ARBOR HEALTH TECHNOLOGIES INC.
REVISED VENDOR AND THIRD-PARTY ARRANGEMENT POLICY
Governing Relationships with Laboratories, Diagnostic Imaging Companies, Device Manufacturers, Pharmaceutical Companies, and Other Third-Party Vendors
Policy Number: AHT-COMP-2023-004
Effective Date: July 15, 2023
Supersedes: Prior Vendor and Third-Party Arrangement Policy (original adoption date unspecified)
Approved by:
Patricia Yamamoto, General Counsel Derek Huang, Chief Compliance Officer Dr. Nathan Ellsworth, Chief Executive Officer
Prepared with the assistance of: Calderwood & Harkness LLP Matter No. 1010-00003
CLASSIFICATION: CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT. This document was prepared at the direction of counsel and contains legal analysis, advice, and recommendations. This document is subject to the protections of the attorney-client privilege and the work product doctrine. Distribution of this document is strictly limited to authorized AHT personnel. Unauthorized disclosure, reproduction, or dissemination is prohibited.
SECTION 1: PURPOSE AND SCOPE
1.1 Purpose
This Revised Vendor and Third-Party Arrangement Policy (this "Policy") establishes the standards, procedures, and approval requirements governing Arbor Health Technologies Inc.'s ("AHT" or the "Company") relationships with third-party vendors and service providers. This Policy is designed to provide a comprehensive framework through which AHT can manage its vendor relationships in a manner that promotes lawful conduct, protects the integrity of the Company's healthcare operations, and minimizes regulatory risk.
This Policy is designed to ensure compliance with the following federal and state laws and regulations:
(a) The federal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), which prohibits the knowing and willful offer, payment, solicitation, or receipt of remuneration to induce or reward the referral of items or services reimbursable by federal healthcare programs;
(b) The Physician Self-Referral Law (commonly known as the "Stark Law"), 42 U.S.C. § 1395nn, which prohibits physician referrals for designated health services to entities with which the physician (or an immediate family member) has a financial relationship, unless an applicable exception is satisfied;
(c) Applicable AKS safe harbors set forth at 42 C.F.R. § 1001.952, which provide regulatory protection from prosecution under the AKS when all elements of a given safe harbor are fully satisfied;
(d) Applicable Stark Law exceptions set forth at 42 C.F.R. § 411.350 et seq., which, if fully satisfied, permit referrals that would otherwise be prohibited under the Stark Law;
(e) The Massachusetts anti-kickback law, M.G.L. c. 175H, § 3, which prohibits certain remuneration arrangements in connection with healthcare services, including arrangements involving commercial payers;
(f) The Connecticut referral fee prohibition, Conn. Gen. Stat. § 20-7a(d), which prohibits the payment or receipt of referral fees in connection with healthcare services in the State of Connecticut; and
(g) Such other federal and state laws and regulations as may be applicable to AHT's vendor relationships, including but not limited to the federal False Claims Act (31 U.S.C. § 3729 et seq.), the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), and analogous state false claims statutes.
This Policy was developed in response to findings from the comprehensive compliance self-assessment conducted by the AHT Compliance Office from January 30, 2023 through July 12, 2023. The self-assessment was informed by the independent gap assessment report prepared by Grayson Whitaker & Associates LLP (report reference GW-AHT-2022-Final, dated December 12, 2022; engagement principal: Carolyn Fitch, 7900 Wisconsin Avenue, Suite 450, Bethesda, MD 20814). The Grayson Whitaker gap assessment identified seventeen (17) high-risk vendor arrangements and twenty-three (23) moderate-risk vendor arrangements requiring remediation or restructuring. This Policy addresses each of the identified risk areas and establishes prospective controls to prevent the recurrence of non-compliant arrangements.
This Policy supports AHT's broader compliance program as set forth in the Revised AHT Compliance Program Manual (AHT-COMP-2023-001), and should be read in conjunction with the related policies and documents identified in Appendix E hereto.
1.2 Scope
This Policy applies to all AHT personnel across all twenty-three (23) outpatient Arbor Health Clinics operated by the Company in the following states:
• Massachusetts: Fourteen (14) clinics located throughout the Greater Boston, Worcester, Springfield, and South Shore regions;
• Connecticut: Four (4) clinics located in the Greater Hartford and New Haven metropolitan areas;
• Rhode Island: Three (3) clinics located in Providence, Warwick, and Cranston; and
• New Hampshire: Two (2) clinics located in Nashua and Manchester.
This Policy covers approximately 1,340 employees (both clinical and administrative), 147 W-2 employed physicians, and 38 independent contractor and medical director arrangements currently in effect across the AHT clinic network.
This Policy encompasses all arrangements with the following categories of vendors and third parties, without limitation:
(a) Clinical laboratories, including reference laboratories and anatomic pathology laboratories;
(b) Diagnostic imaging companies, including mobile MRI, CT, PET/CT, and ultrasound service providers;
(c) Medical device manufacturers, suppliers, and distributors;
(d) Pharmaceutical companies, including manufacturers, wholesalers, and specialty pharmacies;
(e) Durable medical equipment ("DME") suppliers;
(f) Health information technology ("HIT") vendors, including EHR vendors, interoperability platform providers, data analytics vendors, and practice management software providers;
(g) Staffing agencies and locum tenens providers;
(h) Consulting firms providing management, operational, financial, or strategic advisory services;
(i) Real estate brokers, landlords, and property management companies involved in clinic space leasing; and
(j) Any other vendor whose relationship with AHT directly or indirectly touches federal healthcare program referrals, reimbursement, or the provision of designated health services.
This Policy applies to arrangements entered into by AHT directly, as well as arrangements entered into through affiliated entities, including without limitation ConnectiCare Physicians Network, LLC, a Connecticut limited liability company managed by AHT, which provides management services to independently owned physician practices in Strathmore Mutual Insurance, Connecticut area.
This Policy also extends to vendor relationships assumed through acquisitions, mergers, or other transactions. For example, vendor arrangements inherited from Lakeview Medical Associates, P.C., which AHT acquired through an asset purchase transaction on August 15, 2022, are subject to this Policy and must be brought into full compliance within the timeframes specified in Section 11.
1.3 Regulatory Context
AHT's operations involve significant exposure to federal healthcare program reimbursement. For the fiscal year ended December 31, 2022 ("FY2022"), AHT reported net revenue of $214.3 million, of which approximately 61%, or $130.7 million, was derived from Medicare and Medicaid reimbursements. This substantial federal healthcare program revenue subjects AHT to heightened regulatory scrutiny and reinforces the critical importance of maintaining compliant vendor relationships.
Commercial payer revenue for FY2022 totaled $83.6 million, representing approximately 39% of net revenue. AHT's single largest commercial payer relationship is with Covenant Health Plans Inc. ("Covenant"), a Massachusetts-based health plan, which accounted for $38.6 million in net revenue (approximately 18% of total net revenue) in FY2022. The Covenant relationship includes value-based payment arrangements and quality metric incentive bonuses that create additional regulatory complexity.
In addition to its clinical operations, AHT's proprietary ArborConnect SaaS platform generates $8.9 million in annual subscription revenue from forty-two (42) external physician practices. These licensing relationships create additional complexity, particularly where external practices that license ArborConnect also refer patients to AHT-owned ancillary services, including laboratory, diagnostic imaging, and physical therapy services. Such overlapping relationships require careful analysis under the Stark Law indirect compensation arrangement framework.
As of the effective date of this Policy, AHT has no prior enforcement actions by the U.S. Department of Health and Human Services Office of Inspector General ("OIG"), the U.S. Department of Justice ("DOJ"), the Centers for Medicare & Medicaid Services ("CMS"), or any state regulatory authority. AHT does not operate under a Corporate Integrity Agreement ("CIA") or other settlement-related compliance requirements. This Policy represents a proactive compliance measure undertaken by AHT in the ordinary course of its compliance program maturation.
As of the effective date of this Policy, AHT has no pending requests for Advisory Opinions from the OIG, and no pending requests for advisory opinions from any state regulatory authority.
SECTION 2: DEFINITIONS
2.1 Key Terms
For purposes of this Policy, the following terms shall have the meanings set forth below:
"Anti-Kickback Statute" or "AKS" means the federal Anti-Kickback Statute, codified at 42 U.S.C. § 1320a-7b(b), as amended, which prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward the referral of an individual for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program, or the purchase, lease, order, or arrangement for any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program.
"Stark Law" or "Physician Self-Referral Law" means the federal Physician Self-Referral Law, codified at 42 U.S.C. § 1395nn, as amended, which 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 of the physician) has a financial relationship (whether ownership, investment, or compensation), unless an applicable exception is satisfied. The Stark Law is a strict liability statute; no intent to violate the law is required for a violation to occur.
"Designated Health Services" or "DHS" means the categories of services specified under 42 C.F.R. § 411.351, including but not limited to: (a) clinical laboratory services; (b) physical therapy, occupational therapy, and outpatient speech-language pathology services; (c) radiology and certain other imaging services, including MRI, CT, and ultrasound; (d) radiation therapy services and supplies; (e) durable medical equipment and supplies; (f) parenteral and enteral nutrients, equipment, and supplies; (g) prosthetics, orthotics, and prosthetic devices and supplies; (h) home health services; (i) outpatient prescription drugs; and (j) inpatient and outpatient hospital services.
"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 further clarified by the CMS Stark Law Modernization Final Rule, 85 Fed. Reg. 77,492 (Dec. 2, 2020), effective January 19, 2021. For purposes of compensation arrangements, FMV means the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties who are not otherwise in a position to generate business for each other. For purposes of rental arrangements, FMV means the value of the rental property for general commercial purposes, not taking into account the proximity to or convenience for the lessee where the lessee is a potential referral source.
"Commercial Reasonableness" means that an arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, even in the absence of any referrals between the parties. An arrangement is commercially reasonable if it would make commercial sense to a reasonable person in the position of the parties, independent of the volume or value of referrals or other business generated between the parties.
"Remuneration" means any payment, discount, or other benefit, whether made directly or indirectly, overtly or covertly, in cash or in kind. This term is to be interpreted broadly and encompasses any transfer of value between parties.
"Non-Monetary Remuneration" means items or services of value that do not constitute cash payments. Under the Stark Law non-monetary remuneration exception (42 C.F.R. § 411.357(k)), non-monetary remuneration is subject to an annual aggregate limit, which for calendar year 2023 ("CY2023") is $459 per physician per calendar year.
"Referral Source" means any individual or entity that is in a position to refer patients, order designated health services, or direct business to AHT or any AHT-affiliated entity. This includes, without limitation, physicians (whether employed by AHT or independently practicing), physician practices, hospitals, skilled nursing facilities, home health agencies, and any other healthcare provider or entity from which AHT receives or may receive patient referrals.
"Safe Harbor" means the regulatory provisions set forth at 42 C.F.R. § 1001.952 that, if fully satisfied in all respects, protect arrangements from prosecution under the AKS. Failure to satisfy all elements of an applicable safe harbor does not necessarily mean that the arrangement violates the AKS, but it does mean that the arrangement is not entitled to safe harbor protection and must be evaluated on its facts and circumstances.
"Exception" means the regulatory provisions set forth at 42 C.F.R. § 411.350 et seq. that, if fully satisfied, permit physician referrals for designated health services that would otherwise be prohibited under the Stark Law. Unlike the AKS, the Stark Law is a strict liability statute, and failure to satisfy all elements of an applicable exception results in a per se violation of the law.
"Vendor" means any third-party entity or individual providing goods, services, technology, or other items of value to AHT, regardless of whether such entity or individual is also a referral source.
"Indirect Compensation Arrangement" means a Stark Law concept, defined at 42 C.F.R. § 411.354(c), involving an unbroken chain of any number (but not fewer than one) of persons or entities that have financial relationships between them (i.e., each party in the chain has a financial relationship with the next). An indirect compensation arrangement between a referring physician and a DHS entity exists when: (1) between the referring physician and the entity furnishing DHS, there is an unbroken chain of persons or entities with financial relationships; (2) the referring physician receives aggregate compensation from the person or entity in the chain with which the referring physician has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing DHS; and (3) the entity furnishing DHS has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician receives such aggregate compensation.
"Immediate Family Member" means, as defined under 42 C.F.R. § 411.351, 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.
2.2 AHT-Specific Defined Entities Referenced in This Policy
The following entities are specifically referenced throughout this Policy in connection with identified compliance matters and remediation directives:
"Pinnacle Laboratory Services Inc." or "Pinnacle" means a clinical laboratory vendor headquartered in Warwick, Rhode Island, which serves as AHT's preferred laboratory provider for certain Rhode Island and southeastern Massachusetts clinics. AHT's annual referral volume to Pinnacle is approximately $1.65 million.
"Meridian Diagnostics LLC" or "Meridian" means a mobile MRI and advanced diagnostic imaging services provider headquartered in Hartford, Connecticut, which provides mobile and on-site imaging services to certain AHT clinics pursuant to a services/facility access agreement. AHT's annual referral volume to Meridian is approximately $2.8 million. Meridian is owned by Dr. Franklin Osei (60%, Managing Member/Radiologist) and Gerald Pratt (40%, non-physician investor).
"ConnectiCare Physicians Network, LLC" or "ConnectiCare" means a Connecticut limited liability company, managed by AHT, located at 55 Asylum Street, 7th Floor, Hartford, CT 06103, through which AHT provides management services (billing, coding, practice management, IT infrastructure) to nine (9) independently owned physician practices in the Greater Hartford area.
"Covenant Health Plans Inc." or "Covenant" means a commercial health plan headquartered in Boston, Massachusetts, which is AHT's single largest commercial payer, accounting for $38.6 million in net revenue (approximately 18% of total net revenue) in FY2022. The Covenant relationship includes value-based payment arrangements and quality metric incentive bonuses.
"Northbridge Valuation Advisors LLC" or "Northbridge" means an independent fair market value appraisal firm headquartered at 1600 Market Street, Suite 2800, Philadelphia, PA 19103. Northbridge's engagement principal for AHT matters is Sandra Kilpatrick, Managing Director. Northbridge was retained by AHT in February 2023 to provide independent FMV opinions for vendor arrangements involving referral sources.
SECTION 3: GOVERNING PRINCIPLES
3.1 Prohibition on Illegal Remuneration
No AHT employee, physician, agent, contractor, or other person or entity acting on behalf of AHT shall offer, pay, solicit, or receive any remuneration — directly or indirectly, overtly or covertly, in cash or in kind — to induce or reward the referral of patients, the ordering of services, or the purchasing, leasing, ordering, or arranging for any good, facility, service, or item reimbursable by any federal healthcare program.
This prohibition is absolute and extends to all forms of remuneration, including but not limited to:
(a) Cash payments, bonuses, or commissions;
(b) Below-market pricing, discounts, or rebates not meeting the requirements of applicable safe harbors;
(c) Free goods or services, including technology, equipment, supplies, or connectivity tools;
(d) Equipment or technology provided at no cost or at reduced cost;
(e) Educational sponsorships, grants, or funding linked to referral relationships;
(f) Gifts, meals, entertainment, or travel;
(g) Investment opportunities, equity interests, or profit-sharing arrangements; and
(h) Any other transfer of value that may be designed to induce or reward referrals.
AHT personnel should be aware that the AKS is interpreted broadly. Under the "one purpose" test established by federal courts and applied by the OIG, an arrangement violates the AKS if even one purpose of the remuneration is to induce or reward referrals of items or services payable by federal healthcare programs, even if the arrangement also serves other legitimate purposes. Accordingly, the existence of a legitimate business justification for a vendor arrangement does not, standing alone, protect the arrangement from AKS scrutiny.
3.2 Fair Market Value and Commercial Reasonableness
All vendor arrangements entered into by AHT must reflect fair market value for the goods or services provided. FMV must be established through objective, documented means, as set forth in the AHT Fair Market Value Determination Procedures (AHT-COMP-2023-006).
For arrangements involving referral sources — that is, vendors that are in a position to refer patients or direct business to AHT, or to which AHT refers patients or directs business — independent third-party FMV opinions from a qualified appraiser are required. AHT has retained Northbridge Valuation Advisors LLC (Sandra Kilpatrick, Managing Director) to serve as the Company's independent FMV appraiser for referral-source arrangements. Alternative qualified appraisers may be engaged with the prior written approval of the General Counsel and CCO.
In addition to the FMV requirement, all vendor arrangements must be commercially reasonable. An arrangement is commercially reasonable if it furthers a legitimate business purpose of AHT independent of the volume or value of referrals or other business generated between the parties. The determination of commercial reasonableness must be documented in writing at the time the arrangement is entered into or renewed.
3.3 Written Agreement Requirement
All vendor arrangements must be reduced to a written agreement and signed by authorized representatives of all parties before the arrangement commences or any compensation is exchanged. Oral agreements, handshake arrangements, and informal understandings are expressly prohibited.
Each written agreement must specify, at a minimum:
(a) The specific services, goods, or items of value to be provided by each party;
(b) The compensation methodology, including the specific amount or formula for determining compensation;
(c) The term of the arrangement, including defined commencement and termination dates;
(d) The compliance obligations of both parties, including representations and warranties regarding compliance with applicable federal and state laws; and
(e) Such other terms as may be required under the applicable safe harbor or exception, as set forth in Sections 8 and 9 of this Policy and the contract terms requirements of Section 6.
No AHT employee, physician, or contractor is authorized to permit a vendor to commence providing goods or services, or to begin receiving compensation, before a written agreement satisfying the requirements of this Policy has been fully executed by all parties.
3.4 Volume/Value Standard
Compensation paid or received under any vendor arrangement must not be determined in a manner that takes into account the volume or value of referrals or other business generated between the parties. This standard is a fundamental requirement of the AKS safe harbors and the Stark Law exceptions, and its violation may expose AHT to significant regulatory liability.
Per-unit, per-click, per-scan, or per-test compensation structures are inherently suspect because such structures cause the aggregate compensation under the arrangement to vary directly with the volume of services ordered, referred, or provided. Such structures require heightened scrutiny by the General Counsel and CCO and, in many cases, must be restructured to fixed-fee or time-based compensation models.
The Meridian Diagnostics facility access arrangement, discussed in detail in Section 4.2.3 of this Policy, serves as a case study in the risks associated with per-unit fee structures. Under the existing arrangement, Meridian pays AHT a per-scan facility access fee of $185 per scan, resulting in total fees that vary directly with the number of scans performed — a structure that is inconsistent with the AKS space rental and equipment rental safe harbors and the corresponding Stark Law exceptions. This arrangement must be restructured as directed in Section 4.2.3.
3.5 State Law Compliance
In addition to federal law requirements, vendor arrangements must comply with all applicable state laws in each state in which AHT operates. State healthcare fraud and abuse laws may, in certain cases, impose requirements that are more restrictive than their federal counterparts.
Arrangements involving AHT's fourteen (14) Massachusetts clinics must comply with M.G.L. c. 175H, § 3, which may apply more broadly than the federal AKS. Notably, the Massachusetts anti-kickback statute applies to remuneration in connection with commercial insurance arrangements, not solely federal healthcare program arrangements, thereby expanding the scope of prohibited conduct beyond what is covered by the federal AKS.
Arrangements involving AHT's four (4) Connecticut clinics must comply with Conn. Gen. Stat. § 20-7a(d), which prohibits healthcare practitioners from paying or receiving fees for referral of patients. The Connecticut prohibition is separate from and in addition to the federal AKS and Stark Law requirements.
AHT personnel operating in Rhode Island and New Hampshire must also be aware of any applicable state anti-kickback or referral prohibition statutes in those states, and should consult with the General Counsel or CCO before entering into any vendor arrangement in any state.
No AHT employee, physician, or contractor shall enter into any vendor arrangement in any state without first consulting with the General Counsel (Patricia Yamamoto) or the CCO (Derek Huang) to confirm compliance with applicable state law requirements.
SECTION 4: VENDOR CATEGORIES AND SPECIFIC REQUIREMENTS
4.1 Clinical Laboratory Vendors
4.1.1 General Requirements
Clinical laboratory services are designated health services under 42 C.F.R. § 411.351. Accordingly, all arrangements between AHT and clinical laboratory vendors must comply with the AKS safe harbors and Stark Law exceptions applicable to laboratory services.
Preferred laboratory agreements — that is, agreements under which AHT designates a particular laboratory as a preferred provider for certain categories of testing — must be established at fair market value and must not involve any remuneration, whether direct or indirect, linked to the volume of referrals from AHT to the laboratory vendor. All preferred laboratory agreements must satisfy the requirements of an applicable Stark Law exception, and the elements of the exception must be documented at the time the agreement is executed.
AHT's clinical laboratory referrals constitute a significant revenue stream for laboratory vendors. Accordingly, laboratory vendors have a strong financial incentive to provide benefits to AHT that may constitute prohibited remuneration under the AKS and Stark Law. AHT personnel must exercise particular vigilance in evaluating any items of value offered by laboratory vendors.
4.1.2 Prohibited Arrangements
The following types of arrangements with laboratory vendors are expressly prohibited:
(a) No laboratory vendor may provide free or below-FMV goods or services — including but not limited to technology, equipment, electronic interfaces, data feeds, connectivity tools, supplies, or specimen collection materials — as an inducement for referrals or in connection with a referral arrangement;
(b) No laboratory vendor may sponsor or fund educational events (including continuing medical education ("CME") events) as a condition of, or linked to, a referral arrangement with AHT. Educational sponsorships from laboratory vendors must be independently evaluated under the compliance review procedures set forth in Section 7 of this Policy to ensure that no impermissible linkage exists between the sponsorship and referral activity;
(c) No AHT physician or AHT executive (or immediate family member thereof) may hold an ownership or investment interest in a laboratory vendor to which AHT refers patients, except in strict compliance with the Stark Law ownership/investment exceptions (42 C.F.R. § 411.356) and the AKS investment safe harbor (42 C.F.R. § 1001.952(a)). Any such interest must be disclosed, evaluated, and monitored in accordance with Section 10 of this Policy; and
(d) No laboratory vendor may provide AHT with preferential pricing, volume discounts, or other financial incentives that are conditioned on maintaining a minimum referral volume or exclusive referral relationship.
4.1.3 Pinnacle Laboratory Services — Specific Compliance Directives
The compliance issues relating to AHT's relationship with Pinnacle Laboratory Services Inc. are among the most significant identified in the Grayson Whitaker gap assessment and the Company's subsequent self-assessment. A detailed analysis of these issues is set forth in the Pinnacle Laboratory Services Detailed AKS/Stark Analysis memorandum, prepared by Calderwood & Harkness LLP. The following directives are based upon that analysis and must be implemented in accordance with the timelines set forth herein.
No-Cost Electronic Laboratory Interface. The preferred laboratory agreement dated June 15, 2020 between AHT and Pinnacle Laboratory Services Inc. provides that Pinnacle will furnish, install, and maintain at no cost to AHT an electronic laboratory interface that integrates Pinnacle's laboratory information system with AHT's ArborConnect platform. The estimated market value of this interface, including software licensing, installation, ongoing maintenance, and technical support, is approximately $120,000 per year.
This no-cost interface vastly exceeds the Stark Law non-monetary remuneration exception limit of $459 per physician per calendar year (CY2023). Because AHT refers approximately $1.65 million annually in laboratory testing volume to Pinnacle from AHT's Rhode Island and southeastern Massachusetts clinics, the provision of this free technology constitutes potential remuneration that is linked to the referral relationship.
Directive: The no-cost electronic laboratory interface must be converted to a fair market value license or subscription arrangement under which AHT pays Pinnacle the fair market value for the interface technology. Alternatively, AHT must procure an equivalent laboratory interface independently from a vendor that is not a referral source. The General Counsel and CCO shall oversee this conversion, which must be completed within ninety (90) days of the effective date of this Policy.
CME Sponsorships. In FY2022, Pinnacle Laboratory Services Inc. sponsored four (4) continuing medical education events attended by AHT physicians, with total sponsorship funding of $86,000. While CME sponsorships are not per se prohibited, the linkage between Pinnacle's CME funding and the existing referral relationship creates a significant compliance risk. The funding may be characterized as remuneration intended to induce or reward referrals.
Directive: Pinnacle's CME sponsorships must be restructured to eliminate any linkage to the referral relationship. Future CME sponsorships from any laboratory vendor must be evaluated under the compliance review procedures set forth in Section 7 of this Policy. Such sponsorships may only be accepted if they are unrestricted, at arm's length, and not conditioned on or linked to referral volume, prescribing patterns, or utilization rates.
Ownership Interest Disclosure. Dr. Karen Ellsworth holds a 4.2% passive equity interest in Pinnacle Laboratory Services Inc. (EIN 05-6138290). Dr. Karen Ellsworth is the spouse of AHT's Chief Executive Officer, Dr. Nathan Ellsworth. This ownership interest creates a financial relationship between Dr. Nathan Ellsworth's immediate family member and a DHS entity to which AHT refers patients, triggering analysis under the Stark Law.
Directive: Dr. Karen Ellsworth's ownership interest in Pinnacle must be disclosed under AHT's conflict-of-interest policy, tracked in the compliance office's monitoring database, and evaluated under the Stark Law ownership/investment exception (42 C.F.R. § 411.356) and the AKS investment safe harbor (42 C.F.R. § 1001.952(a)). The CCO shall document whether all elements of the applicable exception and safe harbor are satisfied. If the interest cannot be accommodated within an applicable exception or safe harbor, the CCO shall recommend appropriate remediation, which may include divestiture of the interest or restructuring of the referral relationship.
Quarterly Referral Monitoring. All referrals from AHT to Pinnacle Laboratory Services Inc. must be reviewed on a quarterly basis by the CCO (Derek Huang) to ensure that referral patterns are clinically appropriate and are not influenced by any financial relationship, including Dr. Karen Ellsworth's ownership interest. Any anomalous referral patterns must be investigated and documented in the compliance office's arrangement tracking system.
4.2 Diagnostic Imaging Vendors
4.2.1 General Requirements
Diagnostic imaging services — including mobile MRI, CT, PET/CT, and ultrasound services — are designated health services under the Stark Law. All arrangements between AHT and diagnostic imaging vendors must comply with the AKS safe harbors and Stark Law exceptions applicable to such services.
Diagnostic imaging arrangements commonly involve the rental of space or equipment by the imaging vendor, or the payment of access fees by the imaging vendor to AHT for the right to provide services at AHT clinic locations. Such arrangements must comply with the AKS equipment rental safe harbor (42 C.F.R. § 1001.952(c)) and space rental safe harbor (42 C.F.R. § 1001.952(b)), as well as the Stark Law equipment rental exception (42 C.F.R. § 411.357(b)) and space rental exception (42 C.F.R. § 411.357(a)), as applicable.
Per-scan, per-click, or per-use fee structures are disfavored because they inherently cause aggregate compensation to vary with the volume of referrals or services provided. Such structures generally do not satisfy the safe harbor and exception requirements that rental or compensation be set in advance and not take into account the volume or value of referrals. AHT shall not enter into per-scan, per-click, or per-use fee arrangements with diagnostic imaging vendors without the prior written approval of the General Counsel and CCO, following a documented analysis confirming safe harbor or exception compliance.
4.2.2 Facility Access Fee Arrangements
Any arrangement in which a diagnostic imaging vendor pays AHT a fee for access to AHT clinic space, equipment, or patients requires pre-approval by both the General Counsel (Patricia Yamamoto) and the CCO (Derek Huang) prior to execution.
Facility access fees must satisfy the following requirements:
(a) The fee must be fixed on a monthly, quarterly, or annual basis and set in advance for the term of the arrangement;
(b) The fee must be consistent with fair market value for the space and/or equipment made available, as determined by an independent FMV appraisal from a qualified valuation firm;
(c) The fee must not be adjusted, directly or indirectly, based on the number of scans, tests, referrals, or procedures performed at or through the facility;
(d) The space and/or equipment made available to the imaging vendor must be specified in the written agreement and must be used exclusively by the vendor during the scheduled use periods; and
(e) The arrangement must be commercially reasonable independent of any referrals between AHT and the imaging vendor.
An independent FMV appraisal is required from a qualified valuation firm (such as Northbridge Valuation Advisors LLC) for all facility access fee arrangements. The FMV appraisal must be obtained before the arrangement is executed and must be refreshed in accordance with the schedule set forth in Section 7.3.
4.2.3 Meridian Diagnostics — Specific Compliance Directives
The compliance issues relating to AHT's relationship with Meridian Diagnostics LLC are among the most significant identified in the Company's compliance self-assessment. A detailed analysis of these issues is set forth in the Meridian Diagnostics Facility Access Fee Detailed AKS/Stark Analysis memorandum, prepared by Calderwood & Harkness LLP. The following directives are based upon that analysis and must be implemented in accordance with the timelines set forth herein.
Existing Per-Scan Fee Structure. The existing services/facility access agreement dated March 1, 2021 between AHT and Meridian Diagnostics LLC (EIN 82-4019673) provides that Meridian pays AHT a per-scan facility access fee of $185 for each diagnostic imaging scan performed at AHT clinic locations. In FY2022, Meridian performed approximately 4,200 scans at AHT facilities, resulting in total facility access fee payments to AHT of $777,000.
This per-scan fee structure has been identified as inconsistent with the AKS space rental safe harbor (42 C.F.R. § 1001.952(b)) and equipment rental safe harbor (42 C.F.R. § 1001.952(c)), as well as the Stark Law space rental exception (42 C.F.R. § 411.357(a)) and equipment rental exception (42 C.F.R. § 411.357(b)), because the aggregate fee paid by Meridian to AHT varies directly with the volume of scans performed — which in turn varies with the volume of referrals from AHT physicians. This creates a direct linkage between the compensation paid by Meridian and the referral volume generated by AHT physicians.
AHT physicians generated approximately $2.8 million in referrals to Meridian Diagnostics in FY2022. The correlation between the per-scan facility access fees flowing from Meridian to AHT and the referral volume flowing from AHT to Meridian presents a significant AKS and Stark Law compliance risk.
Ownership Structure. Meridian Diagnostics LLC is owned by Dr. Franklin Osei (60%, Managing Member and practicing radiologist) and Gerald Pratt (40%, non-physician investor). Dr. Osei interprets diagnostic imaging studies referred by AHT physicians, creating an additional layer of regulatory complexity in the referral relationship.
Directive: The existing per-scan facility access fee arrangement must be restructured to a fixed monthly facility rental at fair market value. The proposed Restructured Facility Access Agreement (draft) has been transmitted to Meridian's counsel, Thomas Beckett at Linden & Pryor LLP, 750 Main Street, Suite 1400, Hartford, CT 06103. The General Counsel shall oversee negotiations to finalize the restructured agreement. The restructured arrangement must satisfy all elements of the applicable AKS space rental safe harbor and Stark Law space rental exception, with compliance documented on the appropriate safe harbor checklist and exception documentation forms set forth in Appendices A and B.
No new per-scan, per-use, or per-click fee arrangements shall be entered into by AHT with any diagnostic imaging vendor without the prior written approval of the General Counsel, CCO, and, where applicable, Calderwood & Harkness LLP or successor outside healthcare regulatory counsel.
4.3 Medical Device Manufacturers and Suppliers
4.3.1 General Requirements
All arrangements with medical device manufacturers, suppliers, and distributors — including purchase agreements, consignment agreements, and distribution arrangements — must be at fair market value for the goods or services provided. All such arrangements must be documented in a written agreement that complies with the requirements of Section 6 of this Policy.
No device manufacturer may provide free or discounted equipment, supplies, or services as an inducement for the purchase, use, or recommendation of its products by AHT or any AHT physician. This prohibition extends to demonstration units, loaner equipment, training services, clinical support, and any other items of value that may be provided in connection with a device purchase or utilization relationship.
Bundled pricing arrangements — in which a device manufacturer offers discounted pricing on one product or service in connection with the purchase or use of another product or service — must be carefully evaluated for potential AKS implications. All bundled pricing arrangements must be reviewed and approved by the General Counsel and CCO prior to execution. The General Counsel and CCO shall determine whether the bundled arrangement satisfies the requirements of the AKS discount safe harbor (42 C.F.R. § 1001.952(h)) or another applicable safe harbor.
4.3.2 Consulting and Speaking Arrangements
Any arrangement under which an AHT physician serves as a consultant, speaker, advisory board member, or in any similar capacity for a medical device manufacturer must be pre-approved by the General Counsel (Patricia Yamamoto) and the CCO (Derek Huang) prior to execution.
The following requirements apply to all such arrangements:
(a) Compensation must reflect the fair market value of the physician's time and expertise, based on the physician's specialty, experience, and the nature of the services to be provided;
(b) The arrangement must satisfy all elements of the AKS personal services safe harbor (42 C.F.R. § 1001.952(d)), which requires, among other things, that the arrangement be set forth in writing, specify the services to be provided, have a term of at least one year (or comply with the modernized safe harbor holdover provisions), provide for aggregate compensation set in advance at FMV, and not involve counseling or promotion of unlawful activity;
(c) The physician must certify that the consulting or speaking engagement is not conditioned on the physician's ordering, prescribing, or recommending the manufacturer's products at AHT; and
(d) The arrangement must be documented on the applicable safe harbor checklist (Form A-1, Appendix A).
4.3.3 Evaluation and Trial Arrangements
Device evaluation or trial periods — during which a device manufacturer provides equipment to AHT or an AHT physician for temporary use and evaluation prior to a purchase decision — must be documented in a written evaluation agreement. The evaluation agreement must specify:
(a) The specific device or equipment to be evaluated;
(b) The defined duration of the trial period, which shall not exceed ninety (90) days unless extended with the prior written approval of the General Counsel;
(c) The scope of the evaluation, including the clinical settings and personnel authorized to use the device;
(d) The terms for return of the device at the conclusion of the trial period; and
(e) A clear statement that no purchase obligation arises from the evaluation.
No device provided for evaluation may be retained by AHT or any AHT physician beyond the documented trial period without a formal purchase or lease agreement at fair market value. Any device retained beyond the trial period without a formal agreement constitutes potential non-monetary remuneration subject to the Stark Law annual limit and AKS analysis.
4.4 Pharmaceutical Companies
4.4.1 Drug Samples and Free Products
Drug samples provided to AHT physicians must be managed in accordance with the Prescription Drug Marketing Act ("PDMA"), 21 U.S.C. § 353(d), and applicable state laws governing the distribution, storage, and recordkeeping of drug samples. The AHT Compliance Office shall maintain a log of all drug samples received and distributed at AHT clinics.
No pharmaceutical company representative may provide items of value — including but not limited to drug samples, meals, gifts, educational materials, or promotional items — to AHT physicians or staff except in compliance with the Revised Gifts, Meals, and Entertainment Policy (AHT-COMP-2023-005) and the Non-Monetary Remuneration and Compliance Exception Tracking Protocol (AHT-COMP-2023-007). Pharmaceutical company representatives must comply with AHT's policies regarding access to AHT clinic facilities and interactions with AHT physicians and staff.
4.4.2 Consulting, Speaking, and Advisory Arrangements
Any arrangement under which an AHT physician serves as a consultant, speaker, advisory board member, or key opinion leader for a pharmaceutical company is subject to the same pre-approval and FMV requirements applicable to device manufacturer consulting arrangements, as set forth in Section 4.3.2 of this Policy. In particular, compensation must reflect FMV for the physician's time and expertise, the arrangement must satisfy all elements of the AKS personal services safe harbor (42 C.F.R. § 1001.952(d)), and the arrangement must be documented on the applicable safe harbor checklist.
4.4.3 Grants and Educational Sponsorships
Pharmaceutical company grants for educational programs, research, or continuing medical education events may present significant compliance risks when the grantor has a financial interest in influencing the prescribing or utilization practices of the grant recipients. All pharmaceutical company grants must satisfy the following requirements:
(a) The grant must be unrestricted and made at arm's length, with the grantor having no control over the content, faculty, or curriculum of the educational program;
(b) The grant must not be conditioned on prescribing patterns, utilization rates, or formulary decisions by AHT or any AHT physician;
(c) The grant must not be linked, directly or indirectly, to a referral relationship between AHT and the pharmaceutical company; and
(d) All grants must be reviewed and approved by the CCO (Derek Huang) before acceptance by AHT.
The Pinnacle Laboratory Services CME sponsorship issue discussed in Section 4.1.3 serves as an illustration of the impermissible linkage between educational funding and referral relationships that this Policy is designed to prevent. While the Pinnacle issue involves a laboratory vendor rather than a pharmaceutical company, the principle is identical: educational sponsorships from any entity that is also a referral source must be carefully evaluated to ensure that no impermissible inducement exists.
4.5 Health Information Technology Vendors
4.5.1 General Requirements
Technology arrangements — including EHR interfaces, interoperability tools, data analytics platforms, practice management software, and related services — must be at fair market value and documented in written agreements that comply with the requirements of Section 6 of this Policy.
Special attention must be given to items of technology or connectivity provided at no charge or below market value by entities that are also referral sources or referral recipients. As the Pinnacle Laboratory interface issue demonstrates, technology provided by a DHS entity at no cost or below FMV may constitute prohibited remuneration under the Stark Law and AKS. Such arrangements must be identified, evaluated, and either restructured to FMV terms or eliminated.
4.5.2 Interoperability and Data Interface Arrangements
Any technology interface, data feed, connectivity tool, or other technology item provided by a laboratory, imaging company, or other DHS entity must be evaluated under the Stark Law non-monetary remuneration exception (42 C.F.R. § 411.357(k)), which imposes an annual aggregate limit of $459 per physician per calendar year (CY2023), and under the AKS.
If the value of such technology exceeds the annual non-monetary remuneration limit — which is virtually certain in the case of any meaningful technology interface — AHT must either:
(a) Pay the vendor fair market value for the technology, under a written license, subscription, or service agreement; or
(b) Procure equivalent functionality independently from a vendor that is not a referral source or DHS entity.
The no-cost electronic laboratory interface provided by Pinnacle Laboratory Services Inc. to AHT — with an estimated annual value of $120,000, integrated into AHT's ArborConnect platform — is the paradigmatic compliance failure that this provision is designed to prevent. As set forth in Section 4.1.3, this interface must be converted to a fair market value arrangement or replaced with an independently procured equivalent.
4.5.3 ArborConnect Platform Licensing
AHT's licensing of the ArborConnect SaaS platform to forty-two (42) external physician practices, which generates $8.9 million in annual subscription revenue, presents unique compliance considerations. The ArborConnect licensing arrangements must satisfy the following requirements:
(a) Licensing fees must be at fair market value, consistent with prevailing market rates for comparable healthcare SaaS platforms;
(b) Licensing fees must not be discounted or adjusted based on referral volume, referral patterns, or any other metric linked to the generation of business between the licensee practice and AHT;
(c) Any external physician practice that both licenses ArborConnect and refers patients to AHT-owned designated health services (including laboratory, diagnostic imaging, and physical therapy services) must be identified, flagged, and monitored for Stark Law indirect compensation arrangement implications under 42 C.F.R. § 411.354(c); and