FAIR MARKET VALUE DETERMINATION PROCEDURES
ARBOR HEALTH TECHNOLOGIES INC.
Internal Compliance Procedure for Obtaining, Documenting, and Updating Fair Market Value Opinions for Compensation Arrangements Involving Referral Sources
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
Prepared by:
Calderwood & Harkness LLP One Federal Street, 30th Floor Boston, MA 02110
C&H Matter Number: 1010-00003
Prepared for:
Arbor Health Technologies Inc. 200 Concord Avenue, Suite 400 Cambridge, MA 02138
Primary Client Contacts: Patricia Yamamoto, General Counsel Derek Huang, Chief Compliance Officer
Effective Date: July 1, 2023 (Following adoption by the AHT Board Compliance Committee at its June 27, 2023 meeting)
Version: 1.0
C&H Engagement Team: Miriam Calloway, Partner Joel Strauss, Partner Christopher Aiken, Senior Associate Amy Whitfield, Associate
APPROVAL AND ADOPTION
The undersigned hereby approve and adopt these Fair Market Value Determination Procedures on behalf of Arbor Health Technologies Inc., effective as of July 1, 2023.
ARBOR HEALTH TECHNOLOGIES INC.
By: ________
Name: Patricia Yamamoto
Title: General Counsel
Date: ________
ARBOR HEALTH TECHNOLOGIES INC.
By: ________
Name: Derek Huang
Title: Chief Compliance Officer
Date: ________
ARBOR HEALTH TECHNOLOGIES INC.
By: ________
Name: Dr. Nathan Ellsworth
Title: Chief Executive Officer
Date: ________
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I. PURPOSE AND SCOPE
A. Purpose Statement
These Fair Market Value Determination Procedures (the "Procedures") establish the standards, processes, and documentation requirements by which Arbor Health Technologies Inc. ("AHT") shall obtain, evaluate, memorialize, and periodically update fair market value ("FMV") determinations for all compensation arrangements involving actual or potential referral sources of items or services reimbursable by federal healthcare programs. These Procedures are designed to serve as a comprehensive operational framework ensuring that every compensation arrangement between AHT and a physician, physician group, or other referral source is supported by a contemporaneous, well-documented, and defensible FMV determination.
FMV compliance is a cornerstone element of satisfying the physician self-referral law commonly known as the Stark Law (42 U.S.C. § 1395nn; 42 C.F.R. § 411.350 et seq.) and the federal Anti-Kickback Statute ("AKS") safe harbors (42 U.S.C. § 1320a-7b(b); 42 C.F.R. § 1001.952). The Stark Law prohibits a physician from making referrals for certain designated health services to an entity with which the physician (or an immediate family member) has a financial relationship, unless the financial relationship fits within a specified exception. Virtually all of the Stark Law exceptions applicable to AHT's operations require, among other elements, that compensation paid or received under the arrangement reflect fair market value and not take into account the volume or value of referrals or other business generated between the parties. Similarly, the AKS safe harbors — which, if satisfied, provide protection against criminal and civil liability for arrangements that might otherwise constitute illegal remuneration for referrals — generally require that compensation be consistent with fair market value and not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated.
These Procedures are adopted pursuant to AHT Board Resolution No. 2023-01-004 (adopted January 24, 2023), which authorized the engagement of Calderwood & Harkness LLP to conduct a comprehensive compliance self-assessment and to develop enhanced compliance policies and procedures, including these FMV Determination Procedures. These Procedures are further authorized under the AHT Board Compliance Committee Charter (adopted April 15, 2021; amended October 30, 2022), which charges the Board Compliance Committee with oversight of AHT's compliance program, including the review and approval of policies and procedures relating to physician compensation and referral source arrangements.
The adoption of these Procedures reflects AHT's commitment to maintaining the highest standards of regulatory compliance and to establishing a robust, auditable process for ensuring that all compensation paid to or received from referral sources is at fair market value, commercially reasonable, and fully documented.
B. Regulatory Context
The regulatory framework governing FMV determinations for healthcare compensation arrangements is complex and multi-layered. These Procedures are designed to address the requirements imposed by each of the following authorities:
Stark Law Definition of Fair Market Value. The federal physician self-referral statute and its implementing regulations provide the foundational definition of FMV for purposes of these Procedures. Under 42 C.F.R. § 411.351, "fair market value" means the value in arm's-length transactions, consistent with the general market value. General market value means, with respect to compensation for services, the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party. The regulations further distinguish between general FMV (the arm's-length standard), rental FMV (the value of rental property for general commercial purposes, not taking into account the intended use of the property), and physician compensation FMV (the compensation that would be paid in like circumstances at the time of the transaction by like enterprises to a physician who is not in a position to refer to the entity).
Anti-Kickback Statute Safe Harbor Requirements. The AKS safe harbors set forth at 42 C.F.R. § 1001.952 impose specific requirements for compensation arrangements to qualify for protection. Relevant safe harbors — including those for personal services and management contracts (§ 1001.952(d)), space rental (§ 1001.952(b)), and equipment rental (§ 1001.952(c)) — generally require that aggregate compensation be set in advance, be consistent with fair market value in arm's-length transactions, and not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties.
CMS Stark Law Modernization Final Rule. The Centers for Medicare & Medicaid Services ("CMS") promulgated a final rule modernizing the Stark Law regulations, published at 85 Fed. Reg. 77492 and effective January 19, 2021. This final rule updated the regulatory definitions of fair market value and commercial reasonableness, among other changes. Notably, CMS clarified that FMV is determined based on the facts and circumstances of the particular transaction at issue and that an hourly rate may be used to determine FMV for physician compensation where it is an appropriate measure. CMS also confirmed that commercial reasonableness is a separate inquiry from FMV and that an arrangement may be commercially reasonable even if it is not profitable.
AKS Safe Harbor Modernization Final Rule. The Office of Inspector General of the U.S. Department of Health and Human Services ("OIG") promulgated a companion final rule modernizing the AKS safe harbors, published at 85 Fed. Reg. 77684 and effective January 19, 2021. This rule updated and added safe harbors relevant to value-based arrangements, among other changes.
OIG Compliance Guidance. The OIG's Compliance Program Guidance for Individual and Small Group Physician Practices, published at 65 Fed. Reg. 59434, provides guidance on structuring physician compensation arrangements to mitigate AKS risk, including recommendations for FMV documentation.
Massachusetts State Anti-Kickback Law. Massachusetts General Laws chapter 175H, section 3, prohibits the payment or receipt of any remuneration in exchange for the referral of patients. AHT, which operates 14 outpatient clinics in Massachusetts, must ensure that all compensation arrangements with Massachusetts-based referral sources comply with this state law prohibition in addition to federal requirements.
Connecticut Referral Fee Prohibition. Connecticut General Statutes section 20-7a(d) prohibits the payment or receipt of referral fees in connection with healthcare services. AHT, which operates 4 outpatient clinics in Connecticut and administers 9 management services agreements through ConnectiCare Physicians Network, LLC in Strathmore Mutual Insurance area, must ensure compliance with this state law.
These Procedures are designed to satisfy the FMV requirements imposed by each of these authorities and to provide AHT with a comprehensive compliance framework addressing the intersection of federal and state law.
C. Scope of Application
These Procedures apply to all AHT compensation arrangements involving physicians, physician groups, or other referral sources, including but not limited to:
(i) Physician Employment Agreements. AHT currently employs 147 physicians on a W-2 basis across its 23 outpatient clinics. These employment agreements include various compensation components — base salary, work relative value unit ("wRVU") based productivity bonuses, quality and performance bonuses, benefits packages, sign-on bonuses, relocation allowances, and loan repayment obligations — each of which is subject to FMV analysis under these Procedures.
(ii) Independent Contractor and Medical Director Agreements. AHT is a party to 38 current independent contractor and medical director arrangements with physicians who provide administrative, clinical oversight, or consultative services to AHT on a non-employment basis. These arrangements involve stipends ranging from $25,000 to $110,000 per year, with aggregate annual medical director compensation of $1.92 million across the portfolio.
(iii) Legacy Arrangements Assumed in Acquisitions. AHT has assumed certain compensation arrangements through acquisitions, including 14 physician agreements (12 employment agreements and 2 independent contractor agreements) assumed in connection with the acquisition of Lakeview Medical Associates, P.C. on August 15, 2022, as well as 3 medical director agreements associated with the Lakeview practices (at stipends of $45,000, $60,000, and $72,000, respectively). All such legacy arrangements are subject to these Procedures.
(iv) Office Space Leases with Physician Tenants or Physician-Owned Entities. AHT is a party to various office space leases involving physician tenants or entities in which physicians hold ownership interests, including the 2 legacy leases assumed in the Lakeview acquisition (75 Belmont Street, Worcester, MA 01605, and 310 Main Street, Suite 2A, Shrewsbury, MA 01545).
(v) Equipment Leases and Facility Access Agreements. AHT is a party to leases for diagnostic imaging equipment, laboratory equipment, and other medical equipment with referral sources, including the Meridian Diagnostics LLC facility access arrangement (services agreement dated March 1, 2021), which is currently structured as a per-scan fee of $185 per scan.
(vi) Management Services Agreements. AHT, through its subsidiary ConnectiCare Physicians Network, LLC, is a party to 9 management services agreements with independently owned physician practices in Strathmore Mutual Insurance, Connecticut area, under which AHT provides practice management services in exchange for a fee equal to 15% of collected net revenue.
(vii) All Other Arrangements. Any other arrangement under which AHT pays or receives remuneration to or from a referral source, including non-monetary remuneration, in-kind benefits, sponsorships, and other transfers of value.
Geographic Applicability. These Procedures apply to all 23 AHT outpatient clinics across four states: Massachusetts (14 clinics), Connecticut (4 clinics), Rhode Island (3 clinics), and New Hampshire (2 clinics).
Revenue Context. AHT reported net revenue of $214.3 million for fiscal year 2022, of which approximately 61% ($130.7 million) derives from Medicare and Medicaid reimbursements. The substantial majority of AHT's revenue base is therefore subject to the Stark Law and AKS requirements that underpin these Procedures, making rigorous FMV compliance essential to AHT's financial integrity and continued participation in federal healthcare programs.
D. Relationship to Other AHT Policies
These Procedures are intended to complement and be read in conjunction with the following AHT policies and procedures, each of which has been revised or is in the process of being revised as part of the Calderwood & Harkness compliance engagement:
• Revised AHT Compliance Program Manual — the overarching compliance program framework, including the Code of Conduct, reporting and investigation procedures, and disciplinary standards.
• Revised Physician Compensation Policy — establishing FMV and commercial reasonableness standards, approved benchmark sources, and approval workflows specific to physician compensation. The Physician Compensation Policy provides the substantive standards for physician pay; these Procedures address the process for determining and documenting FMV.
• Revised Vendor and Third-Party Arrangement Policy — governing the review, approval, and monitoring of all vendor and third-party arrangements, including real estate leases, equipment leases, and service agreements with referral sources.
• Non-Monetary Remuneration and Compliance Exception Tracking Protocol — establishing specific tracking and documentation requirements for items and services of non-monetary value provided to or received from referral sources, including annual aggregation against the Stark Law non-monetary compensation exception threshold.
• Revised Physician Referral and Self-Referral Policy — establishing standards and procedures for monitoring and managing physician referral patterns and self-referral relationships in compliance with the Stark Law and AKS.
In the event of any conflict between these Procedures and any other AHT policy, these Procedures shall govern with respect to FMV determination and documentation requirements, and the matter shall be referred to the General Counsel for resolution.
II. DEFINITIONS
For purposes of these Procedures, the following terms shall have the meanings set forth below:
"Anti-Kickback Statute" or "AKS" means the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), which prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals of items or services reimbursable by federal healthcare programs, and the implementing safe harbor regulations set forth at 42 C.F.R. § 1001.952.
"Board Compliance Committee" means the Compliance Committee of the Board of Directors of Arbor Health Technologies Inc., established pursuant to the Compliance Committee Charter (adopted April 15, 2021; amended October 30, 2022).
"CCO" means the Chief Compliance Officer of AHT, currently Derek Huang.
"Commercial Reasonableness" means an arrangement that would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or other party) of similar training, qualifications, and experience, even if no referrals were made between the parties. Commercial reasonableness is a distinct inquiry from FMV — an arrangement may be at fair market value but not commercially reasonable if, for example, the arrangement involves a medical director position with no legitimate or necessary duties, or if the arrangement serves no legitimate business purpose independent of the referral relationship. Consistent with the CMS Stark Law Modernization Final Rule (85 Fed. Reg. 77492), commercial reasonableness does not require that an arrangement be profitable to be considered commercially reasonable; the relevant inquiry is whether a reasonable, well-informed business person would have entered into the arrangement on similar terms for legitimate business reasons.
"Compensation Arrangement" means any arrangement involving remuneration between AHT and a physician (or an immediate family member of a physician, as defined under Stark Law, 42 C.F.R. § 411.351) who is in a position to make or influence referrals to AHT for designated health services. This term includes, without limitation, employment agreements, independent contractor agreements, medical director agreements, office space leases, equipment leases, management services agreements, and any other arrangement under which compensation (whether monetary or non-monetary) flows between AHT and a referral source.
"Designated Health Services" or "DHS" means the categories of services enumerated in 42 U.S.C. § 1395nn(h)(6) and 42 C.F.R. § 411.351, for which physician self-referral is restricted under the Stark Law. DHS include clinical laboratory services, physical therapy services, occupational therapy services, outpatient speech-language pathology services, radiology and certain other imaging services, radiation therapy services and supplies, durable medical equipment and supplies, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics, and prosthetic devices and supplies, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services. AHT provides or arranges for multiple categories of DHS through its clinic network and affiliated entities.
"Fair Market Value" or "FMV" means the value in arm's-length transactions, consistent with the general market value of the subject transaction, as defined under 42 C.F.R. § 411.351 and as applied under these Procedures. FMV encompasses three distinct applications, each of which must be considered in connection with the relevant arrangement type:
(a) General FMV — the value of an asset or service that would be agreed upon by parties negotiating at arm's length, each acting in their own self-interest, neither party being under compulsion to act, and both parties being well-informed of all relevant facts.
(b) Rental FMV — the value of rental property for general commercial purposes, not taking into account the intended use of the property or its proximity to sources of healthcare referrals. This standard applies to office space leases and equipment leases.
(c) Physician Compensation FMV — the compensation that would be paid in like circumstances at the time of the transaction by like enterprises (of similar type, size, scope, and specialty) to a physician who is not in a position to refer to the entity.
In all cases, FMV must be determined without regard to the volume or value of referrals or other business generated between the parties to the arrangement.
"General Counsel" means the General Counsel of AHT, currently Patricia Yamamoto.
"Immediate Family Member" has the meaning set forth in 42 C.F.R. § 411.351, which includes a husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild.
"Independent FMV Appraisal" means a formal written opinion of fair market value prepared by a qualified independent third-party valuation firm with no financial interest in the outcome of the arrangement being valued, no ownership interest in AHT or any party to the arrangement, and no contingency-based fee arrangement. An Independent FMV Appraisal must be prepared by a valuation professional holding relevant professional credentials (ASA, ABV, CVA, or equivalent) with demonstrated specialization in healthcare valuations.
"Internal Benchmarking Analysis" means an FMV determination performed by AHT personnel — specifically, the CCO and/or the General Counsel — using approved external benchmark data sources (as set forth in Section VII of these Procedures), without engagement of an independent third-party appraiser. Internal Benchmarking Analyses are available only for arrangements classified as Tier 2 or Tier 3 under these Procedures.
"Master Arrangement Inventory" means the comprehensive inventory of all AHT compensation arrangements with referral sources, maintained by the CCO, which includes risk scoring for each arrangement based on factors such as arrangement type, compensation level relative to benchmarks, referral volume, FMV documentation status, and regulatory complexity.
"Referral Source" means any physician, physician group, or entity that refers or generates items or services payable by Medicare, Medicaid, or other federal or state healthcare programs to AHT, or to which AHT refers such items or services. For purposes of these Procedures, a person or entity is treated as a referral source if it is in a position to make or influence such referrals, regardless of whether any referrals have actually been made.
"Stark Law" means the federal physician self-referral statute, 42 U.S.C. § 1395nn, and its implementing regulations, 42 C.F.R. § 411.350 et seq., as amended.
III. ROLES AND RESPONSIBILITIES
A. Chief Compliance Officer (Derek Huang)
The Chief Compliance Officer bears overall responsibility for the day-to-day administration of these Procedures, including:
(i) Maintaining the centralized FMV file repository, ensuring that complete FMV documentation is on file for every active compensation arrangement with a referral source;
(ii) Classifying all new and existing arrangements into the applicable tier (Tier 1, Tier 2, or Tier 3) under Section VI.B of these Procedures;
(iii) Performing Internal Benchmarking Analyses for Tier 2 arrangements and streamlined reviews for Tier 3 arrangements;
(iv) Monitoring the FMV refresh schedule for all arrangements and initiating the renewal process in a timely manner to prevent lapses in FMV documentation;
(v) Conducting the annual portfolio-level review of all FMV determinations, as required by Section IX.B;
(vi) Reporting FMV compliance status to the Board Compliance Committee at each regular meeting, including the number of active determinations, pending and overdue refreshes, and any arrangements identified as non-compliant;
(vii) Coordinating with the General Counsel on arrangements requiring escalation, including arrangements requiring independent appraisal, arrangements exceeding benchmark thresholds, and arrangements presenting potential Stark Law or AKS violations; and
(viii) Overseeing the training of AHT personnel on these Procedures, as described in Section XVII.
B. General Counsel (Patricia Yamamoto)
The General Counsel serves as the legal authority for all FMV determinations and related compliance matters, with the following responsibilities:
(i) Reviewing and approving all new compensation arrangements and amendments for legal sufficiency, including compliance with applicable Stark Law exceptions and AKS safe harbors;
(ii) Co-signing FMV determination certifications for all arrangements classified as Tier 1 or Tier 2, ensuring that the FMV analysis is legally sound and adequately documented;
(iii) Coordinating with outside counsel — currently Calderwood & Harkness LLP (Miriam Calloway, Partner; Joel Strauss, Partner) or successor engagement counsel — on complex FMV issues, including arrangements presenting novel regulatory questions, potential violation disclosures, and litigation-related matters;
(iv) Coordinating the engagement of independent FMV appraisers when required under these Procedures, including the preparation or review of written scope letters and the review of completed appraisal reports for methodological soundness and regulatory consistency;
(v) Approving any additional benchmark data sources for use in FMV determinations beyond those enumerated in Section VII; and
(vi) Making determinations regarding the applicability of the CMS Stark Self-Referral Disclosure Protocol or the OIG Self-Disclosure Protocol in cases of identified non-compliance, in consultation with outside counsel and subject to Board Compliance Committee approval.
C. Chief Executive Officer (Dr. Nathan Ellsworth)
The Chief Executive Officer has the following responsibilities under these Procedures:
(i) Serving as the final approval authority for any new compensation arrangement or material amendment where the proposed total compensation exceeds the 75th percentile of the applicable benchmark for the relevant specialty;
(ii) Reviewing and approving FMV Certifications requiring CEO sign-off under the approval matrix set forth in Section VIII.A, Step 5;
(iii) Mandatory recusal: The CEO must recuse himself from all FMV determinations and approval decisions for any arrangement involving an immediate family member of the CEO, including but not limited to any arrangement involving Dr. Karen Ellsworth (spouse of the CEO) or any entity in which Dr. Karen Ellsworth holds an ownership or investment interest (including Pinnacle Laboratory Services Inc., in which Dr. Karen Ellsworth holds a 4.2% passive equity interest). In all such cases, the CEO's approval authority is delegated to the General Counsel and the Chair of the Board Compliance Committee, acting jointly.
D. Board Compliance Committee
The Board Compliance Committee exercises the following oversight functions with respect to these Procedures:
(i) Reviewing and ratifying FMV determinations for all arrangements classified as "High Risk" in the Master Arrangement Inventory and Risk Scoring Matrix — currently 17 arrangements so classified in the Grayson Whitaker & Associates gap assessment report (Report No. GW-AHT-2022-Final, dated December 12, 2022);
(ii) Receiving quarterly reports from the CCO on FMV compliance status across all arrangement categories, including the reports described in Section XVIII.A;
(iii) Exercising the authority to require an independent appraisal for any arrangement at its discretion, regardless of the arrangement's tier classification;
(iv) Approving material amendments to these Procedures, as described in Section XIX; and
(v) Approving any decision to file a voluntary disclosure with CMS or OIG in connection with an identified FMV violation, as described in Section XV.C.
E. Department and Clinic Administrators
Department heads and clinic administrators across AHT's 23 outpatient clinics are responsible for:
(i) Timely submission of FMV Determination Request Forms (Appendix A) for all proposed new compensation arrangements and material amendments to existing arrangements, including complete and accurate data supporting the FMV analysis;
(ii) Tracking and documenting actual hours, duties, and services performed under existing arrangements, which is critical for medical director and independent contractor arrangements where FMV is assessed in part based on the effective hourly rate. Monthly time logs must be completed, signed by the physician, and countersigned by the supervising clinic administrator; and
(iii) Promptly notifying the CCO of any changes in the scope, duties, hours, or compensation of any existing arrangement that might trigger a new FMV determination under Section VIII.B.
F. Independent Valuation Firm (Currently: Northbridge Valuation Advisors LLC)
AHT has retained Northbridge Valuation Advisors LLC as its primary independent FMV valuation firm. The firm's engagement is subject to the following requirements:
Primary Contact: Sandra Kilpatrick, Managing Director Address: 1600 Market Street, Suite 2800, Philadelphia, PA 19103
Northbridge was engaged in February 2023 to prepare FMV opinions for 52 physician compensation arrangements (consisting of the 38 current independent contractor and medical director agreements and the 14 legacy employment agreements assumed in the Lakeview Medical Associates acquisition), 2 office space leases (Worcester and Shrewsbury), and the Meridian Diagnostics LLC facility access fee arrangement.
Independence Requirements: Northbridge must maintain independence throughout its engagement with AHT. Specifically, Northbridge and its professionals may not hold any ownership interest in AHT or in any party to an arrangement being valued, may not receive compensation on a contingency basis or in any manner linked to the outcome of an appraisal, and must provide an annual written independence certification to the General Counsel confirming the absence of any relationship that could compromise the firm's objectivity.
IV. CLASSIFICATION OF ARRANGEMENTS AND FMV DETERMINATION METHODS
A. Arrangement Categories
1. Physician Employment Compensation
This category covers all 147 W-2 employed physicians across AHT's clinic network, including the 12 physicians whose employment agreements were assumed in connection with the Lakeview Medical Associates, P.C. acquisition on August 15, 2022. The following compensation components are subject to FMV analysis under these Procedures:
• Base salary
• wRVU-based productivity bonuses (including the per-wRVU conversion factor and any productivity thresholds or tiers)
• Quality and performance bonuses (including the applicable quality metrics, bonus pool methodology, and maximum payout amounts)
• Benefits (including health insurance, retirement plan contributions, professional liability insurance, CME allowances, and paid time off)
• Sign-on bonuses
• Relocation allowances
• Student loan repayment obligations
• Any other form of compensation or remuneration provided in connection with the employment relationship
Current AHT benchmark medians for employed physicians, based on the most recent MGMA DataDive and SullivanCotter survey data available at the time of adoption of these Procedures, are approximately $278,000 per year for primary care physicians and $412,000 per year for specialists (all compensation, including benefits). These medians are provided for reference purposes only; actual FMV determinations must be based on the specific specialty, geographic market, experience level, and practice setting of each individual physician.
2. Independent Contractor and Medical Director Stipends
This category covers all 38 current independent contractor and medical director arrangements under which physicians provide administrative, clinical oversight, or consultative services to AHT on a non-employment basis. This category includes the 3 medical director agreements assumed in the Lakeview acquisition, which carry stipends of $45,000, $60,000, and $72,000, respectively.
Across the current portfolio, stipends range from $25,000 to $110,000 per year, with aggregate annual medical director compensation of approximately $1.92 million. The key metric for FMV analysis of these arrangements is the effective hourly rate, which is currently $501.28 per hour on average across the portfolio, calculated as follows: $1,920,000 aggregate annual compensation divided by 3,830.4 total documented hours (38 physicians × 8.4 hours per month average × 12 months). This effective hourly rate has been flagged as exceeding the 90th percentile of applicable specialty benchmarks for multiple specialties in the Grayson Whitaker gap assessment, underscoring the urgency of independent appraisal and potential remediation for this arrangement category.
FMV analysis for medical director and independent contractor arrangements must evaluate both the per-hour effective rate and the total stipend amount, as an arrangement may be within benchmark ranges on one measure but not the other.
3. Office Space Leases
This category covers all clinic space leased to or from physician tenants or physician-owned entities. This includes the 2 legacy office leases assumed in the Lakeview acquisition: the lease at 75 Belmont Street, Worcester, MA 01605, and the lease at 310 Main Street, Suite 2A, Shrewsbury, MA 01545.
Under both 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)), rental payments must be at fair market value. For purposes of these Procedures, FMV for office space leases is determined based on general commercial rental rates for comparable properties in the relevant geographic market, without reference to the proximity of the leased space to sources of healthcare referrals or the intended use of the space for medical practice. Rental comparables should reflect the going rate for similar quality, size, and condition of commercial medical office space in the applicable submarket.
4. Equipment Leases and Facility Access Agreements
This category covers diagnostic imaging equipment, laboratory equipment, and other medical equipment leased to or from referral sources. This specifically includes the Meridian Diagnostics LLC facility access arrangement (pursuant to a services agreement dated March 1, 2021), which is currently structured as a per-scan fee of $185 per scan. In fiscal year 2022, AHT processed approximately 4,200 scans under this arrangement, resulting in total payments to Meridian Diagnostics of approximately $777,000. This per-scan fee structure has been identified as presenting elevated compliance risk and has been recommended for restructuring to a fixed monthly rental at FMV.
The Stark Law equipment rental exception (42 C.F.R. § 411.357(b)) and the AKS equipment rental safe harbor (42 C.F.R. § 1001.952(c)) require that rental charges be set in advance, be consistent with FMV, and not take into account the volume or value of referrals. Per-use or per-scan fees are generally inconsistent with the safe harbor requirement that rental payments be "set in advance" and not vary with the volume of services rendered, because such fees inherently fluctuate based on utilization, which may correlate with referral volume. Accordingly, FMV for equipment leases and facility access arrangements must be determined on a fixed periodic basis (e.g., a fixed monthly or annual rental), and per-use fee structures must be converted to fixed payments at FMV.
5. Management Services Fees
This category covers the management services agreements administered through ConnectiCare Physicians Network, LLC, AHT's Connecticut subsidiary, with 9 independently owned physician practices in Strathmore Mutual Insurance, Connecticut area. Under these agreements, AHT provides comprehensive practice management services — including billing and collections, human resources, information technology, compliance support, and administrative management — in exchange for a management fee equal to 15% of collected net revenue. In fiscal year 2022, AHT collected aggregate management fee revenue of $4.73 million on $31.53 million in managed practice revenue.
FMV analysis for percentage-based management service fee arrangements requires a multi-faceted assessment, including comparison to market rates for comparable management services, analysis of whether the percentage fee results in aggregate compensation that exceeds FMV for the actual services provided, and evaluation of whether the fee methodology indirectly accounts for the volume or value of referrals from managed practices to AHT-owned ancillary services (including laboratory, diagnostic imaging, and physical therapy services). Where managed practices refer to AHT-owned ancillary service providers, the ConnectiCare MSAs may also give rise to indirect compensation arrangement concerns under the Stark Law, which require that the aggregate compensation received by the physician practice from AHT (directly or indirectly) be at FMV and not take into account the volume or value of referrals.
6. Non-Monetary Remuneration and In-Kind Benefits
This category encompasses items of value provided to or received from referral sources that do not constitute cash compensation. Non-monetary remuneration requires FMV assessment to determine the market value of the item or service and to evaluate compliance with the Stark Law non-monetary compensation exception (42 C.F.R. § 411.357(k)), which permits non-monetary compensation up to an annual limit of $459 per physician per calendar year (CY2023), adjusted annually for inflation.
This category specifically includes the Pinnacle Laboratory Services Inc. no-cost electronic laboratory interface that has been integrated into AHT's ArborConnect electronic health record system. The estimated market value of this interface is $120,000 per year, which vastly exceeds the $459 annual non-monetary compensation threshold and cannot rely on the non-monetary remuneration exception. This arrangement must be restructured as a fair market value license agreement. Additionally, Pinnacle sponsored 4 continuing medical education events for AHT physicians in fiscal year 2022, with total sponsorship value of $86,000. These sponsorships require FMV assessment and evaluation of whether they constitute remuneration linked to the referral relationship between AHT physicians and Pinnacle Laboratory Services.
These Procedures should be read in conjunction with the Non-Monetary Remuneration and Compliance Exception Tracking Protocol, which establishes specific tracking and aggregation requirements for non-monetary remuneration.
B. Determination Methods by Tier
Tier 1: Independent Third-Party Appraisal Required
A Tier 1 determination — requiring engagement of an independent third-party appraiser — is mandatory for all of the following categories of arrangements:
(a) Any new physician compensation arrangement (employment, independent contractor, or medical director) where the proposed total compensation exceeds the 75th percentile of the applicable specialty benchmark;
(b) All medical director arrangements, regardless of compensation level. Given the current portfolio-wide effective hourly rate of $501.28 per hour, which exceeds the 90th percentile for multiple specialties, all 38 existing medical director arrangements require independent appraisal until rates are brought within benchmark ranges and the Board Compliance Committee determines that Tier 2 analysis is appropriate for qualifying arrangements;
(c) Any office space or equipment lease with a referral source where the aggregate annual rent or access fee exceeds $50,000;
(d) Any arrangement previously scored as "High Risk" in the Master Arrangement Inventory and Risk Scoring Matrix. As of the date of these Procedures, 17 arrangements are so classified based on the Grayson Whitaker & Associates gap assessment report (Report No. GW-AHT-2022-Final, dated December 12, 2022);
(e) All arrangements assumed in acquisitions, including all 14 Lakeview Medical Associates legacy agreements and all arrangements that may be assumed in future acquisitions;
(f) Any arrangement involving an immediate family member of an AHT officer, director, or physician in a leadership role. This criterion specifically encompasses any arrangement involving Dr. Karen Ellsworth (spouse of the CEO, Dr. Nathan Ellsworth), including the Pinnacle Laboratory Services relationship;
(g) The Meridian Diagnostics LLC facility access arrangement (both the current per-scan fee structure and the restructured fixed-rental arrangement);
(h) All ConnectiCare Physicians Network management services agreements, given the indirect compensation arrangement concerns associated with managed practice referrals to AHT ancillary services;
(i) Any arrangement where the aggregate remuneration to or from a single referral source exceeds $250,000 annually.
Appraiser Requirements. All independent appraisals under Tier 1 must be performed by a qualified valuation professional holding relevant professional credentials, including but not limited to: Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), Certified Valuation Analyst (CVA), or equivalent recognized credential. The appraiser must have demonstrated specialization in healthcare valuations, including physician compensation valuation, medical practice valuation, and/or healthcare real estate valuation, as applicable to the arrangement type. The appraiser must provide a written independence certification confirming the absence of any financial interest in the outcome of the appraisal, any ownership interest in AHT or the arrangement counterparty, or any contingency-based fee arrangement. The appraisal opinion must be delivered in writing, with full disclosure of the methodology employed, the data sources consulted, the assumptions made, and the limiting conditions applicable to the opinion.
Current Approved Appraiser. As of the effective date of these Procedures, the sole approved independent appraiser is Northbridge Valuation Advisors LLC (Sandra Kilpatrick, Managing Director). Additional firms may be approved by the General Counsel in accordance with the criteria set forth in Section XII and Appendix E.
Tier 2: Internal Benchmarking Analysis Permitted
A Tier 2 determination — permitting internal benchmarking analysis by the CCO with General Counsel co-sign — is available for arrangements that do not meet any of the Tier 1 criteria, including:
(a) Physician employment arrangements where the proposed or existing total compensation is at or below the 75th percentile of the applicable specialty benchmark;
(b) Office space or equipment leases with a referral source where the aggregate annual rent is $50,000 or less;
(c) Arrangements previously scored as "Moderate Risk" or "Low Risk" in the Master Arrangement Inventory;
(d) Renewals of existing arrangements where the prior independent appraisal was obtained less than 24 months before the renewal date and no material change in terms has occurred since the prior appraisal.
Internal Benchmarking Analyses must be performed by the CCO (Derek Huang) with review and co-signature by the General Counsel (Patricia Yamamoto). The analysis must reference and apply at least two approved benchmark data sources from the list set forth in Section VII. The analysis must be documented in an Internal FMV Benchmarking Memorandum (Appendix B).
Tier 3: Streamlined Review for Low-Risk Arrangements
A Tier 3 streamlined review is available only for the following categories of arrangements:
(a) De minimis arrangements with an aggregate annual value under $10,000; and
(b) Arrangements where all compensation is set by reference to published fee schedules (e.g., the Medicare Physician Fee Schedule) and no discretionary compensation component exists.
Even for Tier 3 arrangements, written documentation of the FMV determination is required, and the documentation must be retained in the centralized FMV file repository. CCO approval is sufficient for Tier 3 determinations; General Counsel co-signature is not required. The CCO must document the basis for the Tier 3 classification and the rationale for the FMV conclusion on the FMV Determination Request Form (Appendix A).
V. APPROVED BENCHMARK DATA SOURCES
A. Physician Compensation Benchmarks
The following data sources are approved for use in FMV determinations for physician compensation arrangements:
1. Northbridge Valuation Advisors LLC — Independent FMV Opinions. Formal written appraisal opinions prepared by Northbridge constitute the primary data source for all Tier 1 physician compensation determinations. Northbridge opinions incorporate multiple survey data sources, proprietary databases, and market intelligence to derive specialty-specific, geography-adjusted FMV ranges.
2. MGMA DataDive Physician Compensation and Production (Medical Group Management Association). Annual survey data reporting physician compensation and productivity by specialty, geographic region (including New England), practice type (single-specialty, multi-specialty, academic, hospital-employed), and practice size. AHT maintains an annual subscription to MGMA DataDive, accessible to the CCO and General Counsel.
3. SullivanCotter Physician Compensation and Productivity Survey. Annual survey data providing compensation benchmarks by specialty, region, and employment model. SullivanCotter data is particularly useful for hospital-employed and health-system-employed physician compensation analysis.
4. AMGA Medical Group Compensation and Productivity Survey (American Medical Group Association). Annual survey data from large multi-specialty medical groups, providing compensation and production data by specialty. AMGA data is a useful comparator for AHT's multi-site clinic model.
5. Additional Sources. Other physician compensation data sources may be used with the prior written approval of the General Counsel, provided that the source is a recognized, nationally published survey with a statistically significant sample size and methodology disclosure.
B. Real Estate and Space Rental Benchmarks
The following data sources are approved for use in FMV determinations for office space leases:
1. Northbridge Valuation Advisors LLC — Independent Appraisal Opinions. Formal written appraisal opinions for real estate rentals, utilizing comparable rental transaction data, income capitalization analysis, and market surveys.
2. Hollowell Corporation / Pinnacle Software Market Data. Commercial real estate market data for comparable medical office space in the relevant geographic submarket. Larkspur Enterprises data provides rental rate benchmarks, vacancy rates, and comparable lease transaction information.
3. Local Commercial Real Estate Broker Opinions of Value. Written opinions of fair rental value from independent commercial real estate brokers with knowledge of the local market. Broker opinions must be obtained from brokers who are independent of both AHT and the physician tenant or landlord, and must be provided in writing.
4. Applicable State or Metropolitan Area Commercial Rental Surveys. Published rental surveys for the relevant metropolitan statistical area or state, including surveys published by commercial real estate industry associations or research firms.
C. Equipment Rental Benchmarks
The following data sources are approved for use in FMV determinations for equipment leases and facility access arrangements:
1. Northbridge Valuation Advisors LLC — Independent Appraisal Opinions. Formal written appraisal opinions for equipment rentals, incorporating equipment cost, useful life, depreciation, and market rental comparable data.