PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Patricia Yamamoto, General Counsel, Arbor Health Technologies Inc. Derek Huang, Chief Compliance Officer, Arbor Health Technologies Inc.
FROM: Miriam Calloway, Partner, Calderwood & Harkness LLP Christopher Aiken, Senior Associate, Calderwood & Harkness LLP Amy Whitfield, Associate, Calderwood & Harkness LLP
DATE: May 8, 2023
RE: Detailed Anti-Kickback Statute and Stark Law Analysis — Meridian Diagnostics LLC Facility Access Fee Arrangement
MATTER NO.: 1010-00003
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I. EXECUTIVE SUMMARY
You have asked Calderwood & Harkness LLP to provide a standalone, detailed analysis of the facility access fee arrangement between Arbor Health Technologies Inc. ("AHT") and Meridian Diagnostics LLC ("Meridian") under the federal Anti-Kickback Statute (the "AKS"), 42 U.S.C. § 1320a-7b(b), and the Physician Self-Referral Law (the "Stark Law"), 42 U.S.C. § 1395nn. This memorandum constitutes that analysis.
The Meridian arrangement was classified as "High Risk" in the gap assessment report prepared by Grayson Whitaker & Associates LLP (Report No. GW-AHT-2022-Final, dated December 12, 2022) and is one of the seventeen high-risk arrangements identified in the Master Arrangement Inventory & Risk Scoring Matrix that forms part of our ongoing engagement. Our analysis confirms that the risk classification is warranted and, indeed, that the arrangement presents among the most acute compliance exposures within AHT's current portfolio of vendor and third-party arrangements.
The core deficiency is structural. Under the governing Services Agreement dated March 1, 2021, Meridian pays AHT a per-scan facility access fee of $185 for each scan Meridian performs at AHT clinic locations. This per-scan fee structure is fundamentally inconsistent with both the Stark Law rental exceptions and the AKS rental safe harbors, each of which requires that compensation be set in advance and not vary with the volume or value of referrals or other business generated between the parties. A per-scan fee, by its nature, causes aggregate compensation to fluctuate in direct proportion to the number of imaging studies performed — the very volume metric that both statutes target.
The financial magnitude of the arrangement is significant. In FY2022, AHT physicians generated approximately $2.8 million in referrals to Meridian for diagnostic imaging services, a category of designated health services under the Stark Law. During the same period, Meridian paid AHT aggregate facility access fees of $777,000, reflecting 4,200 scans at $185 per scan. The bilateral financial relationship — AHT receiving $777,000 in facility fees from Meridian while simultaneously generating $2.8 million in referral volume for Meridian — creates a financial dynamic that materially heightens enforcement risk under both statutes.
Based on the analysis set forth in detail below, our principal recommendations are as follows:
1. Restructure the arrangement. AHT should restructure the Meridian facility access fee arrangement by replacing the per-scan fee with a fixed monthly facility rental set at fair market value. Northbridge Valuation Advisors LLC has already been retained (February 2023) and the Meridian facility fee is within the scope of the fair market value opinions communicated to Northbridge. The restructured arrangement should be documented through a new written agreement conforming to applicable safe harbor and exception requirements.
2. Terminate the per-scan fee structure. The existing per-scan fee mechanism should be terminated as expeditiously as practicable, ideally within sixty to ninety days of the date of this memorandum, to arrest the accumulation of additional compliance exposure.
3. Evaluate voluntary disclosure. The Meridian arrangement is among the highest-risk items being evaluated for potential voluntary self-disclosure under the CMS Stark Self-Referral Disclosure Protocol ("SRDP") and the OIG Self-Disclosure Protocol ("SDP"). Our separate companion memoranda address those disclosure evaluations in detail; this memorandum provides cross-references to the relevant analysis at appropriate points.
4. Position for Ridgeline Capital exit. Given that Ridgeline Capital Partners Fund IV, L.P. ("Ridgeline Capital"), AHT's 72% equity owner, is contemplating an exit or sale process in late 2024, remediation of this arrangement prior to any formal sale process is strongly recommended to avoid adverse findings in buyer due diligence that could materially impact valuation or transaction certainty.
The remainder of this memorandum provides the factual background, legal framework, element-by-element analysis, and detailed recommendations supporting these conclusions.
II. FACTUAL BACKGROUND
A. The Parties
1. Arbor Health Technologies Inc. Arbor Health Technologies Inc. ("AHT") is a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, Massachusetts 02138. AHT operates twenty-three outpatient clinics branded as "Arbor Health Clinics" across four states: fourteen clinics in Massachusetts, four clinics in Connecticut, three clinics in Rhode Island, and two clinics in New Hampshire. The clinics provide a range of clinical services, including primary care, specialty care in cardiology, orthopedics, and gastroenterology, and ancillary services encompassing in-office laboratory testing, diagnostic imaging, and physical therapy.
In addition to its clinical operations, AHT develops and markets ArborConnect, a proprietary electronic health record ("EHR") and practice management software-as-a-service ("SaaS") platform. While the ArborConnect platform is not directly at issue in this analysis, its integration with AHT's clinical operations — including scheduling, referral management, and patient intake — is relevant to understanding the operational context of the Meridian arrangement.
AHT's FY2022 net revenue was approximately $214.3 million. Of that amount, approximately 61%, or $130.7 million, was derived from Medicare and Medicaid reimbursement. AHT employs 147 physicians on a W-2 basis and maintains thirty-eight independent contractor or medical director arrangements with additional physicians. AHT's Employer Identification Number is 84-3291057, its National Provider Identifier is 1497253810, and its lead Provider Transaction Access Number is 27MA4891.
AHT is a portfolio company of Ridgeline Capital Partners Fund IV, L.P., which holds a 72% equity stake in AHT. Ridgeline Capital acquired its interest in January 2021 for $185 million. Ridgeline Capital's designees to the AHT Board of Directors are Claudia Sorrento and Marcus Whitmore. AHT's Chief Executive Officer is Dr. Nathan Ellsworth; its General Counsel is Patricia Yamamoto; and its Chief Compliance Officer is Derek Huang.
2. Meridian Diagnostics LLC. Meridian Diagnostics LLC ("Meridian") is a Connecticut limited liability company with its principal place of business at 88 Trumbull Street, Hartford, Connecticut 06103. Its Employer Identification Number is 82-4019673. Meridian provides mobile MRI and advanced diagnostic imaging services to healthcare facilities in Connecticut and neighboring states.
Meridian's ownership structure is as follows: Dr. Franklin Osei holds a 60% membership interest and serves as Managing Member. Dr. Osei is a board-certified radiologist who supervises the imaging services performed by Meridian. Gerald Pratt holds the remaining 40% membership interest and is a non-physician investor. We note that Dr. Osei's status as a physician-owner of an entity that provides imaging services ordered by AHT referring physicians is independently significant. His physician status triggers Stark Law analysis with respect to any referral relationship, and his financial interest in Meridian creates additional AKS considerations.
Meridian is represented by the law firm of Linden & Pryor LLP, specifically Thomas Beckett, Partner, located at 750 Main Street, Suite 1400, Hartford, Connecticut 06103. We have had no direct communications with Meridian or its counsel regarding this analysis, and any future communications will be coordinated through AHT's General Counsel.
B. The Facility Access Fee Arrangement
The facility access fee arrangement at issue is governed by a Services Agreement dated March 1, 2021, between AHT and Meridian (the "Services Agreement"). A copy of the Services Agreement is included as Appendix A to this memorandum.
Under the Services Agreement, Meridian provides mobile MRI and advanced diagnostic imaging services at four AHT clinic locations. These four locations correspond to AHT's Connecticut clinic sites, which are the facilities at which AHT operates within Meridian's geographic service area. The Services Agreement contemplates that Meridian will deploy mobile MRI units and related imaging equipment to these AHT clinic locations on a scheduled basis and perform imaging studies on patients referred by AHT physicians.
In consideration for the use of AHT's clinic space, Meridian pays AHT a per-scan facility access fee of $185 for each scan performed at the AHT clinic locations. As described in the Services Agreement, this fee is characterized as compensation for AHT's provision of clinic space, utilities, scheduling support, and patient intake coordination to Meridian. The fee is invoiced monthly by AHT based on the number of scans performed by Meridian during the preceding month.
The critical structural feature of this arrangement is that the fee is calculated on a per-scan basis. It is not a fixed periodic amount — such as a monthly or quarterly rental — but rather a variable payment that fluctuates in direct proportion to the number of imaging scans Meridian performs at AHT's facilities. This distinction is of fundamental legal significance, as discussed in detail in Sections IV and V below.
We note that the Services Agreement was executed in March 2021, shortly after the closing of Ridgeline Capital's acquisition of AHT in January 2021. Based on our review of AHT's records and interviews with AHT management conducted during the course of this engagement, the arrangement was not identified or analyzed for Stark Law or AKS compliance at the time of its execution. No legal opinion was sought regarding compliance with applicable fraud and abuse laws, and no independent fair market value appraisal of the facility access fee was obtained.
C. FY2022 Financial Data
The following financial data, drawn from AHT's internal records and Meridian invoicing documentation, summarizes the FY2022 financial dimensions of the arrangement:
The referral flow operates as follows: AHT-employed and AHT-contracted physicians order diagnostic imaging studies for their patients. Patients are referred to Meridian for imaging. Meridian performs the imaging studies at AHT's four Connecticut clinic locations using Meridian's mobile MRI and diagnostic imaging equipment. Meridian bills applicable payors — including Medicare, Medicaid, and commercial insurers — for the imaging services rendered. Meridian then pays AHT the $185 per-scan facility access fee for each scan performed.
The financial relationship between the parties is bilateral and substantial. AHT receives $777,000 annually in facility access fees from Meridian. Meridian, in turn, receives $2.8 million annually in imaging referral volume from AHT's physician workforce. Each party has a direct financial interest in the continuation of the other's participation in the arrangement: AHT benefits from the facility fees it receives, and Meridian benefits from the referral stream that generates its imaging revenue at AHT locations. This bilateral financial interdependence is a hallmark of the type of arrangement that both the Stark Law and the AKS are designed to scrutinize.
D. Referral Relationship and Designated Health Services
Diagnostic imaging, including MRI, constitutes a "designated health service" ("DHS") under the Stark Law, 42 U.S.C. § 1395nn(h)(6). The Stark Law's referral prohibition applies to referrals for DHS payable by Medicare. The imaging services performed by Meridian at AHT clinic locations — ordered by AHT-employed and AHT-contracted physicians — fall squarely within this definition.
AHT's 147 employed physicians and 38 independent contractor/medical director physicians are "referring physicians" within the meaning of the Stark Law, 42 U.S.C. § 1395nn(h)(4). When these physicians order imaging studies that are performed by Meridian, they are making "referrals" as defined in 42 U.S.C. § 1395nn(h)(5), which includes the request by a physician for an item or service for which payment may be made under Medicare Part B, including diagnostic imaging.
As noted above, Medicare and Medicaid represent approximately 61% of AHT's overall revenue. The imaging referrals to Meridian are presumed to include a substantial volume of federal healthcare program patients, generating federal program claims that are subject to both the Stark Law's referral prohibition and the AKS's anti-kickback provisions. Although a precise claim-by-claim analysis of the Meridian referral stream would be necessary to quantify the exact number and dollar amount of Medicare and Medicaid claims, the 61% figure provides a reasonable proxy for estimating exposure.
The fact that this arrangement was not identified or analyzed for Stark Law or AKS compliance at the time of its execution in March 2021 is itself noteworthy. The absence of contemporaneous legal review means that the arrangement has operated for over two years without the benefit of any compliance assessment, safe harbor structuring, or fair market value substantiation.
III. APPLICABLE LEGAL FRAMEWORK
A. The Stark Law (42 U.S.C. § 1395nn)
1. General Prohibition. The Physician Self-Referral Law, commonly known as the Stark Law, is codified at 42 U.S.C. § 1395nn. Section 1395nn(a)(1)(A) provides that, subject to certain exceptions, a physician who has a financial relationship (or whose immediate family member has a financial relationship) with an entity may not make a referral to that entity for the furnishing of designated health services for which payment otherwise may be made under Medicare. Subsection (a)(1)(B) further provides that an entity that receives a referral prohibited by subsection (a)(1)(A) may not present or cause to be presented a claim to Medicare for the designated health services furnished pursuant to the prohibited referral.
The Stark Law is a strict liability statute. Unlike the AKS, the Stark Law does not require proof of intent — if a financial relationship exists between a referring physician and a DHS entity, and no exception applies, the referral is prohibited regardless of whether the parties intended to violate the law or were even aware of its requirements. This strict liability framework makes compliance particularly demanding, because even inadvertent structural deficiencies in an arrangement can result in a violation.
The consequences of a Stark Law violation are severe. They include: (a) denial of payment for DHS furnished pursuant to a prohibited referral; (b) an obligation to refund amounts already collected for such services; (c) Civil Monetary Penalties of up to $15,000 per service for which a claim is submitted in violation of Section 1395nn(a)(1), and up to $100,000 for each circumvention scheme; (d) potential liability under the False Claims Act, 31 U.S.C. § 3729, for each claim submitted for DHS furnished pursuant to a non-compliant arrangement; and (e) potential exclusion from participation in federal healthcare programs under 42 U.S.C. § 1320a-7.
The significance of the Stark Law's strict liability framework for the present analysis cannot be overstated. Even if AHT and Meridian entered into the per-scan facility access fee arrangement in good faith and without any intent to induce referrals, the arrangement violates the Stark Law if no exception is satisfied. Good faith and the absence of corrupt intent are not defenses.
2. Relevant Definitions. Several key definitions under the Stark Law are relevant to our analysis:
"Referral." Section 1395nn(h)(5) defines a "referral" to include the request by a physician for, or ordering of, any item or service for which payment may be made under Medicare Part B, including the request for or ordering of diagnostic imaging services such as MRI. Each time an AHT physician orders an imaging study that is performed by Meridian and billed to Medicare, that order constitutes a referral within the meaning of the statute.
"Designated health services." Section 1395nn(h)(6) enumerates the categories of designated health services subject to the Stark Law's referral prohibition. These categories include, among others, "radiology and certain other imaging services," which encompass MRI and the advanced diagnostic imaging services provided by Meridian.
"Financial relationship." Section 1395nn(a)(2) defines a "financial relationship" to include both ownership or investment interests and compensation arrangements. A "compensation arrangement" is defined in Section 1395nn(h)(1)(A) as any arrangement involving any remuneration between a physician (or an immediate family member of such physician) and an entity. "Remuneration" is defined broadly in Section 1395nn(h)(1)(B) to include any remuneration, directly or indirectly, overtly or covertly, in cash or in kind.
"Direct compensation arrangement." Under 42 C.F.R. § 411.354(c)(1), a direct compensation arrangement exists when remuneration passes between a referring physician (or the physician's immediate family member) and the entity providing DHS without any intervening persons or entities. In the present case, the facility access fee flows from Meridian directly to AHT — creating a direct entity-to-entity compensation arrangement.
"Indirect compensation arrangement." Under 42 C.F.R. § 411.354(c)(2), an indirect compensation arrangement exists when: (i) there is an unbroken chain of financial relationships between the referring physician and the DHS entity; (ii) the referring physician receives aggregate compensation from the person or entity in the chain with which the physician has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated for the DHS entity; and (iii) the DHS entity has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician receives such aggregate compensation. The AHT-employed physicians have an indirect compensation arrangement with Meridian through AHT: Meridian pays AHT per-scan fees, and AHT compensates its employed physicians under their respective employment agreements.
3. Applicable Exceptions. The Stark Law provides numerous exceptions that, if satisfied in their entirety, permit an otherwise prohibited referral. The exceptions relevant to our analysis of the Meridian arrangement include the following:
Space Rental Exception (42 C.F.R. § 411.357(a)). This exception applies to payments made by a lessee to a lessor for the use of office space. To qualify, the arrangement must satisfy all of the following requirements: (a) the lease arrangement must be set out in writing, signed by the parties, and specify the premises covered by the lease; (b) the duration of the lease must be at least one year; (c) the space rented or leased must not exceed that which is reasonable and necessary for the legitimate business purposes of the lease and must be used exclusively by the lessee when being used by the lessee (unless the arrangement is for shared space, in which case the lease must describe the specific arrangement); (d) the rental charges over the term of the lease must be set in advance, must be consistent with fair market value, and must not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; (e) the lease must be commercially reasonable even if no referrals were made between the parties; and (f) the lease must meet the requirements of 42 U.S.C. § 1395nn(e)(1)(A) as applicable to office space arrangements.
The CMS final rule on Stark Law modernization, published at 85 Fed. Reg. 77492 and effective January 19, 2021, made certain modifications to the space rental exception and other exceptions, including the clarification of the "writing" requirement and the concept of "set in advance." Under the modernized rules, rental charges are considered "set in advance" if the aggregate compensation paid over the term of the arrangement is fixed, the aggregate compensation is determined by a formula that is set in advance and does not take into account the volume or value of referrals, or a per-unit-of-time amount is established in advance. Notably, the modernized rules do not eliminate the requirement that rental not vary with the volume or value of referrals; they merely provide additional flexibility in structuring the advance determination of compensation.
Equipment Rental Exception (42 C.F.R. § 411.357(b)). This exception applies to payments made by a lessee for the use of equipment. The requirements are substantively parallel to the space rental exception: a written agreement signed by the parties, a term of at least one year, identification of the specific equipment covered, rental charges set in advance at fair market value and not determined in a manner that takes into account the volume or value of referrals, and commercial reasonableness apart from referrals.
Fair Market Value Exception (42 C.F.R. § 411.357(l)). This exception applies to compensation paid by an entity to a physician (or vice versa) for the provision of items or services (other than the rental of office space) under an arrangement that satisfies the following requirements: (a) the arrangement is set out in writing, signed by the parties, and covers only identifiable items or services; (b) the writing specifies the timeframe for the arrangement, which must be for a period of at least one year (or a holdover lease at the same terms in the event of expiration); (c) the compensation must be set in advance, must not exceed fair market value, and must not take into account the volume or value of any referrals or other business generated by the referring physician; and (d) the arrangement must be commercially reasonable and further the legitimate business purposes of the parties, even if no referrals were made.
Indirect Compensation Arrangement Exception (42 C.F.R. § 411.357(p)). This exception applies to indirect compensation arrangements (as defined in 42 C.F.R. § 411.354(c)(2)) and requires that: (a) the compensation received by the referring physician does not vary with, and is not determined in a manner that takes into account, the volume or value of referrals or other business generated for the entity furnishing DHS; (b) the compensation is fair market value for services or items actually provided by the physician and is not determined in any manner that takes into account referrals; and (c) the arrangement otherwise satisfies applicable requirements.
Under the 2021 Stark Law modernization rule, certain revisions were made to the indirect compensation arrangement exception and related definitions. In particular, CMS updated the definition of "indirect compensation arrangement" to require that the physician's aggregate compensation from the person or entity in the chain with which the physician has a direct financial relationship "varies with, or otherwise reflects, the volume or value of referrals or other business generated" for the DHS entity. The 2021 rule also modified the knowledge standard to require actual knowledge of, or reckless disregard or deliberate ignorance of, the fact that the referring physician receives such aggregate compensation.
B. The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))
1. General Prohibition. The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that prohibits the knowing and willful offering, paying, soliciting, or receiving of any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward referrals of items or services reimbursable under federal healthcare programs, including Medicare and Medicaid.
Specifically, Section 1320a-7b(b)(1) makes it a criminal offense to knowingly and willfully solicit or receive any remuneration in return for referring an individual to a person for the furnishing of any item or service for which payment may be made under a federal healthcare program. Section 1320a-7b(b)(2) makes it a criminal offense to knowingly and willfully offer or pay any remuneration to any person to induce such person to refer an individual for the furnishing of any item or service for which payment may be made under a federal healthcare program.
Unlike the Stark Law, the AKS is an intent-based statute. However, the intent standard is construed broadly under the judicially developed "one purpose" test. Under this test, as articulated in United States v. Greber, 760 F.2d 68 (3d Cir. 1985), and adopted by numerous other circuits, a payment violates the AKS if even one purpose of the remuneration is to induce referrals, regardless of whether the payment may also serve other legitimate purposes. The government need not prove that inducement of referrals was the sole or even the primary purpose of the remuneration.
The penalties for AKS violations are severe and multifaceted. An AKS violation constitutes a federal felony, punishable by imprisonment of up to five years and criminal fines of up to $100,000 per violation. In addition, the OIG may impose civil monetary penalties of up to $100,000 per violation, an assessment of up to three times the total amount of remuneration, and mandatory exclusion from participation in all federal healthcare programs. Furthermore, pursuant to 31 U.S.C. § 3729(a)(1)(G), as added by the Affordable Care Act, a claim that includes items or services resulting from an AKS violation constitutes a false or fraudulent claim under the False Claims Act, subjecting the violator to treble damages and per-claim civil penalties.
The implications for the present analysis are significant. If the Meridian facility access fees constitute remuneration paid or received with even one purpose of inducing or rewarding referrals of imaging services reimbursable by Medicare or Medicaid, the arrangement violates the AKS regardless of any other legitimate purposes the fees may serve.
2. Applicable Safe Harbors (42 C.F.R. § 1001.952). Congress directed the OIG to promulgate regulatory safe harbors that define categories of arrangements that, notwithstanding their technical implication of the AKS's broad prohibition, will not be treated as criminal offenses. Compliance with a safe harbor provides absolute protection from AKS prosecution; failure to satisfy a safe harbor does not automatically mean an arrangement violates the AKS, but it does mean the arrangement is subject to case-by-case analysis under the statute's general prohibition.
The safe harbors relevant to our analysis of the Meridian arrangement include the following:
Space Rental Safe Harbor (42 C.F.R. § 1001.952(b)). To qualify for the space rental safe harbor, an arrangement must satisfy all of the following elements: (a) the lease agreement must be set out in writing and signed by the parties; (b) the lease must cover all of the premises leased between the parties for the term of the lease and must specify the premises covered; (c) if the lease is intended to provide the lessee with access to the premises for periodic intervals, the lease must specify the exact schedule of such intervals, their precise length, and the exact rent for such intervals; (d) the term of the lease must be for not less than one year; (e) the aggregate rental charge must be set in advance, must be consistent with fair market value in an arm's-length transaction, and must not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under a federal healthcare program; (f) the aggregate space rented must not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental.
Under the OIG's final rule on safe harbor modernization, published at 85 Fed. Reg. 77684 and effective January 19, 2021, certain conforming changes were made to the space rental safe harbor to align with CMS's modernization of the Stark Law exceptions. However, the core requirement that aggregate rental not be determined in a manner that takes into account the volume or value of referrals was not relaxed.
Equipment Rental Safe Harbor (42 C.F.R. § 1001.952(c)). The equipment rental safe harbor contains parallel requirements to the space rental safe harbor, adapted for equipment rather than real property: (a) a written agreement signed by the parties; (b) specification of the equipment covered; (c) if the agreement provides for periodic access, a specified schedule, length, and charge for such intervals; (d) a term of not less than one year; (e) aggregate rental charges set in advance at fair market value and not varying with the volume or value of referrals; and (f) equipment not exceeding what is reasonably necessary for commercially reasonable business purposes.
Personal Services and Management Contracts Safe Harbor (42 C.F.R. § 1001.952(d)). If the Meridian arrangement is characterized as involving the provision of services by AHT to Meridian — such as scheduling, patient intake coordination, and administrative support — the personal services safe harbor may be relevant. This safe harbor requires: (a) a written agreement signed by the parties, covering all of the services to be provided; (b) if the agreement provides for services on a periodic, sporadic, or part-time basis, the agreement must specify the exact schedule, length, and compensation for such intervals; (c) a term of at least one year; (d) compensation set in advance at fair market value, consistent with arm's-length principles, and not determined in a manner that takes into account the volume or value of referrals or business generated between the parties; (e) the services must not involve the counseling or promotion of a business arrangement that violates any state or federal law; and (f) the aggregate services contracted for must not exceed those that are reasonably necessary to accomplish the commercially reasonable business purpose of the services arrangement.
C. Key Safe Harbor and Exception Requirements Common to Both Statutes
While the Stark Law exceptions and AKS safe harbors are distinct regulatory constructs with independent requirements, they share several core principles that are of central importance to the present analysis. These common requirements may be summarized as follows:
1. Rental or compensation must be set in advance. Both regimes require that the aggregate compensation or rental be fixed in advance for the term of the arrangement or determined pursuant to a formula that is itself set in advance and does not vary with the volume or value of referrals or other business generated. A per-scan, per-click, or per-unit-of-service fee, by definition, produces an aggregate payment that fluctuates based on the number of services performed, and therefore fails this requirement unless the per-unit amount is combined with other structural features that fix the aggregate compensation.
2. Rental or compensation must be consistent with fair market value. Both regimes require that the compensation be consistent with fair market value as determined in arm's-length negotiations. This requirement serves as a check against the use of above-market or below-market pricing as a vehicle for disguising referral inducements.
3. Rental or compensation must not take into account the volume or value of referrals. This is the most frequently litigated and enforced of the common requirements. It prohibits any compensation methodology that correlates payments with referral volume or the dollar value of referred services. A per-scan fee inherently correlates aggregate payments with scan volume.
4. The arrangement must have a term of at least one year. Both the Stark Law exceptions and the AKS safe harbors require a minimum term of one year (or, in certain circumstances, compliance with holdover provisions).
5. The arrangement must be commercially reasonable. The arrangement must serve a legitimate business purpose independent of the referrals between the parties.
6. Space or equipment must be identified and specified. Both regimes require that the leased premises or equipment be specifically described in the governing agreement.
These shared requirements establish the framework against which the Meridian arrangement must be evaluated.
IV. STARK LAW ANALYSIS OF THE MERIDIAN ARRANGEMENT
A. Threshold Question: Is There a Financial Relationship?
Before the Stark Law's referral prohibition applies, there must be a "financial relationship" between a referring physician and the entity to which the referral is made. As noted in Section III.A.2 above, a financial relationship includes both ownership or investment interests and compensation arrangements.
The Meridian arrangement creates financial relationships at two levels:
Direct Compensation Arrangement (Entity-to-Entity). Meridian pays AHT $185 per scan for each imaging study performed at AHT's clinic locations. These payments constitute "remuneration" from Meridian to AHT within the meaning of 42 U.S.C. § 1395nn(h)(1)(B). Because AHT employs and contracts with physicians who refer patients to Meridian for DHS, and AHT receives remuneration from Meridian, a direct compensation arrangement exists between the referring physicians' employer (AHT) and the DHS entity (Meridian).
Indirect Compensation Arrangement (Physician-to-Entity). AHT's employed physicians have an indirect compensation arrangement with Meridian through AHT. The chain of financial relationships is as follows: (i) each referring physician has a direct compensation arrangement with AHT by virtue of the physician's employment or independent contractor agreement; (ii) AHT has a direct compensation arrangement with Meridian by virtue of the facility access fee arrangement; and (iii) the referring physician receives aggregate compensation from AHT, the person in the chain with which the physician has a direct financial relationship. For an indirect compensation arrangement to exist under 42 C.F.R. § 411.354(c)(2), the aggregate compensation received by the physician from AHT must vary with, or otherwise reflect, the volume or value of referrals or other business generated for Meridian. Whether this element is satisfied depends on the structure of AHT's physician compensation — a question we address in Section IV.E below.
Conclusion. A financial relationship exists between AHT's referring physicians and Meridian under 42 U.S.C. § 1395nn(a)(2). Unless an applicable exception is satisfied in its entirety, the Stark Law prohibits AHT's physicians from making referrals to Meridian for DHS, and Meridian may not submit claims to Medicare for DHS furnished pursuant to such referrals.
B. Space Rental Exception Analysis (42 C.F.R. § 411.357(a))
The most natural characterization of the Meridian arrangement is as a space rental: Meridian uses AHT's clinic space to perform imaging studies, and the $185 per-scan fee is described in the Services Agreement as compensation for use of clinic space, utilities, scheduling support, and patient intake coordination. Accordingly, we evaluate the arrangement against each element of the Stark Law space rental exception.
1. Element-by-Element Analysis. Element 1: Written agreement signed by the parties.
The Services Agreement dated March 1, 2021 is in writing and was signed by authorized representatives of both AHT and Meridian. This element is satisfied.
Element 2: Term of at least one year.
Based on our review of the Services Agreement, the initial term of the arrangement is three years, running from March 1, 2021 through February 28, 2024, with an automatic one-year renewal unless either party provides written notice of termination at least ninety days prior to the expiration of the then-current term. The one-year minimum term requirement is satisfied. However, we note that if the arrangement is restructured, the new or amended agreement should contain a clearly defined term of at least one year to satisfy this requirement on a going-forward basis.
Element 3: Space is specified.
The Services Agreement references four AHT clinic locations in Connecticut but does not include floor plans, room specifications, or a schedule of premises identifying the specific rooms, suites, or areas within each clinic that are made available to Meridian. The agreement refers generically to "clinic space at the Facilities" without further specificity. This is a deficiency. The space rental exception requires that the lease "specify the premises covered by the lease." CMS has interpreted this requirement to mean that the specific space must be identified with sufficient detail to enable an independent party to verify the reasonableness and fair market value of the rental.
For shared or part-time use arrangements — as appears to be the case here, since Meridian's mobile MRI units are deployed on a scheduled basis rather than occupying dedicated space continuously — the exception additionally requires that the lease specify the exact schedule of such intervals, their precise length, and the exact rent for such intervals. The Services Agreement does not contain a defined schedule of Meridian's access hours or days at each AHT clinic location, nor does it specify the precise space to be used during those intervals.
This element is not satisfied in its current form.
Element 4: Exclusive use vs. shared use.
As noted above, the arrangement appears to involve shared or part-time use of AHT clinic space. Meridian's mobile MRI units are brought to AHT's clinic locations on a periodic basis, and the clinic space is used by AHT for other purposes when Meridian is not present. For shared use arrangements, the space rental exception requires additional specificity regarding the schedule, duration, and compensation for the intervals of use. These requirements are not met by the current Services Agreement.
Element 5: Rental is set in advance.
This is the first of the two critical elements on which the arrangement fails. The per-scan facility access fee of $185 is a fixed per-unit amount, but the aggregate rental is not set in advance. The aggregate amount AHT receives from Meridian in any given period is a function of the number of scans performed during that period: 4,200 scans in FY2022 yielded $777,000 in total fees. If Meridian had performed 5,000 scans, AHT would have received $925,000. If Meridian had performed 3,000 scans, AHT would have received $555,000.
CMS has consistently interpreted the "set in advance" requirement to mean that the aggregate compensation must be fixed for the term of the arrangement or, under the 2021 modernization rule, determined pursuant to a formula that is itself set in advance and does not take into account the volume or value of referrals or other business generated between the parties. A per-unit-of-service formula — such as a per-scan fee — does not satisfy this requirement because the aggregate compensation is inherently a function of service volume, which in the context of a referral relationship is indistinguishable from referral volume.
CMS addressed this issue directly in the preamble to the 2001 Phase I Stark Law regulations (66 Fed. Reg. 856, 878 (Jan. 4, 2001)), noting that "per-click" or "per-use" rental arrangements between parties in a position to refer are inconsistent with the requirement that compensation not take into account the volume or value of referrals. While the 2021 modernization rule expanded the definition of "set in advance" in certain respects, it did not modify the fundamental prohibition on volume-based compensation in the context of referral relationships.
This element is not satisfied.
Element 6: Rental is consistent with fair market value.
We are unable to confirm that the $185 per-scan fee is consistent with fair market value for the clinic space provided to Meridian. No independent fair market value appraisal was obtained at the time the Services Agreement was executed, and no subsequent appraisal has been performed. AHT's management has represented that the $185 per-scan rate was determined through informal negotiation between AHT and Meridian, without reference to market comparables or an independent valuation.
Moreover, the per-scan fee structure itself creates an inherent difficulty in evaluating fair market value. Fair market value for space rental is typically assessed on a per-square-foot, per-hour, or per-day basis, using comparable transactions and market data. A per-scan fee cannot be meaningfully compared to market rental rates without converting it to a time- or area-based metric, which in turn depends on the number of scans performed — reintroducing the very volume dependency the exception is designed to prohibit.
Northbridge Valuation Advisors LLC has been retained to provide an independent FMV opinion for the clinic space and any equipment provided to Meridian at the four AHT Connecticut clinic locations. That opinion, once completed, will provide the necessary FMV substantiation for the restructured arrangement but does not retroactively cure the deficiency in the existing arrangement.
This element is not satisfied in its current form.
Element 7: Rental does not take into account the volume or value of referrals or other business generated between the parties.
This is the second of the two critical elements on which the arrangement fails, and it is the central deficiency. The per-scan facility access fee of $185 per scan, by definition, causes aggregate rental to vary directly with the volume of imaging scans performed by Meridian at AHT's facilities. Because each scan performed by Meridian represents a service ordered (i.e., referred) by an AHT physician, the aggregate rental paid by Meridian to AHT is a direct function of referral volume.
The relationship is mathematically precise: total rental = $185 × number of scans. More referrals from AHT physicians produce more scans, which produce more facility fees paid to AHT. The per-scan fee thus creates an explicit financial linkage between AHT's referral volume and AHT's compensation from Meridian, which is the precise relationship the Stark Law is designed to prohibit.
CMS has consistently held that compensation arrangements between parties in a referral relationship in which compensation varies with the volume of services are presumptively inconsistent with the "volume or value" standard. In the Phase II Stark Law regulations (69 Fed. Reg. 16054, 16081 (Mar. 26, 2004)), CMS stated: "We believe that a per-click payment for rental of space or equipment is inherently a payment that takes into account the volume or value of referrals because the amount of rent that is paid varies based on the number of services provided." While CMS has acknowledged in certain contexts that unit-based compensation is not per se impermissible under the Stark Law, it has consistently maintained that unit-based compensation between parties in a position to generate referrals for each other is subject to heightened scrutiny and is unlikely to satisfy the volume or value requirement.
This element is not satisfied.
Element 8: Commercially reasonable.
The arrangement must be commercially reasonable even if no referrals were made between the parties. There is a plausible argument that Meridian's use of AHT's clinic space serves a commercially reasonable purpose: AHT makes otherwise underutilized clinic space available to Meridian, and Meridian avoids the cost of establishing its own fixed imaging facilities in Connecticut. However, the commercial reasonableness of the arrangement is undermined by the absence of any independent basis for the $185 per-scan fee and by the fact that the arrangement's financial viability is inextricably linked to the referral volume generated by AHT's physicians. If AHT's physicians ceased referring patients to Meridian, Meridian would have little reason to continue performing imaging studies at AHT's facilities, and the facility access fees would cease. This suggests that the arrangement's commercial logic is, at a minimum, heavily dependent on the referral relationship.
This element is uncertain and would require further analysis, but the point is academic given the other failed elements.
2. Conclusion on Space Rental Exception. The Meridian facility access fee arrangement does not satisfy the Stark Law space rental exception. The arrangement fails on at least two critical elements: the rental is not "set in advance" as required, and the rental "takes into account the volume or value of referrals" between the parties. These deficiencies are structural and inherent in the per-scan fee model; they cannot be cured by ancillary modifications to the agreement. In addition, the agreement contains deficiencies in the specification of premises and the establishment of fair market value.
C. Equipment Rental Exception Analysis (42 C.F.R. § 411.357(b))
To the extent the Meridian arrangement involves Meridian's use of AHT-owned equipment — such as patient intake systems, scheduling technology, utilities infrastructure, or other clinic equipment — the equipment rental exception under 42 C.F.R. § 411.357(b) is potentially applicable. The equipment rental exception requires the same core elements as the space rental exception: a written agreement, a minimum one-year term, specification of the equipment covered, rental set in advance at fair market value, and rental not taking into account the volume or value of referrals.
The equipment rental exception fails for the same fundamental reasons as the space rental exception. The per-scan fee of $185, to the extent it compensates for equipment use, causes aggregate equipment rental to vary directly with the number of scans performed, which is a volume-based metric. The requirement that aggregate rental be set in advance at fair market value and not take into account the volume or value of referrals is not satisfied.
Additionally, the Services Agreement does not separately identify or schedule any equipment used by Meridian at AHT's facilities. The agreement's generic reference to "utilities, scheduling support, and patient intake coordination" does not constitute adequate specification of equipment. If equipment is part of the arrangement, it must be separately identified, and a separate fair market rental must be established for the equipment — which has not been done.
Conclusion: The equipment rental exception is not satisfied.
D. Fair Market Value Exception Analysis (42 C.F.R. § 411.357(l))
The fair market value exception under 42 C.F.R. § 411.357(l) provides a broader alternative to the space and equipment rental exceptions, applicable to compensation paid for the provision of items or services (other than the rental of office space) under an arrangement that meets specified requirements. Even if the Meridian arrangement is recharacterized as a services arrangement — with AHT providing scheduling, patient intake, and administrative support services to Meridian — the fair market value exception would still require that compensation be set in advance, be consistent with fair market value, and not take into account the volume or value of referrals.
The fair market value exception fails on the volume/value criterion. The $185 per-scan fee causes aggregate compensation to vary with the number of scans, which is a volume-based metric. This is the same structural deficiency that defeats the space and equipment rental exceptions.
Furthermore, no independent fair market value opinion has been obtained for the facility access fee arrangement, whether characterized as a rental or a services arrangement. The absence of an independent FMV appraisal means that AHT cannot demonstrate that the $185 per-scan rate represents fair market value for the items and services provided to Meridian.
Conclusion: The fair market value exception is not satisfied.
E. Indirect Compensation Arrangement Exception (42 C.F.R. § 411.357(p))
Even if the direct entity-level arrangement between AHT and Meridian fails to satisfy any of the foregoing exceptions, the Stark Law's referral prohibition still applies to AHT's physicians only if the physicians have a financial relationship — direct or indirect — with Meridian. As discussed in Section IV.A above, AHT's employed physicians likely have an indirect compensation arrangement with Meridian, flowing through the chain: Meridian → per-scan fees → AHT → physician compensation.
The indirect compensation arrangement exception under 42 C.F.R. § 411.357(p) could potentially protect the referrals if: (i) the compensation received by the referring physician from AHT does not vary with, and is not determined in a manner that takes into account, the volume or value of referrals or other business generated for Meridian; (ii) the compensation is fair market value for services actually provided; and (iii) the arrangement otherwise satisfies applicable requirements.
The first element requires analysis of AHT's physician compensation structures. If AHT's employed physicians are compensated on a straight salary without productivity bonuses, incentive payments, or other variable compensation tied to referral volume or imaging utilization, then the compensation at the physician level may not "vary with" the volume or value of Meridian referrals, and the indirect compensation arrangement exception might be available at the physician level.
However, we note the following complications:
• AHT employs 147 physicians on a W-2 basis and maintains 38 independent contractor or medical director arrangements. The compensation structures across this population are not uniform. Some physicians may have productivity-based compensation components — such as wRVU-based incentive compensation or performance bonuses — that could correlate with referral volume to Meridian.
• Even if the indirect compensation arrangement exception is technically available at the physician level, the underlying entity-level arrangement between AHT and Meridian still fails to satisfy any applicable Stark Law exception. The indirect compensation arrangement exception protects the physician from the referral prohibition, but it does not cure the deficiency in the underlying arrangement. Meridian's payment of per-scan facility fees to AHT remains a compensation arrangement that must itself be evaluated for compliance.
• The 2021 Stark Law modernization rule modified the definition of "indirect compensation arrangement" to include arrangements where the referring physician's aggregate compensation "varies with, or otherwise reflects, the volume or value of referrals." The broader "otherwise reflects" language may capture compensation structures that are not directly volume-based but that indirectly correlate with referral patterns.
A comprehensive review of AHT's physician compensation agreements and any applicable incentive compensation plans would be necessary to determine whether the indirect compensation arrangement exception is available at the physician level. However, even if the exception is available for certain physicians, it does not address the fundamental structural deficiency of the per-scan fee arrangement at the entity level, nor does it eliminate AHT's exposure for overpayments and False Claims Act liability arising from the underlying non-compliant arrangement.
Conclusion: The indirect compensation arrangement exception may be available at the physician level for certain AHT physicians, depending on their individual compensation structures, but it does not cure the entity-level deficiency and does not provide a comprehensive solution to the arrangement's Stark Law non-compliance.
F. Summary of Stark Law Findings
Based on our element-by-element analysis, the Meridian facility access fee arrangement, as currently structured, does not satisfy any applicable Stark Law exception. The fundamental deficiency is the per-scan fee structure, which causes aggregate rental or compensation to vary directly with the volume of imaging services (designated health services) performed by Meridian at AHT's facilities. This structural feature is inconsistent with the core requirements of the space rental exception, the equipment rental exception, the fair market value exception, and, at the entity level, the indirect compensation arrangement exception.
The implications of this finding are as follows:
• Every imaging study ordered by an AHT referring physician and performed by Meridian at an AHT clinic location constitutes a potential Stark Law violation under 42 U.S.C. § 1395nn(a)(1)(A).
• Every claim submitted by Meridian to Medicare for DHS furnished pursuant to such a referral is potentially improper under 42 U.S.C. § 1395nn(a)(1)(B) and constitutes a potential False Claims Act violation.
• AHT's FY2022 exposure alone encompasses approximately 4,200 scans, $2.8 million in referral volume billed to payors including Medicare and Medicaid, and $777,000 in facility access fees received from Meridian.
• The arrangement has been in place since March 1, 2021 — a period of more than two years — creating a substantial window of potential non-compliance. Total exposure across the life of the arrangement exceeds the FY2022 figures and would need to be quantified through a comprehensive claims analysis covering the period from March 1, 2021 through the date of restructuring.
V. ANTI-KICKBACK STATUTE ANALYSIS OF THE MERIDIAN ARRANGEMENT
A. Threshold Question: Is There Remuneration?
The AKS applies to any arrangement involving the payment of "remuneration" to induce or reward referrals of items or services reimbursable under federal healthcare programs. "Remuneration" is defined broadly to include any payment or transfer of value, in cash or in kind, directly or indirectly.
Meridian pays AHT $777,000 per year (in FY2022) in per-scan facility access fees. These payments constitute remuneration from Meridian to AHT. In return, AHT's physicians refer patients to Meridian for diagnostic imaging services, generating $2.8 million in FY2022 imaging revenue for Meridian — a substantial portion of which is reimbursed by Medicare and Medicaid.
The bilateral financial flow between the parties creates a strong inference that the facility access fees could be viewed as remuneration paid, at least in part, to induce or reward AHT's continued referral of patients to Meridian. AHT has a direct financial incentive to maintain or increase the volume of referrals to Meridian, because more referrals generate more scans, which in turn generate more facility access fee revenue for AHT. Meridian has a corresponding incentive to continue paying facility access fees to AHT, because those fees purchase continued access to AHT's patient base and referral stream.
Under the "one purpose" test, if even one purpose of the facility access fees is to induce AHT (through its employed and contracted physicians) to continue referring patients to Meridian, the arrangement violates the AKS regardless of any other legitimate purposes the fees may serve. The factual circumstances — including the per-scan fee structure, the volume of referrals, the absence of a fair market value appraisal, and the bilateral financial interdependence — provide a basis for inferring that referral inducement is at least one purpose of the arrangement.
B. Space Rental Safe Harbor Analysis (42 C.F.R. § 1001.952(b))
1. Element-by-Element Analysis. Element 1: Written agreement signed by the parties. Satisfied. The March 1, 2021 Services Agreement is in writing and signed by authorized representatives of both parties.
Element 2: The lease covers all of the premises leased between the parties and specifies the premises covered. The Services Agreement references four AHT clinic locations in Connecticut but does not contain the specificity required by the safe harbor. The safe harbor requires that the lease "cover all of the premises leased between the parties for the term of the lease" and "specify the premises covered by the lease." As discussed in our Stark Law analysis, the agreement lacks floor plans, room specifications, or detailed descriptions of the specific areas within each clinic that Meridian uses. This element is not satisfied in its current form.
Element 3: Schedule of periodic use. For arrangements providing periodic or part-time access, the safe harbor requires that the lease "specify exactly the schedule of such intervals, their precise length, and the exact rent for such intervals." The Services Agreement does not contain a defined schedule of Meridian's access days, hours, or intervals at each AHT clinic location. This element is not satisfied.
Element 4: Term of not less than one year. Satisfied. The Services Agreement has a three-year initial term, as discussed above.
Element 5: Aggregate rental charge set in advance. This element is not satisfied. The $185 per-scan fee causes the aggregate rental charge to fluctuate based on scan volume. The aggregate rental is not fixed for any period within the term of the arrangement, nor is it determined by a methodology that produces a fixed aggregate amount. The OIG has consistently held that per-click or per-use fees are inconsistent with the "set in advance" requirement of the space rental safe harbor when the aggregate amount of rental varies with the volume of services performed.
The OIG addressed per-click rental arrangements in its Special Advisory Bulletin entitled "Contractual Joint Ventures" (April 2003) and in multiple advisory opinions. In OIG Advisory Opinion No. 06-09 (July 20, 2006), the OIG analyzed a per-click arrangement in which an entity paid a fixed fee per procedure for the use of equipment owned by a referring provider. The OIG expressed significant concern about per-click arrangements between parties in a position to refer, noting that such arrangements "may increase the risk of fraud and abuse because the amount of payment is directly proportional to the number of referrals or services." Similarly, in OIG Advisory Opinion No. 11-11 (June 23, 2011), the OIG cautioned that per-click rental arrangements between parties in a referral relationship "create a nexus between the rental payments and the referral of Federal health care program business," which is "precisely the type of nexus that the anti-kickback statute is designed to prevent."
These OIG pronouncements are directly applicable to the Meridian arrangement. The $185 per-scan fee creates a per-click nexus between Meridian's rental payments and the referral of federal healthcare program business from AHT's physicians.
Element 6: Aggregate rental charge consistent with fair market value. This element is not satisfied. No independent FMV opinion was obtained at the time the Services Agreement was executed, and no subsequent appraisal has been performed. As discussed in our Stark Law analysis, the per-unit-of-service fee structure itself creates difficulties in evaluating fair market value against market comparables for space rental.
Element 7: Aggregate rental charge does not take into account the volume or value of referrals or other business generated between the parties. This element is not satisfied. This is the core deficiency. The per