range for physicians of the same specialty providing comparable medical director or administrative services; and
(c) Whether the arrangement is commercially reasonable — specifically, whether the services described in the agreement represent legitimate, identifiable business functions that a reasonable healthcare entity of AHT's size and scope would compensate an independent physician to perform, and whether such entity would do so at the stated compensation level, absent any referral relationship between the parties.
For each arrangement, C&H will assemble and provide to Northbridge the following documentation:
(i) Fully executed agreement, including all amendments and schedules;
(ii) Job description or duty specifications, as set forth in the agreement or in any supplemental documentation maintained by AHT;
(iii) Documented hours of service, including monthly time logs where available (C&H notes that time log documentation is incomplete for a number of these arrangements, and Northbridge should identify any arrangements for which the absence of contemporaneous time documentation affects the reliability of the FMV analysis);
(iv) Physician specialty and sub-specialty;
(v) Physician credentials and relevant experience, including board certification, years in practice, and any specialized qualifications relevant to the medical director role; and
(vi) Clinical productivity data, including work relative value units ("wRVUs") and patient volume data, to the extent such data is relevant to the compensation arrangement (e.g., where the agreement contemplates a hybrid clinical/administrative role).
3. Specialty Breakdown. The thirty-eight independent contractor and medical director arrangements span the following physician specialty categories. C&H requests that Northbridge apply specialty-specific benchmarks to each arrangement within its respective specialty category, recognizing that FMV for medical director services varies materially by specialty:
• Primary Care / Internal Medicine / Family Medicine
• Cardiology
• Orthopedic Surgery
• Gastroenterology
• Other specialties (to be identified in the documentation provided)
A complete listing of the thirty-eight arrangements, including the name, specialty, and current compensation of each physician, will be provided under separate cover as part of the documentation package described in Section VII below.
4. Key Concern. As noted above, the effective average hourly rate of $501.28 across the portfolio of medical director arrangements substantially exceeds published compensation benchmarks for medical director services across all represented specialties. This finding was a central concern identified in the Grayson Whitaker report and has been corroborated by C&H's preliminary analysis. However, the aggregate figure may mask significant variation among individual arrangements. Some arrangements may be within or near the FMV range for the relevant specialty and market, while others may be significantly above the range. Northbridge's individual, arrangement-specific opinions will be critical in enabling C&H to determine which specific arrangements require restructuring — whether through a reduction in annual compensation, an increase in the number of documented hours of service, a more precise delineation of duties, or some combination of these remedial measures — and which arrangements, if any, should be terminated.
B. Category 2: Lakeview Legacy Physician Employment Agreements (14 Arrangements)
1. Overview of Population. In connection with AHT's acquisition of Lakeview Medical Associates, P.C. on August 15, 2022, AHT assumed employment and engagement relationships with fourteen (14) physicians. Of these fourteen, twelve (12) are employed under W-2 employment agreements, and two (2) are engaged as independent contractors. These physician agreements were originally negotiated and executed by Lakeview prior to the acquisition. As of the date of this memorandum, the Lakeview legacy agreements have not been updated, amended, or conformed to AHT's current physician compensation structure or policies. The fourteen physicians practice in the Worcester and Shrewsbury, Massachusetts markets.
The population of Lakeview legacy physician arrangements includes the arrangement with Dr. Vivian Chao, who served as Lakeview's managing partner prior to the acquisition and has transitioned to the role of AHT Regional Medical Director for Central Massachusetts. Dr. Chao's arrangement is of particular significance because her compensation reflects both her clinical responsibilities and her regional medical director duties, and because her role involves substantial referral activity.
Pre-acquisition Lakeview physician compensation data, including base salaries, any productivity-based bonuses or incentive payments, and benefit structures, will be provided to Northbridge as part of the documentation package.
2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the fourteen (14) Lakeview legacy physician arrangements. Each opinion should address the following:
(a) Whether the physician's total compensation — including base salary and any productivity-based bonus, quality incentive, or other incentive compensation — is consistent with FMV for a physician of the same specialty, with comparable experience and qualifications, practicing in the Worcester, Massachusetts / Shrewsbury, Massachusetts geographic market;
(b) Whether the compensation methodology employed in the agreement — whether salary-only, wRVU-based, hybrid salary-plus-productivity, or other structure — is consistent with FMV and reflects a compensation design that is common and accepted in the relevant physician labor market; and
(c) Whether each arrangement is commercially reasonable — that is, whether a reasonable healthcare entity of AHT's size and scope would employ a physician of the stated specialty, with the stated duties and responsibilities, at the stated compensation level, in the stated geographic market, absent any referral relationship.
For each arrangement, C&H will provide:
(i) Fully executed employment agreement or independent contractor agreement, including all amendments, addenda, and compensation schedules;
(ii) Current compensation schedule, detailing all components of compensation (base salary, productivity bonus, quality incentive, call coverage compensation, benefits, and any other remuneration);
(iii) Productivity data, including wRVUs generated, panel size (for primary care physicians), and patient encounter volume;
(iv) Physician specialty and sub-specialty;
(v) Years of experience in practice and post-training experience; and
(vi) Geographic market identification (Worcester, MA and Shrewsbury, MA area).
3. Benchmark Context. For context and to facilitate Northbridge's analysis, C&H provides the following data regarding AHT's current physician compensation benchmarks across its broader clinic network (excluding the Lakeview legacy arrangements):
• AHT's current median total compensation for primary care physicians: $278,000 per year
• AHT's current median total compensation for specialty physicians: $412,000 per year
These figures represent AHT's internal compensation benchmarks and are based on AHT's current compensation grid. Northbridge should assess whether the Lakeview legacy compensation levels are consistent with AHT's internal benchmarks, as well as with independent, externally published market benchmarks for the relevant specialties and geographic markets. Any material divergence between the Lakeview legacy compensation and AHT's internal or external benchmarks should be identified and quantified in each opinion.
C. Category 3: Lakeview Legacy Medical Director Agreements (3 Arrangements)
1. Overview. AHT assumed three (3) medical director agreements in the Lakeview Medical Associates acquisition. The annual compensation under these three agreements is $45,000, $60,000, and $72,000, respectively. These three arrangements are a subset of the broader population of thirty-eight (38) independent contractor and medical director arrangements described in Category 1 above. However, C&H is calling them out separately in this memorandum for two reasons: first, they were assumed as part of the Lakeview acquisition with no independent FMV substantiation at the time of closing; and second, the duty descriptions and time commitment documentation for these three arrangements may be less robust than for the medical director agreements that AHT originated directly.
2. Requested Valuation Scope. Northbridge is requested to provide an individual FMV opinion for each of the three (3) Lakeview legacy medical director agreements. The scope of each opinion is the same as set forth in Category 1 above:
(a) Assessment of whether the annual stipend is consistent with FMV for the described medical director services;
(b) Calculation and assessment of the effective hourly rate based on documented hours (to the extent time logs or other hour documentation is available); and
(c) Assessment of commercial reasonableness — whether the medical director duties described in the agreement represent legitimate functions and whether a reasonable entity would compensate a physician for those duties at the stated level absent referrals.
C&H will provide the following documentation for each arrangement:
(i) Executed medical director agreement (as in effect at the time of the Lakeview acquisition);
(ii) Duty descriptions and scope of services;
(iii) Documented hours of service, to the extent available; and
(iv) Physician specialty, credentials, and qualifications.
C&H notes that if time documentation is unavailable or incomplete for any of these three arrangements, Northbridge should note the evidentiary limitation in its opinion and, to the extent possible, provide an analysis of what time commitment would be necessary to bring the effective hourly rate within the FMV range for the applicable specialty.
D. Category 4: Office Space Leases (2 Arrangements)
1. Worcester Clinic Lease. AHT assumed a commercial office lease for the Worcester clinic location at 75 Belmont Street, Worcester, MA 01605 in connection with the Lakeview Medical Associates acquisition on August 15, 2022. This lease was originally entered into by Lakeview and was assigned to or assumed by AHT as part of the asset purchase. The Worcester clinic serves as a primary care and specialty care facility and is one of the clinical sites from which AHT's Lakeview legacy physicians practice and generate referrals for designated health services.
Northbridge is requested to provide an FMV opinion on the following elements of the Worcester clinic lease:
(a) The per-square-foot annual rental rate, compared to FMV rental rates for comparable medical office space in the Worcester, Massachusetts market;
(b) The aggregate annual rental payment, assessed in light of the total square footage, the quality and condition of the premises, and the terms of the lease; and
(c) Whether the lease terms — including base rent, common area maintenance ("CAM") charges, tenant improvement provisions, escalation clauses, and other material terms — are consistent with the terms that would be agreed upon by parties in an arm's-length transaction for comparable medical office space in the same market.
C&H will provide the following documentation:
(i) Fully executed lease agreement, including all amendments and extensions;
(ii) Complete lease amendment history;
(iii) square footage (rentable and usable);
(iv) Description of tenant improvements, including any medical-grade buildout;
(v) Common area maintenance charge schedule;
(vi) Any comparable market data that AHT may have obtained independently; and
(vii) Floor plan and space layout, if available.
2. Shrewsbury Clinic Lease. AHT also assumed a commercial office lease for the Shrewsbury clinic location at 310 Main Street, Suite 2A, Shrewsbury, MA 01545 in connection with the Lakeview acquisition. This lease was likewise originally entered into by Lakeview and assigned to or assumed by AHT as part of the asset purchase.
Northbridge is requested to provide an FMV opinion on the Shrewsbury clinic lease with the same scope as described above for the Worcester clinic lease, including per-square-foot rental rate analysis, aggregate annual rental assessment, and evaluation of lease terms against comparable medical office space in the Shrewsbury, Massachusetts market.
C&H will provide the same categories of documentation for the Shrewsbury lease as for the Worcester lease.
3. Regulatory Requirement. Both the Worcester and Shrewsbury clinic leases must satisfy the requirements of the Stark Law space rental exception, 42 C.F.R. § 411.357(a), and the AKS space rental safe harbor, 42 C.F.R. § 1001.952(b). These provisions require, among other elements, that:
(a) The aggregate rental charges over the term of the lease are set in advance, are consistent with fair market value in arm's-length transactions, and are not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties;
(b) The lease is commercially reasonable even if no referrals were made between the parties; and
(c) The lease covers only space that is used exclusively by the lessee when being used by the lessee, and the space does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease.
Northbridge's FMV opinions should specifically address whether the rental rates under each lease satisfy these regulatory requirements.
E. Category 5: Meridian Diagnostics Facility Access Fee
1. Arrangement Overview. Meridian Diagnostics LLC ("Meridian"), a limited liability company organized under the laws of Connecticut and headquartered at 88 Trumbull Street, Hartford, CT 06103 (EIN: 82-4019673), provides mobile MRI and advanced diagnostic imaging services at four (4) AHT clinic locations pursuant to a services agreement dated March 1, 2021 (the "Meridian Services Agreement"). Under the Meridian Services Agreement, Meridian brings mobile imaging equipment to designated AHT clinic locations on scheduled days and provides imaging services to patients referred by AHT physicians and other referring providers.
Meridian is owned by Dr. Franklin Osei, a board-certified radiologist who holds a sixty percent (60%) ownership interest, and Gerald Pratt, a non-physician investor who holds a forty percent (40%) ownership interest. Dr. Osei personally interprets the imaging studies performed at AHT's clinic locations.
Under the current fee structure, Meridian pays AHT a per-scan facility access fee of $185 per scan for the use of clinic space, utilities, ancillary support, and patient scheduling coordination provided by AHT. In FY2022, Meridian performed a total of 4,200 scans at AHT clinic locations, resulting in total facility access fees paid by Meridian to AHT of $777,000 (4,200 scans × $185/scan = $777,000).
In the same period, AHT physicians generated approximately $2.8 million in referrals to Meridian for diagnostic imaging services. The relationship between the per-scan facility access fee (which varies with scan volume and therefore, indirectly, with referral volume) and the substantial value of referrals flowing from AHT physicians to Meridian is a central compliance concern.
2. Requested Valuation Scope. Northbridge is requested to provide the following FMV opinions in connection with the Meridian arrangement:
(a) Current Per-Scan Fee. An FMV opinion on the current per-scan facility access fee of $185 per scan — specifically, whether this per-scan rate reflects FMV for the clinic space, utilities, equipment, and support services that AHT makes available to Meridian at each of the four clinic locations. This opinion should address whether the per-scan fee, as currently structured, is defensible from a valuation standpoint and whether the aggregate annual amount of $777,000 is consistent with FMV for the resources provided.
(b) Proposed Fixed Monthly Rental. An FMV opinion on the proposed restructured arrangement under which the per-scan facility access fee would be converted to a fixed monthly facility rental fee at each of the four AHT clinic locations. Northbridge should opine on the appropriate fixed monthly rental amount for the designated clinic space, equipment, and support services at each location, based on the square footage utilized by Meridian, the hours and days of scheduled use, the equipment and infrastructure made available, and the support staffing provided by AHT. The fixed monthly rental fee should be set at a level that is consistent with FMV and does not vary with the volume of scans performed or referrals generated.
(c) Commercial Reasonableness. An assessment of whether the facility access arrangement — in both its current and proposed restructured forms — serves a legitimate business purpose independent of referrals. This assessment should consider whether a reasonable healthcare entity in AHT's position would make clinic space and support services available to a mobile imaging provider on the terms described, and whether the arrangement provides genuine operational benefits to AHT and its patient population.
C&H will provide the following documentation:
(i) Executed Meridian Services Agreement, dated March 1, 2021, including all schedules, exhibits, and amendments;
(ii) Draft of the proposed restructured facility access agreement, which is currently being prepared by C&H (to be provided when available);
(iii) Description of the space and equipment made available to Meridian at each of the four AHT clinic locations, including square footage, room specifications, and any AHT-owned equipment used by Meridian;
(iv) Scan volume data (monthly and annual) for FY2021 and FY2022;
(v) Meridian's schedule of use at each clinic location (days per week, hours per day); and
(vi) Any additional information regarding support services and staffing provided by AHT.
3. Regulatory Concern. The current per-scan facility access fee structure presents a significant compliance concern under both the Stark Law and the AKS. The Stark Law space rental exception and equipment rental exception, and the corresponding AKS safe harbors, require that rental payments be set in advance and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties. A per-scan fee, by definition, varies with the volume of scans performed. Because AHT physicians are a primary source of referrals for the imaging services provided by Meridian at AHT's clinic locations, the per-scan fee structure creates a direct correlation between the volume of referrals and the aggregate amount of rental payments — precisely the type of arrangement that the Stark Law and AKS are designed to prohibit.
The conversion of the per-scan fee to a fixed monthly rental fee, set at FMV and not varying with scan volume or referral volume, is the central element of the restructuring that C&H is recommending to AHT. Northbridge's FMV opinion on the appropriate fixed monthly rental amount is essential to support the restructured arrangement and demonstrate compliance with the applicable Stark Law exceptions and AKS safe harbors.
C&H notes that Meridian Diagnostics LLC is represented by separate legal counsel: Linden & Pryor LLP (Thomas Beckett, Partner, Hartford, Connecticut). Any sharing of Northbridge's final FMV opinions with Meridian or its counsel will be authorized by AHT only after the restructured arrangement is finalized, and only with respect to those opinions directly relating to the Meridian facility access fee.
V. REQUIRED BENCHMARK SOURCES AND METHODOLOGY
This Section sets forth C&H's requirements and expectations regarding the benchmark data sources and valuation methodologies to be employed by Northbridge in preparing the requested FMV opinions. While Northbridge exercises independent professional judgment in selecting and applying valuation approaches, C&H requests that Northbridge utilize, at a minimum, the benchmark sources identified below and apply the methodological standards described herein.
A. Physician Compensation Benchmarks
For the physician employment arrangements described in Categories 1, 2, and 3, Northbridge should draw upon the following nationally recognized physician compensation and productivity surveys:
(a) MGMA DataDive Physician Compensation and Productivity Data — the most recent available year (expected to be 2022 data based on 2021 reporting);
(b) SullivanCotter Physician Compensation and Productivity Survey — the most recent available edition;
(c) AMGA Medical Group Compensation and Productivity Survey — the most recent available edition;
(d) Northbridge's proprietary comparable transaction database, to the extent that Northbridge maintains such a database of arms-length physician compensation arrangements in the relevant specialties and geographies; and
(e) Bureau of Labor Statistics ("BLS") Occupational Employment and Wage Statistics for physicians and surgeons in the New England region (BLS Area: Boston-Cambridge-Nashua, MA-NH NECTA; and comparable statistical areas for the relevant clinic locations).
All benchmarks should be applied on a specialty-specific and geographic-adjusted basis, with the primary geographic reference being the New England / Northeast region. Where surveys provide regional stratification, Northbridge should use New England or Northeast region data as the primary comparator. Where national data is used, appropriate geographic adjustments should be applied and documented.
B. Medical Director Compensation Benchmarks
For the medical director arrangements described in Categories 1 and 3, Northbridge should draw upon the following sources:
(a) MGMA Medical Directorship Compensation Survey — the most recent available edition, which provides data on medical director compensation by specialty, time commitment, and scope of duties;
(b) SullivanCotter medical director compensation data — to the extent that SullivanCotter reports separate data for medical director roles; and
(c) Any other published or proprietary data sources that Northbridge deems relevant and reliable.
The analysis of medical director compensation should be performed on both a per-hour and per-annum basis. The per-hour analysis should calculate effective hourly rates based on documented hours of service and compare those rates to published per-hour benchmarks by specialty. The per-annum analysis should assess whether the aggregate annual stipend is consistent with FMV for medical director roles of comparable scope, time commitment, and specialty.
The commercial reasonableness analysis for medical director arrangements should consider, at a minimum:
(i) The scope and specificity of the duties described in the agreement;
(ii) The time commitment required to perform those duties competently;
(iii) The qualifications required for the medical director role, including specialty training, board certification, and relevant experience;
(iv) Whether a reasonable healthcare entity of AHT's size, scope, and clinical service mix would engage a physician to perform the described medical director services; and
(v) Whether a reasonable entity would compensate such a physician at the stated level absent any referral relationship between the parties.
C. Office Space Rental Benchmarks
For the two office space leases described in Category 4, Northbridge should employ the following data sources and analytical approaches:
(a) Comparable medical office space lease data for the Worcester, Massachusetts and Shrewsbury, Massachusetts real estate markets, including asking rents and effective rents for recently executed leases;
(b) Larkspur Enterprises or equivalent commercial real estate database, to identify comparable transactions and current market conditions for medical office space in the relevant sub-markets;
(c) Adjustment factors to account for differences between the subject properties and comparable properties, including but not limited to: medical-grade buildout and tenant improvements (including specialized HVAC, electrical, plumbing, and data infrastructure); parking availability and ratio; location within the sub-market; property condition and age; lease term and renewal options; landlord and tenant responsibility allocations; and escalation provisions; and
(d) Per-square-foot annual rental rate analysis, with separate identification of base rent, CAM charges, and any additional pass-through costs.
D. Facility Access Fee / Equipment Access Benchmarks
For the Meridian Diagnostics facility access fee arrangement described in Category 5, Northbridge should identify and apply the following types of comparable data:
(a) Comparable mobile diagnostic imaging facility access agreements in the New England and broader Northeast markets;
(b) Per-unit-of-time rental rates (hourly, daily, weekly, or monthly, as applicable) for comparable medical imaging suite space made available to third-party imaging providers;
(c) Equipment access rates for comparable MRI and advanced diagnostic imaging modalities, to the extent that AHT-owned equipment is made available to Meridian; and
(d) Adjustments for any support services and staffing provided by AHT as the host facility, including patient scheduling, registration, preparation, and post-procedure monitoring, to the extent that such services represent a component of the overall facility access arrangement.
E. Valuation Approaches
Northbridge should apply, as appropriate, the following recognized valuation approaches:
(a) Market Approach — analysis of comparable transactions and published survey data to determine the range of compensation or rental rates that would be agreed upon by parties in arm's-length transactions for comparable services, space, or equipment;
(b) Income Approach — where relevant, analysis of the economic value of the arrangement to the parties, including an assessment of whether the arrangement is commercially reasonable based on the economics that would apply in the absence of referrals; and
(c) Cost Approach — for equipment and space valuations, analysis of replacement cost, depreciation, and other cost-based methodologies to determine the FMV of the resources being made available.
Each opinion should clearly state the valuation approach or approaches used and the rationale for the selection of each approach. Where multiple approaches are applied, Northbridge should describe how the results were reconciled to arrive at the final FMV conclusion.
VI. OPINION FORMAT AND DELIVERABLES
A. Individual FMV Opinions
Northbridge is requested to provide a separate written FMV opinion for each arrangement within the scope of this engagement. Based on the categories described in Section IV above, the total number of individual FMV opinions is fifty-five (55), calculated as follows:
• Category 1 (independent contractor and medical director agreements): 38 opinions
• Category 2 (Lakeview legacy physician employment agreements): 14 opinions
• Category 3 (Lakeview legacy medical director agreements): 3 opinions (note: these 3 are a subset of the 38 in Category 1 but are being called out separately for analytical purposes; accordingly, the 38 Category 1 opinions include these 3, and the total is 38 + 14 + 2 + 1 = 55, with the 3 Lakeview medical director opinions included within the 38)
To clarify: the thirty-eight (38) medical director and independent contractor opinions in Category 1 include the three (3) Lakeview legacy medical director agreements in Category 3. C&H requests that those three opinions be prepared with the enhanced documentation and analysis described in Category 3, but they need not be issued as separate, duplicative opinions. The total number of individual opinions is therefore calculated as:
• 38 medical director / independent contractor opinions (inclusive of 3 Lakeview legacy medical director arrangements)
• 14 Lakeview legacy physician employment opinions
• 2 office space lease opinions
• 1 Meridian facility access fee opinion (covering both the current per-scan fee and the proposed fixed monthly rental)
• Total: 55 individual FMV opinions
Each individual FMV opinion should contain, at a minimum, the following elements:
(i) A description of the arrangement and the parties, including the name and specialty of the physician (for physician compensation opinions) or the identification and location of the property or facility (for space and equipment opinions);
(ii) Identification of the specific compensation component(s) being valued (e.g., annual stipend, base salary, effective hourly rate, per-square-foot rental rate, per-scan facility access fee);
(iii) A statement of the applicable FMV definition, consistent with 42 C.F.R. § 411.351 and the CMS Stark Law regulations;
(iv) Identification of the benchmark data sources and methodology employed;
(v) A quantitative analysis, including percentile rankings (where applicable), comparable ranges, and any geographic or other adjustments applied;
(vi) A conclusion stating whether the arrangement's compensation or rental payments are within, above, or below the FMV range, with specific identification of the FMV range determined by Northbridge;
(vii) A separate commercial reasonableness conclusion, addressing whether the arrangement serves a legitimate business purpose and would be entered into by a reasonable entity absent any referral relationship;
(viii) A statement of assumptions and limiting conditions, including any data limitations or gaps in documentation that may affect the reliability of the opinion; and
(ix) The signature and certification of the Northbridge appraiser responsible for the opinion, including a statement of the appraiser's qualifications and independence.
B. Summary Report
In addition to the fifty-five individual FMV opinions, Northbridge is requested to prepare a comprehensive Summary Report that consolidates the findings of all individual opinions. The Summary Report should include the following:
(a) A tabular summary of all arrangements reviewed, including: arrangement type, physician name and specialty (or property/facility identification), current compensation or rental rate, FMV range determined by Northbridge, and a designation of whether the arrangement is within, above, or below FMV;
(b) Identification and discussion of all arrangements that fall outside the FMV range, with an indication of the degree to which each such arrangement exceeds or falls below FMV;
(c) A risk-tier classification for each arrangement, using a three-tier system (e.g., "Within FMV," "Marginally Above/Below FMV," and "Significantly Above/Below FMV") or such other classification system as Northbridge customarily employs; and
(d) Any general observations regarding systemic issues or patterns across AHT's portfolio of arrangements that may warrant attention in C&H's compliance assessment memoranda.
The Summary Report is intended for C&H's internal use in preparing its compliance assessment and recommendations to AHT's Board of Directors and is protected by the attorney-client privilege and work product doctrine.
C. Draft and Final Process
Northbridge is requested to provide draft opinions to C&H for review and comment before finalization. C&H's review of the draft opinions will be limited to ensuring factual accuracy, completeness of the arrangement descriptions, and consistency with the legal standards applicable to FMV and commercial reasonableness determinations under the Stark Law and AKS. C&H will not direct or influence Northbridge's independent valuation conclusions.
During the drafting process, C&H may provide additional factual information or documentation in response to questions or requests from Northbridge. C&H will make commercially reasonable efforts to respond to such requests promptly to avoid delays in the opinion delivery timeline.
The target timeline for deliverables is as follows:
• Draft Opinions: Within sixty (60) calendar days of Northbridge's receipt of the complete documentation packages described in Section VII below.
• C&H Review Period: C&H will endeavor to provide comments on draft opinions within fifteen (15) business days of receipt.
• Final Opinions: Within thirty (30) calendar days of Northbridge's receipt of C&H's comments on the draft opinions.
C&H recognizes that compliance with these timelines is dependent upon the timely provision of complete documentation and information, and that complex or incomplete arrangements may require additional time for analysis.
VII. DOCUMENTATION TO BE PROVIDED BY AHT AND C&H
C&H, in coordination with AHT's General Counsel and Chief Compliance Officer, will assemble and transmit to Northbridge a comprehensive package of documentation in support of the FMV opinions described in this memorandum. The documentation package will include the following materials:
1. All thirty-eight (38) independent contractor and medical director agreements (fully executed copies, including all amendments, addenda, and schedules);
2. All fourteen (14) Lakeview legacy physician employment agreements (fully executed copies, including all amendments, compensation schedules, and benefit summaries);
3. The three (3) Lakeview legacy medical director agreements (fully executed copies);
4. Time logs, duty descriptions, and scope of services documentation for all medical director arrangements, to the extent such documentation exists and is maintained by AHT;
5. Physician demographic data for each physician subject to a valuation opinion, including: specialty and sub-specialty; board certification status; years in practice (post-residency/fellowship); geographic location of practice;
6. Physician productivity data, including: work relative value units ("wRVUs") generated; patient encounter volume; panel size (for primary care physicians), where applicable;
7. AHT's current internal compensation grids and any benchmark data that AHT has independently compiled or obtained;
8. The two (2) office leases for the Worcester (75 Belmont Street, Worcester, MA 01605) and Shrewsbury (310 Main Street, Suite 2A, Shrewsbury, MA 01545) clinic locations, including all amendments, rent schedules, CAM reconciliations, and tenant improvement documentation;
9. The Meridian Diagnostics LLC Services Agreement, dated March 1, 2021, including all schedules and exhibits;
10. Scan volume data for the Meridian arrangement (monthly and annual, FY2021 and FY2022);
11. The proposed restructured Meridian facility access agreement (draft to be provided when available from C&H);
12. Clinic space descriptions, floor plans, and square footage calculations for the four (4) AHT clinic locations at which Meridian provides services;
13. Organizational chart of AHT's 23-clinic network, including clinic locations, service lines, and physician assignments; and
14. AHT financial statements (FY2022), to the extent relevant to providing revenue and operational context for Northbridge's analysis.
C&H will serve as the primary point of contact for Northbridge throughout the engagement. All document requests, questions, and communications from Northbridge should be directed to:
• Christopher Aiken, Senior Associate, Calderwood & Harkness LLP; and
• Amy Whitfield, Associate, Calderwood & Harkness LLP.
Contact information for both individuals is provided in Section X below. Direct communications between Northbridge and AHT personnel should be coordinated through C&H to preserve the attorney-client privilege.
VIII. CONFIDENTIALITY AND PRIVILEGE
Northbridge's engagement in this matter is at the direction and under the supervision of Calderwood & Harkness LLP in connection with the provision of legal advice to Arbor Health Technologies Inc. regarding compliance with the Stark Law, the Anti-Kickback Statute, and related federal and state healthcare regulations. All FMV opinions, draft materials, working papers, internal analyses, communications, and other work product generated by Northbridge in connection with this engagement are prepared at the request and for the benefit of legal counsel and are subject to the protections of the attorney-client privilege and the attorney work product doctrine.
Northbridge shall maintain the strict confidentiality of all AHT data, documentation, and information provided in connection with this engagement. Northbridge shall not disclose any such information to any third party without the prior written consent of both Calderwood & Harkness LLP and Arbor Health Technologies Inc.
Notwithstanding the foregoing, C&H anticipates that Northbridge may be asked to share specific final FMV opinions relating to the Meridian Diagnostics facility access fee arrangement (Category 5) with Linden & Pryor LLP, counsel to Meridian Diagnostics LLC, in connection with the negotiation of the restructured facility access arrangement. Any such disclosure will be made only upon the express written authorization of AHT and C&H, and only with respect to those specific opinions directly relating to the Meridian arrangement. Northbridge should not share any other opinions, work papers, or AHT-related information with Meridian's counsel or any other third party.
Northbridge personnel who access AHT's confidential information in connection with this engagement should be limited to those individuals with a need to know in order to perform the valuation work. Northbridge shall implement reasonable safeguards to protect the confidentiality of AHT's information, consistent with Northbridge's standard confidentiality protocols and the terms of the separate engagement letter between AHT and Northbridge.
IX. ENGAGEMENT TERMS AND LOGISTICS
The financial terms of Northbridge's engagement — including professional fees, hourly rates, fee caps, payment schedules, and expense reimbursement — are governed by the separate engagement letter between Arbor Health Technologies Inc. and Northbridge Valuation Advisors LLC, dated February 3, 2023 (the "Engagement Letter"). This memorandum supplements the Engagement Letter by specifying the detailed scope and parameters of the FMV opinions required. In the event of any conflict between this memorandum and the Engagement Letter, the parties should consult with C&H to resolve the discrepancy.
C&H's role in this engagement is limited to specifying the legal parameters and regulatory requirements applicable to the FMV opinions. Northbridge exercises independent professional judgment in its selection of valuation approaches, benchmark data, and analytical methodologies, and in reaching its valuation conclusions. C&H does not and will not direct Northbridge's conclusions. The credibility and utility of Northbridge's opinions depend on their independence and obj

MEMORANDUM

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

C&H MATTER NO.: 1010-00003

I. PURPOSE OF THIS MEMORANDUM

II. BACKGROUND ON ARBOR HEALTH TECHNOLOGIES INC.

III. REGULATORY CONTEXT FOR FMV OPINIONS

IV. SCOPE OF REQUESTED FMV OPINIONS

V. REQUIRED BENCHMARK SOURCES AND METHODOLOGY

VI. OPINION FORMAT AND DELIVERABLES

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