massachusetts-anti-kickback-memo.docx

1010-00003 · Arbor Health Technologies Inc · State Law Analysis

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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 15, 2023

RE: Applicability of Massachusetts Anti-Kickback Law (M.G.L. c. 175H, § 3) to Arbor Health Technologies Inc. Massachusetts Clinic Arrangements

MATTER NO.: 1010-00003

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I. EXECUTIVE SUMMARY

You have asked us to analyze whether and how the Massachusetts state anti-kickback statute, Massachusetts General Laws Chapter 175H, Section 3 ("M.G.L. c. 175H, § 3" or the "Massachusetts AKS"), applies to the operations of Arbor Health Technologies Inc. ("AHT" or the "Company"), with particular focus on the fourteen (14) Arbor Health Clinics currently operating in the Commonwealth of Massachusetts. This memorandum is intended to serve as a comprehensive analysis of the state-law landscape and should be read in conjunction with our companion memoranda addressing federal Anti-Kickback Statute ("federal AKS") and Stark Law compliance, which together comprise the core deliverables of the comprehensive self-assessment engagement.

This analysis supplements the federal AKS compliance assessment memorandum prepared as part of the comprehensive self-assessment engagement opened on January 30, 2023. As the Company is aware, this engagement was prompted by the findings of the independent gap assessment report prepared by Grayson Whitaker & Associates LLP ("GW Report," reference GW-AHT-2022-Final, dated December 12, 2022), which identified seventeen (17) arrangements classified as high-risk and twenty-three (23) arrangements classified as moderate-risk across AHT's operations. The GW Report recommended, among other things, that AHT engage outside counsel to conduct a detailed legal compliance assessment of its arrangement portfolio under both federal and state anti-kickback and self-referral laws. This memorandum addresses the Massachusetts state-law dimension of that assessment.

Our principal finding is that M.G.L. c. 175H, § 3 is materially broader than the federal AKS in a critical respect: it applies to all health insurance payers, not solely to federal healthcare programs. This distinction has significant practical consequences for AHT. While the federal AKS reaches only those items and services for which payment may be made under Medicare, Medicaid, TRICARE, and other federal healthcare programs — representing approximately sixty-one percent (61%) of AHT's FY2022 net revenue, or $130.7 million of $214.3 million — the Massachusetts statute extends to arrangements involving commercially insured patients as well. AHT's commercial payer revenue constitutes approximately thirty-nine percent (39%) of net revenue, or $83.6 million in FY2022, all of which is potentially implicated by the state statute for arrangements involving Massachusetts-based services. Most notably, the Company's single largest commercial payer relationship, with Covenant Health Plans Inc., generated $38.6 million in FY2022 revenue (representing approximately eighteen percent (18%) of AHT's net revenue) and an additional $2.1 million in value-based payment incentive bonuses tied to quality metrics. This relationship falls squarely within the Massachusetts statute's scope.

The broader payer scope of the Massachusetts statute is compounded by a second structural difference: the Commonwealth has not enacted a regulatory safe harbor framework comparable in detail or breadth to the federal safe harbors codified at 42 C.F.R. § 1001.952. Consequently, several arrangements that present manageable risk under the federal AKS — either because they satisfy a federal safe harbor or because they touch only commercial payer referrals not reached by the federal statute — present heightened risk under the Massachusetts statute. This is particularly true for the following categories of arrangements, which are analyzed in detail in Section VI below:

• The Pinnacle Laboratory Services Inc. preferred laboratory agreement, including the no-cost electronic laboratory interface, CME sponsorship, and Dr. Karen Ellsworth's passive equity interest;

• Medical director and independent contractor compensation arrangements with effective hourly rates above the 90th percentile;

• The Meridian Diagnostics LLC per-scan facility access fee arrangement;

• The Covenant Health Plans value-based incentive payment arrangement; and

• ArborConnect SaaS platform licensing to external physician practices that refer patients to AHT.

In summary, several arrangements that present manageable risk under the federal AKS (which applies only to the 61% / $130.7 million Medicare and Medicaid revenue stream) present heightened risk under the Massachusetts statute because they touch commercial payer referrals as well. Our detailed recommendations for remediation are set forth in Section VIII of this memorandum.

II. SCOPE AND LIMITATIONS

This memorandum is limited in scope to AHT's fourteen (14) Massachusetts clinic locations, including the two Lakeview Medical Associates, P.C. ("Lakeview") legacy clinic locations at 75 Belmont Street, Worcester, MA 01605, and 310 Main Street, Suite 2A, Shrewsbury, MA 01545, which were acquired by AHT on August 15, 2022 through an $11.4 million asset purchase transaction. Our analysis covers physician compensation arrangements (including employment agreements, independent contractor agreements, and medical director agreements), vendor relationships, referral arrangements, and management services arrangements, in each case to the extent they involve services furnished at or through AHT's Massachusetts-based clinic locations.

This memorandum does not address AHT's operations in Connecticut (four (4) clinics), Rhode Island (three (3) clinics), or New Hampshire (two (2) clinics). The Connecticut state-law analysis is addressed in a separate memorandum being prepared concurrently by our team. Rhode Island and New Hampshire state anti-kickback laws, to the extent applicable, will be addressed in a subsequent phase of the engagement.

Our analysis is based on the documents produced by AHT pursuant to the Document Request List dated February 3, 2023, including physician employment agreements, independent contractor and medical director agreements, vendor contracts, office lease agreements, management services agreements, fair market value appraisals, payer contracts, and compliance program documents. We have also relied on information gathered during interviews and working sessions with Derek Huang, Chief Compliance Officer, and Patricia Yamamoto, General Counsel, conducted on February 22, March 8, March 21, and April 5, 2023, as well as supplemental document productions received through April 28, 2023.

This memorandum cross-references and should be read together with the following companion deliverables prepared as part of the comprehensive self-assessment engagement:

• The Master Arrangement Inventory & Risk Scoring Matrix (the "Risk Matrix"), which catalogs all identified AHT arrangements by category, risk score, and applicable legal framework;

• The Federal AKS Compliance Assessment Memorandum (Matter No. 1010-00003-AKS), which analyzes AHT's arrangements under 42 U.S.C. § 1320a-7b(b) and the regulatory safe harbors at 42 C.F.R. § 1001.952;

• The Stark Law Compliance Assessment Memorandum (Matter No. 1010-00003-STARK), which analyzes AHT's physician self-referral arrangements under 42 U.S.C. § 1395nn; and

• The Northbridge Valuation Advisors fair market value opinions and supporting analyses commissioned for physician compensation, medical director compensation, office lease terms, and other arrangement components.

This memorandum does not constitute a definitive legal opinion on whether any particular arrangement violates M.G.L. c. 175H, § 3. The application of the Massachusetts anti-kickback statute to specific factual circumstances involves a fact-intensive inquiry, and the relative paucity of Massachusetts case law and enforcement precedent interpreting the statute creates uncertainty that cannot be fully resolved through legal analysis alone. This memorandum identifies risk areas, assesses the relative level of exposure associated with each arrangement category, and recommends remediation measures designed to reduce AHT's compliance risk under the Massachusetts statute. We are prepared to assist the Company in implementing these recommendations during the remediation phase.

III. BACKGROUND ON AHT'S MASSACHUSETTS OPERATIONS

A. Corporate Profile and Massachusetts Presence

Arbor Health Technologies Inc. is a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, MA 02138. The Company was founded in 2016 and has grown through a combination of organic expansion and strategic acquisitions to become a multi-state healthcare services and technology company. AHT is majority-owned by Ridgeline Capital Partners Fund IV, LP ("Ridgeline"), a healthcare-focused private equity fund, with remaining equity held by management and other investors. The Company's operations are organized around two principal business lines: (1) the Arbor Health Clinics division, which provides direct patient care services through owned and operated outpatient clinics, and (2) the ArborConnect technology division, which develops and licenses a proprietary electronic health record ("EHR") and practice management software-as-a-service ("SaaS") platform.

As of the date of this memorandum, AHT operates twenty-three (23) Arbor Health Clinic locations across four states: Massachusetts (14), Connecticut (4), Rhode Island (3), and New Hampshire (2). Massachusetts is the Company's primary operating jurisdiction by a significant margin, accounting for the majority of clinic locations, physician headcount, patient encounters, and revenue. The Company's Cambridge headquarters houses its executive leadership team, corporate compliance function, finance and billing operations, and ArborConnect technology development and support staff.

The fourteen (14) Massachusetts clinic locations provide a broad range of outpatient services, including primary care, specialty care in cardiology, orthopedics, and gastroenterology, and ancillary services encompassing in-office laboratory testing, diagnostic imaging (including X-ray and ultrasound), and physical therapy. The breadth of AHT's service offerings is relevant to the anti-kickback analysis because it creates the potential for referral relationships among affiliated service lines — a physician employed by AHT who refers a patient to AHT's in-office laboratory or diagnostic imaging services generates revenue for the Company in addition to the professional fee for the office visit.

The ArborConnect EHR and practice management SaaS platform is developed and operated from AHT's Cambridge headquarters. The platform is used internally by all Arbor Health Clinic locations and is also licensed to forty-two (42) external physician practices, generating $8.9 million in annual subscription revenue. As discussed in greater detail in Section VI.F below, the licensing of the ArborConnect platform to external practices that may refer patients to AHT's Massachusetts clinics or ancillary services raises potential issues under the Massachusetts anti-kickback statute.

For reference, AHT's Employer Identification Number is 84-3291057, its organizational National Provider Identifier is 1497253810, and its lead Provider Transaction Access Number is 27MA4891.

B. Physician Workforce in Massachusetts

AHT's physician workforce consists of one hundred forty-seven (147) W-2 employed physicians and thirty-eight (38) independent contractor and medical director arrangements across all operating jurisdictions. The majority of these physicians are based in Massachusetts, consistent with the concentration of clinic operations in the Commonwealth. The physician workforce includes primary care physicians, internists, family medicine practitioners, and specialists in cardiology, orthopedics, and gastroenterology, among other disciplines.

The Company's physician workforce was substantially augmented by the Lakeview Medical Associates, P.C. acquisition, which closed on August 15, 2022 for a purchase price of $11.4 million in an asset purchase transaction. The Lakeview acquisition added fourteen (14) physicians to AHT's workforce: twelve (12) transitioned to W-2 employed status and two (2) continued as independent contractors. The acquisition also included the assumption of three (3) existing medical director agreements, with annual stipends of $45,000, $60,000, and $72,000, respectively. All fourteen physicians and three medical director arrangements are based in Massachusetts, with the Lakeview legacy physicians primarily practicing at the Worcester and Shrewsbury clinic locations.

Dr. Vivian Chao, who served as the managing partner of Lakeview Medical Associates, P.C. prior to the acquisition, transitioned to the role of AHT Regional Medical Director for Central Massachusetts upon closing. Dr. Chao's compensation, duties, and reporting structure were renegotiated in connection with the acquisition and are governed by a Regional Medical Director Agreement dated August 15, 2022. As the most senior physician in the Central Massachusetts region, Dr. Chao oversees clinical operations at the Worcester and Shrewsbury clinic locations and serves as a primary point of contact for referring physicians in the region. Her role is relevant to the anti-kickback analysis because she is positioned to influence referral patterns among the Lakeview legacy physician network and between AHT's Central Massachusetts clinics and external providers.

The medical director compensation arrangements across all thirty-eight (38) arrangements present a notable area of concern under both federal and Massachusetts anti-kickback law. In the aggregate, medical director compensation totals approximately $1.92 million per year. The mean contracted hours for medical director services are 8.4 hours per month, yielding an effective average hourly rate of approximately $501.28 per hour. This effective rate exceeds the 90th percentile benchmark for medical director compensation in multiple specialties based on MGMA, SullivanCotter, and other industry survey data. As detailed in the federal AKS compliance assessment memorandum, above-fair-market-value ("FMV") compensation paid to physicians who are in a position to refer patients to an entity constitutes a significant area of enforcement focus under both federal and state anti-kickback laws.

C. Revenue Profile and Payer Mix for Massachusetts Operations

AHT's revenue profile and payer mix are central to the analysis in this memorandum because the distinction between the federal AKS and the Massachusetts statute turns on the scope of covered payer sources.

For fiscal year 2022, AHT reported total net revenue of $214.3 million across all operating jurisdictions and business lines. The Company's payer mix for clinical services revenue is as follows:

• Medicare and Medicaid (Government Payers): Approximately sixty-one percent (61%) of net revenue, or $130.7 million. This revenue stream is subject to the federal AKS, 42 U.S.C. § 1320a-7b(b), as well as the Physician Self-Referral Law (Stark Law), 42 U.S.C. § 1395nn (Medicare only). It is also subject to the Massachusetts anti-kickback statute, M.G.L. c. 175H, § 3.

• Commercial Payers: Approximately thirty-nine percent (39%) of net revenue, or $83.6 million. This revenue stream is not subject to the federal AKS (because the federal statute is limited to federal healthcare programs) but is subject to the Massachusetts anti-kickback statute for services furnished at Massachusetts-based clinic locations. The commercial payer revenue stream is also not subject to the Stark Law (which applies only to Medicare).

The significance of this payer mix cannot be overstated for purposes of the Massachusetts state-law analysis. While the federal AKS covers only the government payer revenue ($130.7 million), the Massachusetts statute covers the entirety of AHT's insured revenue for Massachusetts-based services — both the government payer portion and the commercial payer portion. This means that for any arrangement involving AHT's Massachusetts clinics, the revenue at risk under state law includes the additional $83.6 million commercial payer stream that falls outside the federal statute's reach.

AHT's largest commercial payer is Covenant Health Plans Inc. ("Covenant"), headquartered at 500 Boylston Street, 12th Floor, Boston, MA 02116. The Covenant relationship generated $38.6 million in net revenue in FY2022, representing approximately eighteen percent (18%) of AHT's total net revenue. AHT participates in several Covenant health plan products, including HMO, PPO, and point-of-service plans, and is designated as a preferred provider for certain Covenant network products in the Greater Boston and Central Massachusetts markets.

In addition to base fee-for-service and capitation revenue, the Covenant relationship includes value-based payment incentive bonuses totaling $2.1 million in FY2022. These bonuses are tied to quality metrics established under the Covenant Value-Based Payment Incentive Program, including HEDIS measures, patient satisfaction scores, and cost-efficiency benchmarks. The value-based incentive payments are relevant to the Massachusetts anti-kickback analysis for reasons discussed in Section VI.E below: while the federal AKS now includes specific safe harbors for value-based arrangements (added by the 2021 Safe Harbor Modernization Final Rule), the Massachusetts statute does not contain equivalent safe harbors.

D. Key Arrangements Implicating Massachusetts Operations

Based on our review of the documents produced by AHT and the information gathered during the engagement, we have identified the following categories of arrangements that implicate the Massachusetts anti-kickback statute for the Company's Massachusetts clinic operations. Each of these arrangements is analyzed in detail in Section VI below; this subsection provides a summary overview.

Pinnacle Laboratory Services Inc. Preferred Laboratory Agreement. AHT entered into a preferred laboratory agreement with Pinnacle Laboratory Services Inc. ("Pinnacle") on June 15, 2020, pursuant to which AHT's Rhode Island and southeastern Massachusetts clinics refer outpatient laboratory work to Pinnacle. The Pinnacle arrangement generated $1.65 million in referral volume in FY2022. Three specific components of the Pinnacle arrangement raise concerns under the Massachusetts statute: (1) a no-cost electronic laboratory interface integrated into the ArborConnect platform, with an estimated market value of $120,000 per year, provided by Pinnacle to AHT at no charge; (2) CME sponsorship by Pinnacle of four educational events for AHT physicians in FY2022, totaling $86,000; and (3) a 4.2% passive equity interest in Pinnacle held by Dr. Karen Ellsworth, who is the spouse of AHT's Chief Executive Officer, Marcus Ellsworth. Dr. Ellsworth's equity interest creates additional complexity under both the Stark Law and the Massachusetts anti-kickback statute.

Meridian Diagnostics LLC Facility Access Fee Arrangement. AHT entered into a services agreement with Meridian Diagnostics LLC ("Meridian") on March 1, 2021, pursuant to which Meridian provides mobile MRI and advanced diagnostic imaging services at four AHT clinic locations (including Massachusetts locations). Under the arrangement, Meridian pays AHT a per-scan facility access fee of $185 per scan, totaling $777,000 for 4,200 scans in FY2022. In the same period, AHT physicians referred $2.8 million in imaging services to Meridian. The per-scan fee structure and the reciprocal referral relationship raise significant concerns under both federal and state anti-kickback laws. Meridian is owned by Dr. Franklin Osei (60%) and Gerald Pratt (40%, non-physician).

Medical Director and Independent Contractor Arrangements. As noted above, AHT maintains thirty-eight (38) medical director and independent contractor arrangements with aggregate annual compensation of $1.92 million and an effective average hourly rate of $501.28 per hour. These arrangements are of concern under the Massachusetts statute because the above-FMV compensation is paid to physicians who are in a position to refer commercially insured patients to AHT's ancillary services, and the Massachusetts statute does not contain a personal services and management contracts safe harbor equivalent to the federal safe harbor at 42 C.F.R. § 1001.952(d).

Lakeview Legacy Employment Agreements and Office Leases. The fourteen physician employment agreements and three medical director agreements assumed in the Lakeview acquisition, as well as the office leases at the Worcester and Shrewsbury locations, require analysis under the Massachusetts statute. These arrangements were originally structured for a stand-alone practice and may not have contemplated the referral dynamics created by AHT's broader network of clinics and ancillary services.

Covenant Health Plans Value-Based Arrangements. The $2.1 million in value-based incentive bonuses received from Covenant Health Plans in FY2022 are subject to analysis under the Massachusetts statute. As discussed below, the absence of a state-law value-based arrangement safe harbor creates uncertainty, although the risk profile of the Covenant arrangement is relatively lower than other identified arrangements.

ArborConnect SaaS Platform Licensing. The licensing of the ArborConnect platform to forty-two (42) external physician practices requires analysis to the extent any of these practices refer patients to AHT's Massachusetts clinics or ancillary services.

IV. STATUTORY FRAMEWORK: M.G.L. c. 175H, § 3

A. Text and Scope of the Statute

Massachusetts General Laws Chapter 175H, Section 3, is the Commonwealth's principal anti-kickback statute governing healthcare referral arrangements. The statute was enacted as part of the broader framework of Chapter 175H, which addresses various aspects of healthcare cost containment, insurance regulation, and provider practices. The full text of the statute is reproduced in Appendix A to this memorandum for reference.

In relevant part, Section 3 prohibits any person from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, including any kickback, bribe, or rebate, directly or indirectly, overtly or covertly, in cash or in kind, in return for referring an individual to a person 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 any health insurance policy or contract. The statute further prohibits the payment or receipt of remuneration in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under any health insurance policy or contract.

The critical language for purposes of this memorandum is the phrase "any health insurance policy or contract." This language is substantially broader than the corresponding language in the federal AKS, which is limited to items or services for which payment may be made under a "Federal health care program" as defined in 42 U.S.C. § 1320a-7b(f). A "Federal health care program" includes Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, and certain other government-funded healthcare programs. By contrast, the Massachusetts statute's reference to "any health insurance policy or contract" encompasses the full universe of private and public health insurance, including commercial health plans, employer-sponsored group health plans, individual market plans, managed care organization products, and government programs. This means that the Massachusetts statute applies to referral arrangements involving commercially insured patients — a category of patients that is entirely outside the scope of the federal AKS.

The breadth of the Massachusetts statute's payer coverage is its single most important distinguishing feature for AHT's compliance purposes. While the federal AKS leaves approximately thirty-nine percent (39%) of AHT's net revenue ($83.6 million in commercial payer revenue) outside its reach, the Massachusetts statute brings this entire revenue stream within its prohibitive scope for arrangements involving Massachusetts-based services.

B. Prohibited Conduct

The Massachusetts statute prohibits four categories of conduct: offering, paying, soliciting, and receiving remuneration. These four prongs mirror the structure of the federal AKS and capture both sides of a kickback transaction — the person who offers or pays the remuneration and the person who solicits or receives it. Both the payer and the payee of kickback remuneration are subject to liability under the statute.

The term "remuneration" is construed broadly under the Massachusetts statute and includes anything of value. This encompasses direct cash payments, in-kind benefits, free or below-market-value services, above-market-value compensation, and any other transfer of value that may serve as an inducement for referrals. The statute does not require that remuneration take a specific form; it reaches both overt and covert transfers of value, including arrangements structured in ways that obscure the connection between the remuneration and the referral relationship.

The statute's prohibition on "indirect" remuneration is particularly relevant to complex healthcare arrangements where the flow of value between parties may be structured through intermediaries, subsidiary entities, or multi-layered contractual relationships. For example, a management services arrangement under which an entity provides below-market-value management services to a physician practice, with the expectation that the practice will refer patients to the entity's ancillary services, may constitute indirect remuneration even though the management services fee is facially unrelated to referral volume.

The statute applies to referrals for the "furnishing or arranging for the furnishing" of items or services. This language is broad enough to encompass not only direct referrals (e.g., a physician sending a patient to a laboratory for testing) but also indirect referral arrangements (e.g., a management company arranging for its managed practices to use a particular diagnostic imaging provider). The scope of covered referral activity is a significant consideration for AHT's more complex arrangement structures, including the ConnectiCare Physicians Network management services arrangements and the ArborConnect SaaS platform licensing relationships.

C. Penalties. Violations of M.G.L. c. 175H, § 3 carry both criminal and civil consequences. On the criminal side, the statute provides for fines, imprisonment, or both upon conviction. The criminal penalties applicable to violations are generally consistent with the penalty framework for comparable offenses under Massachusetts law, and a conviction may result in a sentence of imprisonment in a state correctional facility or house of correction, together with monetary fines determined by the court.

Beyond the criminal penalties specified in the statute itself, a violation of the Massachusetts anti-kickback statute may trigger a range of additional administrative and regulatory consequences:

• Loss of Professional Licensure. The Massachusetts Board of Registration in Medicine may impose professional discipline on physicians found to have engaged in kickback arrangements, up to and including revocation of the physician's medical license. The Board treats violations of healthcare fraud and abuse statutes as grounds for disciplinary action under its professional conduct standards.

• Exclusion from Payer Networks. A finding of anti-kickback violations could jeopardize AHT's participation in commercial payer networks, including its critical Covenant Health Plans relationship. Most commercial payer contracts contain provisions requiring compliance with applicable federal and state healthcare fraud and abuse laws, and a violation may constitute a basis for termination of the payer contract or exclusion from the payer's provider network.

• Civil Liability. In addition to criminal prosecution, violations of the Massachusetts anti-kickback statute may give rise to civil liability, including potential claims by the Commonwealth for recovery of improperly induced healthcare expenditures. The Massachusetts Attorney General's Office may pursue civil enforcement actions seeking injunctive relief, disgorgement, civil penalties, and other remedies.

• Qui Tam and Whistleblower Exposure. Although the Massachusetts anti-kickback statute does not itself create a private right of action, conduct that violates the statute may also give rise to claims under the Massachusetts False Claims Act, M.G.L. c. 12, § 5B, which does permit qui tam actions by private relators. An arrangement that violates the anti-kickback statute and results in claims submitted to a health insurer under false pretenses could be characterized as a false claim, exposing AHT to treble damages and per-claim penalties.

The Massachusetts Attorney General's Office is the principal enforcement authority for the Massachusetts anti-kickback statute. The Attorney General's Healthcare Division has historically focused its enforcement resources on cases involving egregious kickback arrangements, large-scale fraud schemes, and matters involving patient harm or significant financial impact. However, the enforcement climate in Massachusetts has become increasingly active in recent years, with the Attorney General's Office pursuing a broader range of healthcare fraud and abuse cases, including arrangements involving physician compensation, laboratory relationships, and ancillary service referrals. AHT should monitor enforcement developments closely as part of its ongoing compliance program.

D. Exceptions and Safe Harbors under Massachusetts Law

The Massachusetts anti-kickback statute contains its own set of exceptions to the general prohibition on referral-related remuneration. However, these exceptions are substantially narrower and less developed than the federal AKS safe harbors codified at 42 C.F.R. § 1001.952. The limited scope of the Massachusetts exceptions is one of the most significant compliance challenges for AHT's Massachusetts operations.

The statutory exceptions recognized under Massachusetts law include the following:

• Bona Fide Employment Relationships. The statute contains an exception for remuneration paid by an employer to an employee who has a bona fide employment relationship with the employer for employment in the provision of covered items or services. This exception is analogous to the federal employment safe harbor at 42 C.F.R. § 1001.952(i), but its precise scope and requirements under Massachusetts law are less well-defined due to limited regulatory guidance and case law.

• discount Arrangements. The statute provides an exception for discounts or other reductions in price obtained by a provider of services or other entity under a health benefit plan if the discount or reduction in price is properly disclosed and appropriately reflected in the cost claimed or charge made by the provider or entity. This exception is conceptually similar to the federal discount safe harbor at 42 C.F.R. § 1001.952(h) but lacks the detailed regulatory requirements specified in the federal framework.

• Group Purchasing Arrangements. The statute contains an exception for certain amounts paid by a vendor of goods or services to a group purchasing organization as part of a group purchasing arrangement, subject to conditions regarding disclosure and the relationship between the payments and the purchasing activity.

What is notably absent from the Massachusetts framework is a comprehensive set of regulatory safe harbors analogous to those promulgated by the Office of Inspector General under the federal AKS. The federal safe harbor regulations at 42 C.F.R. § 1001.952 provide detailed requirements for a wide range of specific arrangement types, including:

• Personal services and management contracts (42 C.F.R. § 1001.952(d))

• Space rental (42 C.F.R. § 1001.952(b))

• Equipment rental (42 C.F.R. § 1001.952(c))

• Referral services (42 C.F.R. § 1001.952(f))

• Electronic health records items and services (42 C.F.R. § 1001.952(y))

• Value-based arrangements (42 C.F.R. § 1001.952(ee)–(hh))

• Investment interests in large and small entities (42 C.F.R. § 1001.952(a))

Massachusetts does not have equivalent regulatory safe harbors for any of these categories. The absence of specific safe harbors for personal services and management contracts, space rental, equipment rental, and value-based arrangements is particularly significant for AHT because these are the arrangement categories that drive the most significant compliance risk in the Company's Massachusetts operations.

A critical question is whether compliance with federal AKS safe harbors provides any defense or protection under Massachusetts law. The short answer is that there is no express statutory cross-reference or incorporation of federal safe harbors in the Massachusetts statute. M.G.L. c. 175H, § 3 does not state that arrangements qualifying for federal safe harbor protection are exempt from the state prohibition. Consequently, compliance with a federal safe harbor is relevant but not dispositive of compliance with the Massachusetts statute. In practice, an arrangement that satisfies all requirements of a federal safe harbor is likely to present a lower risk of prosecution under the Massachusetts statute, because the federal safe harbor requirements embody recognized indicia of legitimate business arrangements (e.g., FMV compensation, written agreements, specifications of services). However, this practical protection falls short of the legal certainty provided by formal safe harbor compliance, and it does not eliminate the theoretical possibility that the Massachusetts Attorney General could take a different view of the arrangement under state law.

V. COMPARATIVE ANALYSIS: MASSACHUSETTS LAW vs. FEDERAL ANTI-KICKBACK STATUTE

The differences between the Massachusetts anti-kickback statute and the federal AKS have direct and material implications for AHT's compliance exposure. This section provides a systematic comparison of the two statutes across five key dimensions: scope of coverage, intent standard, safe harbor availability, enforcement posture, and interaction with the Stark Law.

A. Scope of Coverage — Payer Universe

The most significant difference between the federal AKS and the Massachusetts statute is the scope of covered payer sources.

The federal AKS, codified at 42 U.S.C. § 1320a-7b(b), applies only to items or services "for which payment may be made in whole or in part under a Federal health care program." A "Federal health care program" is defined in 42 U.S.C. § 1320a-7b(f) to include Medicare (Title XVIII of the Social Security Act), Medicaid (Title XIX), TRICARE, the Children's Health Insurance Program (CHIP), and certain other government-funded healthcare programs. For AHT, this means the federal AKS covers the Company's government payer revenue stream, which represents approximately sixty-one percent (61%) of net revenue, or $130.7 million in FY2022.

The Massachusetts statute, M.G.L. c. 175H, § 3, applies to items or services "for which payment may be made in whole or in part under any health insurance policy or contract." This language encompasses all forms of health insurance — private commercial plans, employer-sponsored group plans, individual market plans, managed care products, and government programs — without limitation to federal healthcare programs. For AHT, this means the Massachusetts statute covers the entirety of the Company's insured revenue for Massachusetts-based services, including both the $130.7 million government payer stream and the $83.6 million commercial payer stream.

The practical impact of this difference is substantial. Consider, for example, a hypothetical arrangement in which AHT provides a below-market-value service to a referring physician in exchange for referrals of commercially insured patients only. Under the federal AKS, this arrangement would not be actionable (assuming no federal program beneficiaries are involved), because the federal statute does not reach commercially insured referrals. Under the Massachusetts statute, however, the identical arrangement would be squarely within the prohibition, because the referrals involve patients covered by "health insurance policies or contracts."

This distinction has specific implications for AHT's most important commercial payer relationship. The Covenant Health Plans relationship, generating $38.6 million in net revenue and $2.1 million in value-based incentive bonuses in FY2022, involves exclusively commercially insured patients. Under the federal AKS, arrangements touching only Covenant-insured referrals would generally fall outside the statute's scope. Under the Massachusetts statute, these same arrangements are subject to the full force of the state prohibition. The $2.1 million in value-based incentive payments, in particular, constitute remuneration flowing from a payer to a provider, and while such payments are typically lower risk than provider-to-provider remuneration, their treatment under the Massachusetts statute warrants careful analysis (see Section VI.E below).

B. Intent Standard

The federal AKS requires proof that the defendant acted "knowingly and willfully." Courts interpreting the federal statute have adopted the "one purpose" test, under which a violation may be established if even one purpose of the remuneration was to induce or reward referrals, regardless of whether the remuneration also served legitimate purposes. See, e.g., United States v. Greber, 760 F.2d 68 (3d Cir. 1985); United States v. Kats, 871 F.2d 105 (9th Cir. 1989). This test substantially lowers the government's burden of proof in federal prosecutions, because it is sufficient to show that referral inducement was a purpose, not the purpose, of the arrangement.

The Massachusetts statute similarly requires that the prohibited conduct be committed "knowingly and willfully." The state statute's intent language parallels the federal statute, and we are not aware of any Massachusetts appellate decision that has adopted a materially different interpretation of the intent standard. In the absence of controlling Massachusetts precedent, it is reasonable to expect that a Massachusetts court would look to federal case law for guidance and adopt an analogous "one purpose" test. However, we note the caveat that no Massachusetts appellate court has expressly adopted or rejected this standard, and the possibility of a different interpretation cannot be ruled out.

The practical implication for AHT is that the same intent analysis applies under both statutes: if an arrangement involves remuneration where referral inducement was at least one purpose, the arrangement is potentially actionable under both the federal and state statutes. The broader payer scope of the Massachusetts statute, however, means that the universe of referral relationships subject to the intent inquiry is larger under state law, because it includes commercially insured referrals that the federal statute does not reach.

We are not aware of any published Massachusetts Attorney General's Office guidance or opinion letters specifically addressing the intent standard under M.G.L. c. 175H, § 3. The Attorney General's Office has not issued advisory opinions analogous to the OIG's advisory opinion practice under the federal AKS, which further limits the available interpretive guidance.

C. Safe Harbor Availability

The disparity in safe harbor availability between the federal and Massachusetts frameworks is the second most significant compliance challenge (after the broader payer scope) facing AHT under the state statute.

Under the federal AKS, the Office of Inspector General has promulgated a comprehensive set of regulatory safe harbors at 42 C.F.R. § 1001.952, which define specific arrangement structures that will not be treated as violations of the federal anti-kickback statute if all elements of the safe harbor are satisfied. These safe harbors were originally promulgated in 1991 and have been expanded and updated periodically, most recently through the 2021 Safe Harbor Modernization Final Rule (85 Fed. Reg. 77684, effective January 19, 2021), which added safe harbors for certain value-based arrangements, patient engagement and support, CMS-sponsored model arrangements, and cybersecurity technology donations. The federal safe harbor framework currently includes more than thirty (30) distinct safe harbor categories, providing substantial regulatory certainty for arrangements that satisfy their requirements.

Under Massachusetts law, the statutory exception framework is limited to the narrow categories identified in Section IV.D above (bona fide employment, discounts, group purchasing). Massachusetts has not promulgated a regulatory safe harbor framework comparable in scope or detail to the federal regulations. There are no Massachusetts safe harbors for:

This comparison is set forth in greater detail in Appendix B to this memorandum.

The risk implication is straightforward: arrangements that satisfy a federal safe harbor may still violate the Massachusetts statute because no equivalent state safe harbor exists. A medical director arrangement that meets every requirement of the federal personal services and management contracts safe harbor (42 C.F.R. § 1001.952(d)) — including a written agreement, specification of services, FMV compensation, and fixed aggregate compensation set in advance — is fully protected under the federal AKS but receives no formal safe harbor protection under the Massachusetts statute. The arrangement must instead be analyzed under the general prohibition of M.G.L. c. 175H, § 3 and defended on the grounds that the remuneration was not offered or paid to induce referrals. While compliance with the federal safe harbor requirements is a strong mitigating factor in any such defense, it does not constitute a complete legal shield under Massachusetts law.

This regulatory gap creates a layer of irreducible risk for AHT's Massachusetts operations that does not exist under the federal framework. The practical consequence is that AHT's compliance strategy must go beyond federal safe harbor compliance and independently assess each arrangement for Massachusetts state-law risk, with particular attention to arrangements involving commercially insured referrals.

D. Enforcement History and Posture

Federal AKS enforcement is led by the Department of Justice ("DOJ") and the Office of Inspector General of the Department of Health and Human Services ("OIG"), with support from the FBI, the HHS Office of Investigations, and Medicaid Fraud Control Units in each state. The federal enforcement framework benefits from a substantial body of advisory opinions issued by the OIG, Special Fraud Alerts, compliance program guidance documents, and published enforcement actions and settlement agreements. This body of guidance provides healthcare providers with a relatively well-developed understanding of the government's enforcement priorities and the analytical framework used to evaluate specific arrangement types. The federal government's enforcement priorities have historically focused on pharmaceutical and device manufacturer kickback arrangements, laboratory and diagnostic imaging relationships, physician compensation above FMV, and arrangements involving per-unit or per-click fees that track referral volume.

Massachusetts enforcement of the anti-kickback statute is the responsibility of the Massachusetts Attorney General's Office, principally through its Healthcare Division and its Criminal Bureau. The Attorney General's enforcement posture with respect to healthcare kickback arrangements has historically been less aggressive and less publicly visible than federal enforcement activity, although the office has pursued notable cases involving healthcare fraud, patient brokering, and pharmacy benefit arrangements. The Attorney General's Office has not published a body of advisory opinions, compliance guidance documents, or Special Fraud Alerts specific to the anti-kickback statute comparable to the OIG's extensive library.

We have reviewed publicly available enforcement actions, press releases, and policy statements issued by the Massachusetts Attorney General's Office and have not identified any published enforcement action directly and specifically targeting physician compensation arrangements, laboratory referral relationships, or diagnostic imaging facility access fee arrangements of the type at issue in AHT's arrangement portfolio. This should not be interpreted as a basis for complacency, however, for several reasons:

First, the absence of published enforcement precedent may reflect resource constraints and enforcement prioritization rather than a deliberate decision not to enforce the statute against these types of arrangements. Second, the Attorney General's enforcement posture may change at any time, particularly in response to political developments, high-profile healthcare fraud cases, or referrals from other regulatory agencies. Third, AHT's profile as a private-equity-backed multistate healthcare company with above-FMV physician compensation arrangements and complex referral relationships may attract enforcement attention in a political and regulatory environment that is increasingly focused on private equity involvement in healthcare. Fourth, the Massachusetts Attorney General's Office may pursue state-law charges in parallel with or as a supplement to federal enforcement actions brought by DOJ or OIG, creating the risk of dual federal-state prosecution.

We recommend that AHT monitor Massachusetts Attorney General enforcement actions and guidance on an ongoing basis as part of its compliance program, and that the compliance committee receive periodic briefings on developments in state-level healthcare enforcement.

E. Interaction with Stark Law

The federal Physician Self-Referral Law, commonly known as the Stark Law and codified at 42 U.S.C. § 1395nn, prohibits physicians from referring Medicare patients for designated health services to entities with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. The Stark Law is a strict liability statute — unlike the AKS, it does not require proof of intent — and its exceptions are detailed and technical.

Importantly, the Stark Law is limited to Medicare. There is no federal Stark-equivalent statute covering Medicaid (although some states have enacted state-level self-referral prohibitions) or commercial payers. Massachusetts does not have a state-level physician self-referral statute equivalent to the federal Stark Law. The Commonwealth has not enacted a law that specifically prohibits physician self-referrals for commercially insured patients or that creates a framework of exceptions analogous to the Stark Law exceptions.

However, the absence of a Massachusetts Stark-equivalent statute does not mean that physician self-referral arrangements are free from state-law scrutiny. To the contrary, conduct that involves physician self-referral arrangements may give rise to liability under the Massachusetts anti-kickback statute if the arrangement involves remuneration offered or paid to induce referrals. The key distinction is that the Massachusetts anti-kickback statute requires proof of intent (knowingly and willfully offering or receiving remuneration to induce referrals), whereas the Stark Law imposes strict liability for financial relationships that do not satisfy an exception, regardless of intent.

The interplay between the Stark Law and the Massachusetts anti-kickback statute creates a nuanced compliance landscape. An arrangement may satisfy a Stark Law exception — for example, the employment exception at 42 C.F.R. § 411.357(c), the personal services exception at 42 C.F.R. § 411.357(d), or the space rental exception at 42 C.F.R. § 411.357(a) — and thereby avoid Stark Law liability for Medicare referrals. However, if the same arrangement involves above-FMV compensation that constitutes remuneration for referrals of commercially insured patients, it may still violate the Massachusetts anti-kickback statute. Compliance with a Stark Law exception does not provide safe harbor protection under the Massachusetts AKS.

This distinction is particularly relevant to AHT's medical director arrangements, where the above-FMV compensation (effective rate above 90th percentile) raises concerns under both the federal AKS and the Massachusetts statute. Even if these arrangements are restructured to satisfy the Stark Law personal services exception and the federal AKS personal services safe harbor, they will remain subject to scrutiny under the Massachusetts statute for commercially insured referrals in the absence of an equivalent state-law safe harbor.

VI. APPLICATION TO AHT'S MASSACHUSETTS ARRANGEMENTS

This section applies the legal framework established in Sections IV and V to AHT's specific arrangement categories, analyzing each for compliance risk under the Massachusetts anti-kickback statute. For each arrangement, we assess the elements of the state-law prohibition, identify the specific compliance concerns, compare the state-law analysis to the federal AKS analysis, and assign a risk level. Detailed remediation recommendations are set forth in Section VIII.

A. Physician Compensation Arrangements (Employment and Independent Contractor)

1. W-2 Employed Physicians (Massachusetts-Based). The majority of AHT's one hundred forty-seven (147) W-2 employed physicians operate at the fourteen (14) Massachusetts clinic locations. These physicians practice across multiple specialties, including primary care, cardiology, orthopedics, and gastroenterology, and their services generate referrals to AHT's in-house ancillary services (laboratory, imaging, and physical therapy).

AHT's median primary care physician compensation is $278,000 per year, and its median specialist compensation is $412,000 per year. Based on the preliminary Northbridge Valuation Advisors analysis, these compensation levels are generally within FMV ranges as established by MGMA, SullivanCotter, and AMGA compensation survey data, although individual physician compensation levels vary based on experience, specialty, geographic market, and productivity components.

Under the federal AKS, bona fide employment relationships are protected by the employment safe harbor at 42 C.F.R. § 1001.952(i). This safe harbor protects any amount paid by an employer to an employee who has a bona fide employment relationship with the employer, for employment in the provision of covered items or services. The safe harbor does not impose FMV requirements on the compensation itself (unlike the Stark Law employment exception), although above-FMV compensation remains a potential indicator that remuneration is being paid to induce referrals, which could implicate the general anti-kickback prohibition even if the employment relationship is genuine.

Under the Massachusetts statute, the analysis requires an examination of the statutory employment exception. The Massachusetts statute contains a similar exception for amounts paid by an employer to an employee in a bona fide employment relationship. To the extent that AHT's physician employment arrangements constitute bona fide employment relationships — and all indications are that they do, as the physicians are W-2 employees with standard employment terms, benefits, and employer oversight — the employment exception should apply to protect the base compensation paid to these physicians.

However, several issues warrant closer scrutiny:

• Productivity Bonuses and wRVU-Based Compensation. Many of AHT's physician employment agreements include variable compensation components tied to work relative value units ("wRVUs") or other productivity metrics. While productivity-based compensation is common and generally accepted in the industry, the concern under the Massachusetts statute is whether variable compensation components effectively tie physician compensation to the volume of referrals for ancillary services covered by commercial insurance. If a physician's wRVU-based bonus increases when the physician orders more laboratory tests, imaging studies, or physical therapy sessions, and those orders generate revenue from commercially insured patients, the variable compensation could theoretically be characterized as remuneration linked to referrals under the state statute. In practice, the risk of this characterization is relatively low for bona fide employment arrangements where productivity compensation is based on the physician's own professional services rather than on the volume of ancillary referrals. We nonetheless recommend that AHT review its physician employment agreements to confirm that productivity bonuses are based on personally performed services and are not directly tied to ancillary referral volume.

• Lakeview Legacy Employment Agreements. The fourteen (14) physician employment agreements assumed in the Lakeview acquisition on August 15, 2022 require specific attention. These agreements were originally drafted for a stand-alone physician practice and may not have contemplated the referral relationships created by integration into AHT's broader network of clinics and ancillary services. Pre-acquisition, Lakeview physicians referred patients to unaffiliated laboratories, imaging centers, and other providers; post-acquisition, these same physicians may now be referring patients to AHT-owned or AHT-affiliated ancillary services, creating new financial relationships that implicate the anti-kickback statute. The Lakeview legacy employment agreements should be reviewed to confirm that compensation formulas comply with the Massachusetts statute in light of the changed referral landscape, and to ensure that the employment exception's requirements are satisfied. We note that several Lakeview legacy agreements were identified in the GW Report as having potential FMV substantiation issues, which compounds the state-law risk.

Risk Assessment for W-2 Employed Physicians: Lower risk, provided that compensation levels fall within FMV ranges, the bona fide employment relationship is maintained, and productivity bonuses are based on personally performed services rather than ancillary referral volume. The Lakeview legacy employment agreements present moderate risk due to FMV substantiation gaps and the changed referral landscape post-acquisition.

2. Medical Director and Independent Contractor Arrangements. AHT's thirty-eight (38) medical director and independent contractor arrangements present a significantly higher level of risk under the Massachusetts anti-kickback statute than the W-2 employment arrangements discussed above. This elevated risk results from the combination of three factors: (1) above-FMV compensation, (2) the absence of a Massachusetts safe harbor for personal services and management contracts, and (3) the physicians' position to refer commercially insured patients to AHT's ancillary services.

The key factual indicators supporting an elevated risk assessment are as follows:

• The thirty-eight arrangements carry aggregate annual compensation of approximately $1.92 million.

• The mean contracted hours for medical director services are 8.4 hours per month across the arrangements.

• The resulting effective average hourly rate is approximately $501.28 per hour.

• Based on industry survey data from MGMA, SullivanCotter, and the American Medical Group Association, this effective hourly rate exceeds the 90th percentile for medical director compensation in multiple specialties.

• Stipend ranges across the thirty-eight arrangements vary from $25,000 to $110,000 per year.

Under the federal AKS, the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d) may protect these arrangements if all elements are satisfied, including: (1) the arrangement is set out in writing and signed by the parties; (2) the arrangement covers all of the services to be provided; (3) the term is for at least one year; (4) the aggregate compensation is set in advance, is consistent with FMV, and is not determined in a manner that takes into account the volume or value of referrals; and (5) the services do not involve the counseling or promotion of a business arrangement that violates any state or federal law. The critical issue under the federal analysis is whether the above-90th-percentile compensation rates satisfy the FMV requirement. As discussed in the federal AKS compliance assessment memorandum, the Northbridge Valuation Advisors preliminary opinion indicates that effective hourly rates above the 90th percentile are unlikely to be sustained as FMV absent extraordinary justification (e.g., a physician with highly specialized expertise performing services for which a unique market premium exists).

Under the Massachusetts statute, the risk is further elevated because no equivalent personal services and management contracts safe harbor exists. Even if AHT restructures these arrangements to satisfy every element of the federal safe harbor — including bringing compensation within FMV ranges — the arrangements receive no formal safe harbor protection under Massachusetts law. Instead, each arrangement must be analyzed under the general prohibition of M.G.L. c. 175H, § 3 and defended on the grounds that the compensation is not remuneration offered or paid to induce referrals.

The above-FMV compensation is particularly problematic under the Massachusetts statute because of the broader payer scope. Under the federal AKS, the concern is that above-FMV medical director compensation induces referrals of Medicare and Medicaid patients. Under the Massachusetts statute, the concern extends to referrals of commercially insured patients. Given that commercial payer revenue constitutes thirty-nine percent (39%) of AHT's net revenue, the universe of referrals potentially implicated by the above-FMV compensation is substantially larger under state law.

The three Lakeview medical director agreements ($45,000, $60,000, and $72,000 in annual stipends) assumed in the August 15, 2022 acquisition present additional concerns. These arrangements were originally negotiated for a stand-alone practice where the medical directors' referral influence was limited. Post-acquisition, these medical directors are now part of AHT's broader network and may be in a position to refer commercially insured patients to a wider range of AHT ancillary services. The Lakeview medical director agreements should be analyzed under the Massachusetts statute in light of this changed referral landscape, and the compensation levels should be substantiated at FMV through updated Northbridge Valuat

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product. It is intended solely for the use of the addressees identified below. Do not distribute, copy, or disclose this memorandum or any portion thereof without the express written consent of Calderwood & Harkness LLP.
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 15, 2023
RE: Applicability of Massachusetts Anti-Kickback Law (M.G.L. c. 175H, § 3) to Arbor Health Technologies Inc. Massachusetts Clinic Arrangements
MATTER NO.: 1010-00003
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I. EXECUTIVE SUMMARY
You have asked us to analyze whether and how the Massachusetts state anti-kickback statute, Massachusetts General Laws Chapter 175H, Section 3 ("M.G.L. c. 175H, § 3" or the "Massachusetts AKS"), applies to the operations of Arbor Health Technologies Inc. ("AHT" or the "Company"), with particular focus on the fourteen (14) Arbor Health Clinics currently operating in the Commonwealth of Massachusetts. This memorandum is intended to serve as a comprehensive analysis of the state-law landscape and should be read in conjunction with our companion memoranda addressing federal Anti-Kickback Statute ("federal AKS") and Stark Law compliance, which together comprise the core deliverables of the comprehensive self-assessment engagement.
This analysis supplements the federal AKS compliance assessment memorandum prepared as part of the comprehensive self-assessment engagement opened on January 30, 2023. As the Company is aware, this engagement was prompted by the findings of the independent gap assessment report prepared by Grayson Whitaker & Associates LLP ("GW Report," reference GW-AHT-2022-Final, dated December 12, 2022), which identified seventeen (17) arrangements classified as high-risk and twenty-three (23) arrangements classified as moderate-risk across AHT's operations. The GW Report recommended, among other things, that AHT engage outside counsel to conduct a detailed legal compliance assessment of its arrangement portfolio under both federal and state anti-kickback and self-referral laws. This memorandum addresses the Massachusetts state-law dimension of that assessment.
Our principal finding is that M.G.L. c. 175H, § 3 is materially broader than the federal AKS in a critical respect: it applies to all health insurance payers, not solely to federal healthcare programs. This distinction has significant practical consequences for AHT. While the federal AKS reaches only those items and services for which payment may be made under Medicare, Medicaid, TRICARE, and other federal healthcare programs — representing approximately sixty-one percent (61%) of AHT's FY2022 net revenue, or $130.7 million of $214.3 million — the Massachusetts statute extends to arrangements involving commercially insured patients as well. AHT's commercial payer revenue constitutes approximately thirty-nine percent (39%) of net revenue, or $83.6 million in FY2022, all of which is potentially implicated by the state statute for arrangements involving Massachusetts-based services. Most notably, the Company's single largest commercial payer relationship, with Covenant Health Plans Inc., generated $38.6 million in FY2022 revenue (representing approximately eighteen percent (18%) of AHT's net revenue) and an additional $2.1 million in value-based payment incentive bonuses tied to quality metrics. This relationship falls squarely within the Massachusetts statute's scope.
The broader payer scope of the Massachusetts statute is compounded by a second structural difference: the Commonwealth has not enacted a regulatory safe harbor framework comparable in detail or breadth to the federal safe harbors codified at 42 C.F.R. § 1001.952. Consequently, several arrangements that present manageable risk under the federal AKS — either because they satisfy a federal safe harbor or because they touch only commercial payer referrals not reached by the federal statute — present heightened risk under the Massachusetts statute. This is particularly true for the following categories of arrangements, which are analyzed in detail in Section VI below:
• The Pinnacle Laboratory Services Inc. preferred laboratory agreement, including the no-cost electronic laboratory interface, CME sponsorship, and Dr. Karen Ellsworth's passive equity interest;
• Medical director and independent contractor compensation arrangements with effective hourly rates above the 90th percentile;
• The Meridian Diagnostics LLC per-scan facility access fee arrangement;
• The Covenant Health Plans value-based incentive payment arrangement; and
• ArborConnect SaaS platform licensing to external physician practices that refer patients to AHT.
In summary, several arrangements that present manageable risk under the federal AKS (which applies only to the 61% / $130.7 million Medicare and Medicaid revenue stream) present heightened risk under the Massachusetts statute because they touch commercial payer referrals as well. Our detailed recommendations for remediation are set forth in Section VIII of this memorandum.
II. SCOPE AND LIMITATIONS
This memorandum is limited in scope to AHT's fourteen (14) Massachusetts clinic locations, including the two Lakeview Medical Associates, P.C. ("Lakeview") legacy clinic locations at 75 Belmont Street, Worcester, MA 01605, and 310 Main Street, Suite 2A, Shrewsbury, MA 01545, which were acquired by AHT on August 15, 2022 through an $11.4 million asset purchase transaction. Our analysis covers physician compensation arrangements (including employment agreements, independent contractor agreements, and medical director agreements), vendor relationships, referral arrangements, and management services arrangements, in each case to the extent they involve services furnished at or through AHT's Massachusetts-based clinic locations.
This memorandum does not address AHT's operations in Connecticut (four (4) clinics), Rhode Island (three (3) clinics), or New Hampshire (two (2) clinics). The Connecticut state-law analysis is addressed in a separate memorandum being prepared concurrently by our team. Rhode Island and New Hampshire state anti-kickback laws, to the extent applicable, will be addressed in a subsequent phase of the engagement.
Our analysis is based on the documents produced by AHT pursuant to the Document Request List dated February 3, 2023, including physician employment agreements, independent contractor and medical director agreements, vendor contracts, office lease agreements, management services agreements, fair market value appraisals, payer contracts, and compliance program documents. We have also relied on information gathered during interviews and working sessions with Derek Huang, Chief Compliance Officer, and Patricia Yamamoto, General Counsel, conducted on February 22, March 8, March 21, and April 5, 2023, as well as supplemental document productions received through April 28, 2023.
This memorandum cross-references and should be read together with the following companion deliverables prepared as part of the comprehensive self-assessment engagement:
• The Master Arrangement Inventory & Risk Scoring Matrix (the "Risk Matrix"), which catalogs all identified AHT arrangements by category, risk score, and applicable legal framework;
• The Federal AKS Compliance Assessment Memorandum (Matter No. 1010-00003-AKS), which analyzes AHT's arrangements under 42 U.S.C. § 1320a-7b(b) and the regulatory safe harbors at 42 C.F.R. § 1001.952;
• The Stark Law Compliance Assessment Memorandum (Matter No. 1010-00003-STARK), which analyzes AHT's physician self-referral arrangements under 42 U.S.C. § 1395nn; and
• The Northbridge Valuation Advisors fair market value opinions and supporting analyses commissioned for physician compensation, medical director compensation, office lease terms, and other arrangement components.
This memorandum does not constitute a definitive legal opinion on whether any particular arrangement violates M.G.L. c. 175H, § 3. The application of the Massachusetts anti-kickback statute to specific factual circumstances involves a fact-intensive inquiry, and the relative paucity of Massachusetts case law and enforcement precedent interpreting the statute creates uncertainty that cannot be fully resolved through legal analysis alone. This memorandum identifies risk areas, assesses the relative level of exposure associated with each arrangement category, and recommends remediation measures designed to reduce AHT's compliance risk under the Massachusetts statute. We are prepared to assist the Company in implementing these recommendations during the remediation phase.
III. BACKGROUND ON AHT'S MASSACHUSETTS OPERATIONS
A. Corporate Profile and Massachusetts Presence
Arbor Health Technologies Inc. is a Delaware corporation headquartered at 200 Concord Avenue, Suite 400, Cambridge, MA 02138. The Company was founded in 2016 and has grown through a combination of organic expansion and strategic acquisitions to become a multi-state healthcare services and technology company. AHT is majority-owned by Ridgeline Capital Partners Fund IV, LP ("Ridgeline"), a healthcare-focused private equity fund, with remaining equity held by management and other investors. The Company's operations are organized around two principal business lines: (1) the Arbor Health Clinics division, which provides direct patient care services through owned and operated outpatient clinics, and (2) the ArborConnect technology division, which develops and licenses a proprietary electronic health record ("EHR") and practice management software-as-a-service ("SaaS") platform.
As of the date of this memorandum, AHT operates twenty-three (23) Arbor Health Clinic locations across four states: Massachusetts (14), Connecticut (4), Rhode Island (3), and New Hampshire (2). Massachusetts is the Company's primary operating jurisdiction by a significant margin, accounting for the majority of clinic locations, physician headcount, patient encounters, and revenue. The Company's Cambridge headquarters houses its executive leadership team, corporate compliance function, finance and billing operations, and ArborConnect technology development and support staff.
The fourteen (14) Massachusetts clinic locations provide a broad range of outpatient services, including primary care, specialty care in cardiology, orthopedics, and gastroenterology, and ancillary services encompassing in-office laboratory testing, diagnostic imaging (including X-ray and ultrasound), and physical therapy. The breadth of AHT's service offerings is relevant to the anti-kickback analysis because it creates the potential for referral relationships among affiliated service lines — a physician employed by AHT who refers a patient to AHT's in-office laboratory or diagnostic imaging services generates revenue for the Company in addition to the professional fee for the office visit.
The ArborConnect EHR and practice management SaaS platform is developed and operated from AHT's Cambridge headquarters. The platform is used internally by all Arbor Health Clinic locations and is also licensed to forty-two (42) external physician practices, generating $8.9 million in annual subscription revenue. As discussed in greater detail in Section VI.F below, the licensing of the ArborConnect platform to external practices that may refer patients to AHT's Massachusetts clinics or ancillary services raises potential issues under the Massachusetts anti-kickback statute.
For reference, AHT's Employer Identification Number is 84-3291057, its organizational National Provider Identifier is 1497253810, and its lead Provider Transaction Access Number is 27MA4891.
B. Physician Workforce in Massachusetts
AHT's physician workforce consists of one hundred forty-seven (147) W-2 employed physicians and thirty-eight (38) independent contractor and medical director arrangements across all operating jurisdictions. The majority of these physicians are based in Massachusetts, consistent with the concentration of clinic operations in the Commonwealth. The physician workforce includes primary care physicians, internists, family medicine practitioners, and specialists in cardiology, orthopedics, and gastroenterology, among other disciplines.
The Company's physician workforce was substantially augmented by the Lakeview Medical Associates, P.C. acquisition, which closed on August 15, 2022 for a purchase price of $11.4 million in an asset purchase transaction. The Lakeview acquisition added fourteen (14) physicians to AHT's workforce: twelve (12) transitioned to W-2 employed status and two (2) continued as independent contractors. The acquisition also included the assumption of three (3) existing medical director agreements, with annual stipends of $45,000, $60,000, and $72,000, respectively. All fourteen physicians and three medical director arrangements are based in Massachusetts, with the Lakeview legacy physicians primarily practicing at the Worcester and Shrewsbury clinic locations.
Dr. Vivian Chao, who served as the managing partner of Lakeview Medical Associates, P.C. prior to the acquisition, transitioned to the role of AHT Regional Medical Director for Central Massachusetts upon closing. Dr. Chao's compensation, duties, and reporting structure were renegotiated in connection with the acquisition and are governed by a Regional Medical Director Agreement dated August 15, 2022. As the most senior physician in the Central Massachusetts region, Dr. Chao oversees clinical operations at the Worcester and Shrewsbury clinic locations and serves as a primary point of contact for referring physicians in the region. Her role is relevant to the anti-kickback analysis because she is positioned to influence referral patterns among the Lakeview legacy physician network and between AHT's Central Massachusetts clinics and external providers.
The medical director compensation arrangements across all thirty-eight (38) arrangements present a notable area of concern under both federal and Massachusetts anti-kickback law. In the aggregate, medical director compensation totals approximately $1.92 million per year. The mean contracted hours for medical director services are 8.4 hours per month, yielding an effective average hourly rate of approximately $501.28 per hour. This effective rate exceeds the 90th percentile benchmark for medical director compensation in multiple specialties based on MGMA, SullivanCotter, and other industry survey data. As detailed in the federal AKS compliance assessment memorandum, above-fair-market-value ("FMV") compensation paid to physicians who are in a position to refer patients to an entity constitutes a significant area of enforcement focus under both federal and state anti-kickback laws.
C. Revenue Profile and Payer Mix for Massachusetts Operations
AHT's revenue profile and payer mix are central to the analysis in this memorandum because the distinction between the federal AKS and the Massachusetts statute turns on the scope of covered payer sources.
For fiscal year 2022, AHT reported total net revenue of $214.3 million across all operating jurisdictions and business lines. The Company's payer mix for clinical services revenue is as follows:
• Medicare and Medicaid (Government Payers): Approximately sixty-one percent (61%) of net revenue, or $130.7 million. This revenue stream is subject to the federal AKS, 42 U.S.C. § 1320a-7b(b), as well as the Physician Self-Referral Law (Stark Law), 42 U.S.C. § 1395nn (Medicare only). It is also subject to the Massachusetts anti-kickback statute, M.G.L. c. 175H, § 3.
• Commercial Payers: Approximately thirty-nine percent (39%) of net revenue, or $83.6 million. This revenue stream is not subject to the federal AKS (because the federal statute is limited to federal healthcare programs) but is subject to the Massachusetts anti-kickback statute for services furnished at Massachusetts-based clinic locations. The commercial payer revenue stream is also not subject to the Stark Law (which applies only to Medicare).
The significance of this payer mix cannot be overstated for purposes of the Massachusetts state-law analysis. While the federal AKS covers only the government payer revenue ($130.7 million), the Massachusetts statute covers the entirety of AHT's insured revenue for Massachusetts-based services — both the government payer portion and the commercial payer portion. This means that for any arrangement involving AHT's Massachusetts clinics, the revenue at risk under state law includes the additional $83.6 million commercial payer stream that falls outside the federal statute's reach.
AHT's largest commercial payer is Covenant Health Plans Inc. ("Covenant"), headquartered at 500 Boylston Street, 12th Floor, Boston, MA 02116. The Covenant relationship generated $38.6 million in net revenue in FY2022, representing approximately eighteen percent (18%) of AHT's total net revenue. AHT participates in several Covenant health plan products, including HMO, PPO, and point-of-service plans, and is designated as a preferred provider for certain Covenant network products in the Greater Boston and Central Massachusetts markets.
In addition to base fee-for-service and capitation revenue, the Covenant relationship includes value-based payment incentive bonuses totaling $2.1 million in FY2022. These bonuses are tied to quality metrics established under the Covenant Value-Based Payment Incentive Program, including HEDIS measures, patient satisfaction scores, and cost-efficiency benchmarks. The value-based incentive payments are relevant to the Massachusetts anti-kickback analysis for reasons discussed in Section VI.E below: while the federal AKS now includes specific safe harbors for value-based arrangements (added by the 2021 Safe Harbor Modernization Final Rule), the Massachusetts statute does not contain equivalent safe harbors.
D. Key Arrangements Implicating Massachusetts Operations
Based on our review of the documents produced by AHT and the information gathered during the engagement, we have identified the following categories of arrangements that implicate the Massachusetts anti-kickback statute for the Company's Massachusetts clinic operations. Each of these arrangements is analyzed in detail in Section VI below; this subsection provides a summary overview.
Pinnacle Laboratory Services Inc. Preferred Laboratory Agreement. AHT entered into a preferred laboratory agreement with Pinnacle Laboratory Services Inc. ("Pinnacle") on June 15, 2020, pursuant to which AHT's Rhode Island and southeastern Massachusetts clinics refer outpatient laboratory work to Pinnacle. The Pinnacle arrangement generated $1.65 million in referral volume in FY2022. Three specific components of the Pinnacle arrangement raise concerns under the Massachusetts statute: (1) a no-cost electronic laboratory interface integrated into the ArborConnect platform, with an estimated market value of $120,000 per year, provided by Pinnacle to AHT at no charge; (2) CME sponsorship by Pinnacle of four educational events for AHT physicians in FY2022, totaling $86,000; and (3) a 4.2% passive equity interest in Pinnacle held by Dr. Karen Ellsworth, who is the spouse of AHT's Chief Executive Officer, Marcus Ellsworth. Dr. Ellsworth's equity interest creates additional complexity under both the Stark Law and the Massachusetts anti-kickback statute.
Meridian Diagnostics LLC Facility Access Fee Arrangement. AHT entered into a services agreement with Meridian Diagnostics LLC ("Meridian") on March 1, 2021, pursuant to which Meridian provides mobile MRI and advanced diagnostic imaging services at four AHT clinic locations (including Massachusetts locations). Under the arrangement, Meridian pays AHT a per-scan facility access fee of $185 per scan, totaling $777,000 for 4,200 scans in FY2022. In the same period, AHT physicians referred $2.8 million in imaging services to Meridian. The per-scan fee structure and the reciprocal referral relationship raise significant concerns under both federal and state anti-kickback laws. Meridian is owned by Dr. Franklin Osei (60%) and Gerald Pratt (40%, non-physician).
Medical Director and Independent Contractor Arrangements. As noted above, AHT maintains thirty-eight (38) medical director and independent contractor arrangements with aggregate annual compensation of $1.92 million and an effective average hourly rate of $501.28 per hour. These arrangements are of concern under the Massachusetts statute because the above-FMV compensation is paid to physicians who are in a position to refer commercially insured patients to AHT's ancillary services, and the Massachusetts statute does not contain a personal services and management contracts safe harbor equivalent to the federal safe harbor at 42 C.F.R. § 1001.952(d).
Lakeview Legacy Employment Agreements and Office Leases. The fourteen physician employment agreements and three medical director agreements assumed in the Lakeview acquisition, as well as the office leases at the Worcester and Shrewsbury locations, require analysis under the Massachusetts statute. These arrangements were originally structured for a stand-alone practice and may not have contemplated the referral dynamics created by AHT's broader network of clinics and ancillary services.
Covenant Health Plans Value-Based Arrangements. The $2.1 million in value-based incentive bonuses received from Covenant Health Plans in FY2022 are subject to analysis under the Massachusetts statute. As discussed below, the absence of a state-law value-based arrangement safe harbor creates uncertainty, although the risk profile of the Covenant arrangement is relatively lower than other identified arrangements.
ArborConnect SaaS Platform Licensing. The licensing of the ArborConnect platform to forty-two (42) external physician practices requires analysis to the extent any of these practices refer patients to AHT's Massachusetts clinics or ancillary services.
IV. STATUTORY FRAMEWORK: M.G.L. c. 175H, § 3
A. Text and Scope of the Statute
Massachusetts General Laws Chapter 175H, Section 3, is the Commonwealth's principal anti-kickback statute governing healthcare referral arrangements. The statute was enacted as part of the broader framework of Chapter 175H, which addresses various aspects of healthcare cost containment, insurance regulation, and provider practices. The full text of the statute is reproduced in Appendix A to this memorandum for reference.
In relevant part, Section 3 prohibits any person from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, including any kickback, bribe, or rebate, directly or indirectly, overtly or covertly, in cash or in kind, in return for referring an individual to a person 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 any health insurance policy or contract. The statute further prohibits the payment or receipt of remuneration in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under any health insurance policy or contract.
The critical language for purposes of this memorandum is the phrase "any health insurance policy or contract." This language is substantially broader than the corresponding language in the federal AKS, which is limited to items or services for which payment may be made under a "Federal health care program" as defined in 42 U.S.C. § 1320a-7b(f). A "Federal health care program" includes Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, and certain other government-funded healthcare programs. By contrast, the Massachusetts statute's reference to "any health insurance policy or contract" encompasses the full universe of private and public health insurance, including commercial health plans, employer-sponsored group health plans, individual market plans, managed care organization products, and government programs. This means that the Massachusetts statute applies to referral arrangements involving commercially insured patients — a category of patients that is entirely outside the scope of the federal AKS.
The breadth of the Massachusetts statute's payer coverage is its single most important distinguishing feature for AHT's compliance purposes. While the federal AKS leaves approximately thirty-nine percent (39%) of AHT's net revenue ($83.6 million in commercial payer revenue) outside its reach, the Massachusetts statute brings this entire revenue stream within its prohibitive scope for arrangements involving Massachusetts-based services.
B. Prohibited Conduct
The Massachusetts statute prohibits four categories of conduct: offering, paying, soliciting, and receiving remuneration. These four prongs mirror the structure of the federal AKS and capture both sides of a kickback transaction — the person who offers or pays the remuneration and the person who solicits or receives it. Both the payer and the payee of kickback remuneration are subject to liability under the statute.
The term "remuneration" is construed broadly under the Massachusetts statute and includes anything of value. This encompasses direct cash payments, in-kind benefits, free or below-market-value services, above-market-value compensation, and any other transfer of value that may serve as an inducement for referrals. The statute does not require that remuneration take a specific form; it reaches both overt and covert transfers of value, including arrangements structured in ways that obscure the connection between the remuneration and the referral relationship.
The statute's prohibition on "indirect" remuneration is particularly relevant to complex healthcare arrangements where the flow of value between parties may be structured through intermediaries, subsidiary entities, or multi-layered contractual relationships. For example, a management services arrangement under which an entity provides below-market-value management services to a physician practice, with the expectation that the practice will refer patients to the entity's ancillary services, may constitute indirect remuneration even though the management services fee is facially unrelated to referral volume.
The statute applies to referrals for the "furnishing or arranging for the furnishing" of items or services. This language is broad enough to encompass not only direct referrals (e.g., a physician sending a patient to a laboratory for testing) but also indirect referral arrangements (e.g., a management company arranging for its managed practices to use a particular diagnostic imaging provider). The scope of covered referral activity is a significant consideration for AHT's more complex arrangement structures, including the ConnectiCare Physicians Network management services arrangements and the ArborConnect SaaS platform licensing relationships.
C. Penalties. Violations of M.G.L. c. 175H, § 3 carry both criminal and civil consequences. On the criminal side, the statute provides for fines, imprisonment, or both upon conviction. The criminal penalties applicable to violations are generally consistent with the penalty framework for comparable offenses under Massachusetts law, and a conviction may result in a sentence of imprisonment in a state correctional facility or house of correction, together with monetary fines determined by the court.
Beyond the criminal penalties specified in the statute itself, a violation of the Massachusetts anti-kickback statute may trigger a range of additional administrative and regulatory consequences:
• Loss of Professional Licensure. The Massachusetts Board of Registration in Medicine may impose professional discipline on physicians found to have engaged in kickback arrangements, up to and including revocation of the physician's medical license. The Board treats violations of healthcare fraud and abuse statutes as grounds for disciplinary action under its professional conduct standards.
• Exclusion from Payer Networks. A finding of anti-kickback violations could jeopardize AHT's participation in commercial payer networks, including its critical Covenant Health Plans relationship. Most commercial payer contracts contain provisions requiring compliance with applicable federal and state healthcare fraud and abuse laws, and a violation may constitute a basis for termination of the payer contract or exclusion from the payer's provider network.
• Civil Liability. In addition to criminal prosecution, violations of the Massachusetts anti-kickback statute may give rise to civil liability, including potential claims by the Commonwealth for recovery of improperly induced healthcare expenditures. The Massachusetts Attorney General's Office may pursue civil enforcement actions seeking injunctive relief, disgorgement, civil penalties, and other remedies.
• Qui Tam and Whistleblower Exposure. Although the Massachusetts anti-kickback statute does not itself create a private right of action, conduct that violates the statute may also give rise to claims under the Massachusetts False Claims Act, M.G.L. c. 12, § 5B, which does permit qui tam actions by private relators. An arrangement that violates the anti-kickback statute and results in claims submitted to a health insurer under false pretenses could be characterized as a false claim, exposing AHT to treble damages and per-claim penalties.
The Massachusetts Attorney General's Office is the principal enforcement authority for the Massachusetts anti-kickback statute. The Attorney General's Healthcare Division has historically focused its enforcement resources on cases involving egregious kickback arrangements, large-scale fraud schemes, and matters involving patient harm or significant financial impact. However, the enforcement climate in Massachusetts has become increasingly active in recent years, with the Attorney General's Office pursuing a broader range of healthcare fraud and abuse cases, including arrangements involving physician compensation, laboratory relationships, and ancillary service referrals. AHT should monitor enforcement developments closely as part of its ongoing compliance program.
D. Exceptions and Safe Harbors under Massachusetts Law
The Massachusetts anti-kickback statute contains its own set of exceptions to the general prohibition on referral-related remuneration. However, these exceptions are substantially narrower and less developed than the federal AKS safe harbors codified at 42 C.F.R. § 1001.952. The limited scope of the Massachusetts exceptions is one of the most significant compliance challenges for AHT's Massachusetts operations.
The statutory exceptions recognized under Massachusetts law include the following:
• Bona Fide Employment Relationships. The statute contains an exception for remuneration paid by an employer to an employee who has a bona fide employment relationship with the employer for employment in the provision of covered items or services. This exception is analogous to the federal employment safe harbor at 42 C.F.R. § 1001.952(i), but its precise scope and requirements under Massachusetts law are less well-defined due to limited regulatory guidance and case law.
• discount Arrangements. The statute provides an exception for discounts or other reductions in price obtained by a provider of services or other entity under a health benefit plan if the discount or reduction in price is properly disclosed and appropriately reflected in the cost claimed or charge made by the provider or entity. This exception is conceptually similar to the federal discount safe harbor at 42 C.F.R. § 1001.952(h) but lacks the detailed regulatory requirements specified in the federal framework.
• Group Purchasing Arrangements. The statute contains an exception for certain amounts paid by a vendor of goods or services to a group purchasing organization as part of a group purchasing arrangement, subject to conditions regarding disclosure and the relationship between the payments and the purchasing activity.
What is notably absent from the Massachusetts framework is a comprehensive set of regulatory safe harbors analogous to those promulgated by the Office of Inspector General under the federal AKS. The federal safe harbor regulations at 42 C.F.R. § 1001.952 provide detailed requirements for a wide range of specific arrangement types, including:
• Personal services and management contracts (42 C.F.R. § 1001.952(d))
• Space rental (42 C.F.R. § 1001.952(b))
• Equipment rental (42 C.F.R. § 1001.952(c))
• Referral services (42 C.F.R. § 1001.952(f))
• Electronic health records items and services (42 C.F.R. § 1001.952(y))
• Value-based arrangements (42 C.F.R. § 1001.952(ee)–(hh))
• Investment interests in large and small entities (42 C.F.R. § 1001.952(a))
Massachusetts does not have equivalent regulatory safe harbors for any of these categories. The absence of specific safe harbors for personal services and management contracts, space rental, equipment rental, and value-based arrangements is particularly significant for AHT because these are the arrangement categories that drive the most significant compliance risk in the Company's Massachusetts operations.
A critical question is whether compliance with federal AKS safe harbors provides any defense or protection under Massachusetts law. The short answer is that there is no express statutory cross-reference or incorporation of federal safe harbors in the Massachusetts statute. M.G.L. c. 175H, § 3 does not state that arrangements qualifying for federal safe harbor protection are exempt from the state prohibition. Consequently, compliance with a federal safe harbor is relevant but not dispositive of compliance with the Massachusetts statute. In practice, an arrangement that satisfies all requirements of a federal safe harbor is likely to present a lower risk of prosecution under the Massachusetts statute, because the federal safe harbor requirements embody recognized indicia of legitimate business arrangements (e.g., FMV compensation, written agreements, specifications of services). However, this practical protection falls short of the legal certainty provided by formal safe harbor compliance, and it does not eliminate the theoretical possibility that the Massachusetts Attorney General could take a different view of the arrangement under state law.
V. COMPARATIVE ANALYSIS: MASSACHUSETTS LAW vs. FEDERAL ANTI-KICKBACK STATUTE
The differences between the Massachusetts anti-kickback statute and the federal AKS have direct and material implications for AHT's compliance exposure. This section provides a systematic comparison of the two statutes across five key dimensions: scope of coverage, intent standard, safe harbor availability, enforcement posture, and interaction with the Stark Law.
A. Scope of Coverage — Payer Universe
The most significant difference between the federal AKS and the Massachusetts statute is the scope of covered payer sources.
The federal AKS, codified at 42 U.S.C. § 1320a-7b(b), applies only to items or services "for which payment may be made in whole or in part under a Federal health care program." A "Federal health care program" is defined in 42 U.S.C. § 1320a-7b(f) to include Medicare (Title XVIII of the Social Security Act), Medicaid (Title XIX), TRICARE, the Children's Health Insurance Program (CHIP), and certain other government-funded healthcare programs. For AHT, this means the federal AKS covers the Company's government payer revenue stream, which represents approximately sixty-one percent (61%) of net revenue, or $130.7 million in FY2022.
The Massachusetts statute, M.G.L. c. 175H, § 3, applies to items or services "for which payment may be made in whole or in part under any health insurance policy or contract." This language encompasses all forms of health insurance — private commercial plans, employer-sponsored group plans, individual market plans, managed care products, and government programs — without limitation to federal healthcare programs. For AHT, this means the Massachusetts statute covers the entirety of the Company's insured revenue for Massachusetts-based services, including both the $130.7 million government payer stream and the $83.6 million commercial payer stream.
The practical impact of this difference is substantial. Consider, for example, a hypothetical arrangement in which AHT provides a below-market-value service to a referring physician in exchange for referrals of commercially insured patients only. Under the federal AKS, this arrangement would not be actionable (assuming no federal program beneficiaries are involved), because the federal statute does not reach commercially insured referrals. Under the Massachusetts statute, however, the identical arrangement would be squarely within the prohibition, because the referrals involve patients covered by "health insurance policies or contracts."
This distinction has specific implications for AHT's most important commercial payer relationship. The Covenant Health Plans relationship, generating $38.6 million in net revenue and $2.1 million in value-based incentive bonuses in FY2022, involves exclusively commercially insured patients. Under the federal AKS, arrangements touching only Covenant-insured referrals would generally fall outside the statute's scope. Under the Massachusetts statute, these same arrangements are subject to the full force of the state prohibition. The $2.1 million in value-based incentive payments, in particular, constitute remuneration flowing from a payer to a provider, and while such payments are typically lower risk than provider-to-provider remuneration, their treatment under the Massachusetts statute warrants careful analysis (see Section VI.E below).
B. Intent Standard
The federal AKS requires proof that the defendant acted "knowingly and willfully." Courts interpreting the federal statute have adopted the "one purpose" test, under which a violation may be established if even one purpose of the remuneration was to induce or reward referrals, regardless of whether the remuneration also served legitimate purposes. See, e.g., United States v. Greber, 760 F.2d 68 (3d Cir. 1985); United States v. Kats, 871 F.2d 105 (9th Cir. 1989). This test substantially lowers the government's burden of proof in federal prosecutions, because it is sufficient to show that referral inducement was a purpose, not the purpose, of the arrangement.
The Massachusetts statute similarly requires that the prohibited conduct be committed "knowingly and willfully." The state statute's intent language parallels the federal statute, and we are not aware of any Massachusetts appellate decision that has adopted a materially different interpretation of the intent standard. In the absence of controlling Massachusetts precedent, it is reasonable to expect that a Massachusetts court would look to federal case law for guidance and adopt an analogous "one purpose" test. However, we note the caveat that no Massachusetts appellate court has expressly adopted or rejected this standard, and the possibility of a different interpretation cannot be ruled out.
The practical implication for AHT is that the same intent analysis applies under both statutes: if an arrangement involves remuneration where referral inducement was at least one purpose, the arrangement is potentially actionable under both the federal and state statutes. The broader payer scope of the Massachusetts statute, however, means that the universe of referral relationships subject to the intent inquiry is larger under state law, because it includes commercially insured referrals that the federal statute does not reach.
We are not aware of any published Massachusetts Attorney General's Office guidance or opinion letters specifically addressing the intent standard under M.G.L. c. 175H, § 3. The Attorney General's Office has not issued advisory opinions analogous to the OIG's advisory opinion practice under the federal AKS, which further limits the available interpretive guidance.
C. Safe Harbor Availability
The disparity in safe harbor availability between the federal and Massachusetts frameworks is the second most significant compliance challenge (after the broader payer scope) facing AHT under the state statute.
Under the federal AKS, the Office of Inspector General has promulgated a comprehensive set of regulatory safe harbors at 42 C.F.R. § 1001.952, which define specific arrangement structures that will not be treated as violations of the federal anti-kickback statute if all elements of the safe harbor are satisfied. These safe harbors were originally promulgated in 1991 and have been expanded and updated periodically, most recently through the 2021 Safe Harbor Modernization Final Rule (85 Fed. Reg. 77684, effective January 19, 2021), which added safe harbors for certain value-based arrangements, patient engagement and support, CMS-sponsored model arrangements, and cybersecurity technology donations. The federal safe harbor framework currently includes more than thirty (30) distinct safe harbor categories, providing substantial regulatory certainty for arrangements that satisfy their requirements.
Under Massachusetts law, the statutory exception framework is limited to the narrow categories identified in Section IV.D above (bona fide employment, discounts, group purchasing). Massachusetts has not promulgated a regulatory safe harbor framework comparable in scope or detail to the federal regulations. There are no Massachusetts safe harbors for:
This comparison is set forth in greater detail in Appendix B to this memorandum.
The risk implication is straightforward: arrangements that satisfy a federal safe harbor may still violate the Massachusetts statute because no equivalent state safe harbor exists. A medical director arrangement that meets every requirement of the federal personal services and management contracts safe harbor (42 C.F.R. § 1001.952(d)) — including a written agreement, specification of services, FMV compensation, and fixed aggregate compensation set in advance — is fully protected under the federal AKS but receives no formal safe harbor protection under the Massachusetts statute. The arrangement must instead be analyzed under the general prohibition of M.G.L. c. 175H, § 3 and defended on the grounds that the remuneration was not offered or paid to induce referrals. While compliance with the federal safe harbor requirements is a strong mitigating factor in any such defense, it does not constitute a complete legal shield under Massachusetts law.
This regulatory gap creates a layer of irreducible risk for AHT's Massachusetts operations that does not exist under the federal framework. The practical consequence is that AHT's compliance strategy must go beyond federal safe harbor compliance and independently assess each arrangement for Massachusetts state-law risk, with particular attention to arrangements involving commercially insured referrals.
D. Enforcement History and Posture
Federal AKS enforcement is led by the Department of Justice ("DOJ") and the Office of Inspector General of the Department of Health and Human Services ("OIG"), with support from the FBI, the HHS Office of Investigations, and Medicaid Fraud Control Units in each state. The federal enforcement framework benefits from a substantial body of advisory opinions issued by the OIG, Special Fraud Alerts, compliance program guidance documents, and published enforcement actions and settlement agreements. This body of guidance provides healthcare providers with a relatively well-developed understanding of the government's enforcement priorities and the analytical framework used to evaluate specific arrangement types. The federal government's enforcement priorities have historically focused on pharmaceutical and device manufacturer kickback arrangements, laboratory and diagnostic imaging relationships, physician compensation above FMV, and arrangements involving per-unit or per-click fees that track referral volume.
Massachusetts enforcement of the anti-kickback statute is the responsibility of the Massachusetts Attorney General's Office, principally through its Healthcare Division and its Criminal Bureau. The Attorney General's enforcement posture with respect to healthcare kickback arrangements has historically been less aggressive and less publicly visible than federal enforcement activity, although the office has pursued notable cases involving healthcare fraud, patient brokering, and pharmacy benefit arrangements. The Attorney General's Office has not published a body of advisory opinions, compliance guidance documents, or Special Fraud Alerts specific to the anti-kickback statute comparable to the OIG's extensive library.
We have reviewed publicly available enforcement actions, press releases, and policy statements issued by the Massachusetts Attorney General's Office and have not identified any published enforcement action directly and specifically targeting physician compensation arrangements, laboratory referral relationships, or diagnostic imaging facility access fee arrangements of the type at issue in AHT's arrangement portfolio. This should not be interpreted as a basis for complacency, however, for several reasons:
First, the absence of published enforcement precedent may reflect resource constraints and enforcement prioritization rather than a deliberate decision not to enforce the statute against these types of arrangements. Second, the Attorney General's enforcement posture may change at any time, particularly in response to political developments, high-profile healthcare fraud cases, or referrals from other regulatory agencies. Third, AHT's profile as a private-equity-backed multistate healthcare company with above-FMV physician compensation arrangements and complex referral relationships may attract enforcement attention in a political and regulatory environment that is increasingly focused on private equity involvement in healthcare. Fourth, the Massachusetts Attorney General's Office may pursue state-law charges in parallel with or as a supplement to federal enforcement actions brought by DOJ or OIG, creating the risk of dual federal-state prosecution.
We recommend that AHT monitor Massachusetts Attorney General enforcement actions and guidance on an ongoing basis as part of its compliance program, and that the compliance committee receive periodic briefings on developments in state-level healthcare enforcement.
E. Interaction with Stark Law
The federal Physician Self-Referral Law, commonly known as the Stark Law and codified at 42 U.S.C. § 1395nn, prohibits physicians from referring Medicare patients for designated health services to entities with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. The Stark Law is a strict liability statute — unlike the AKS, it does not require proof of intent — and its exceptions are detailed and technical.
Importantly, the Stark Law is limited to Medicare. There is no federal Stark-equivalent statute covering Medicaid (although some states have enacted state-level self-referral prohibitions) or commercial payers. Massachusetts does not have a state-level physician self-referral statute equivalent to the federal Stark Law. The Commonwealth has not enacted a law that specifically prohibits physician self-referrals for commercially insured patients or that creates a framework of exceptions analogous to the Stark Law exceptions.
However, the absence of a Massachusetts Stark-equivalent statute does not mean that physician self-referral arrangements are free from state-law scrutiny. To the contrary, conduct that involves physician self-referral arrangements may give rise to liability under the Massachusetts anti-kickback statute if the arrangement involves remuneration offered or paid to induce referrals. The key distinction is that the Massachusetts anti-kickback statute requires proof of intent (knowingly and willfully offering or receiving remuneration to induce referrals), whereas the Stark Law imposes strict liability for financial relationships that do not satisfy an exception, regardless of intent.
The interplay between the Stark Law and the Massachusetts anti-kickback statute creates a nuanced compliance landscape. An arrangement may satisfy a Stark Law exception — for example, the employment exception at 42 C.F.R. § 411.357(c), the personal services exception at 42 C.F.R. § 411.357(d), or the space rental exception at 42 C.F.R. § 411.357(a) — and thereby avoid Stark Law liability for Medicare referrals. However, if the same arrangement involves above-FMV compensation that constitutes remuneration for referrals of commercially insured patients, it may still violate the Massachusetts anti-kickback statute. Compliance with a Stark Law exception does not provide safe harbor protection under the Massachusetts AKS.
This distinction is particularly relevant to AHT's medical director arrangements, where the above-FMV compensation (effective rate above 90th percentile) raises concerns under both the federal AKS and the Massachusetts statute. Even if these arrangements are restructured to satisfy the Stark Law personal services exception and the federal AKS personal services safe harbor, they will remain subject to scrutiny under the Massachusetts statute for commercially insured referrals in the absence of an equivalent state-law safe harbor.
VI. APPLICATION TO AHT'S MASSACHUSETTS ARRANGEMENTS
This section applies the legal framework established in Sections IV and V to AHT's specific arrangement categories, analyzing each for compliance risk under the Massachusetts anti-kickback statute. For each arrangement, we assess the elements of the state-law prohibition, identify the specific compliance concerns, compare the state-law analysis to the federal AKS analysis, and assign a risk level. Detailed remediation recommendations are set forth in Section VIII.
A. Physician Compensation Arrangements (Employment and Independent Contractor)
1. W-2 Employed Physicians (Massachusetts-Based). The majority of AHT's one hundred forty-seven (147) W-2 employed physicians operate at the fourteen (14) Massachusetts clinic locations. These physicians practice across multiple specialties, including primary care, cardiology, orthopedics, and gastroenterology, and their services generate referrals to AHT's in-house ancillary services (laboratory, imaging, and physical therapy).
AHT's median primary care physician compensation is $278,000 per year, and its median specialist compensation is $412,000 per year. Based on the preliminary Northbridge Valuation Advisors analysis, these compensation levels are generally within FMV ranges as established by MGMA, SullivanCotter, and AMGA compensation survey data, although individual physician compensation levels vary based on experience, specialty, geographic market, and productivity components.
Under the federal AKS, bona fide employment relationships are protected by the employment safe harbor at 42 C.F.R. § 1001.952(i). This safe harbor protects any amount paid by an employer to an employee who has a bona fide employment relationship with the employer, for employment in the provision of covered items or services. The safe harbor does not impose FMV requirements on the compensation itself (unlike the Stark Law employment exception), although above-FMV compensation remains a potential indicator that remuneration is being paid to induce referrals, which could implicate the general anti-kickback prohibition even if the employment relationship is genuine.
Under the Massachusetts statute, the analysis requires an examination of the statutory employment exception. The Massachusetts statute contains a similar exception for amounts paid by an employer to an employee in a bona fide employment relationship. To the extent that AHT's physician employment arrangements constitute bona fide employment relationships — and all indications are that they do, as the physicians are W-2 employees with standard employment terms, benefits, and employer oversight — the employment exception should apply to protect the base compensation paid to these physicians.
However, several issues warrant closer scrutiny:
• Productivity Bonuses and wRVU-Based Compensation. Many of AHT's physician employment agreements include variable compensation components tied to work relative value units ("wRVUs") or other productivity metrics. While productivity-based compensation is common and generally accepted in the industry, the concern under the Massachusetts statute is whether variable compensation components effectively tie physician compensation to the volume of referrals for ancillary services covered by commercial insurance. If a physician's wRVU-based bonus increases when the physician orders more laboratory tests, imaging studies, or physical therapy sessions, and those orders generate revenue from commercially insured patients, the variable compensation could theoretically be characterized as remuneration linked to referrals under the state statute. In practice, the risk of this characterization is relatively low for bona fide employment arrangements where productivity compensation is based on the physician's own professional services rather than on the volume of ancillary referrals. We nonetheless recommend that AHT review its physician employment agreements to confirm that productivity bonuses are based on personally performed services and are not directly tied to ancillary referral volume.
• Lakeview Legacy Employment Agreements. The fourteen (14) physician employment agreements assumed in the Lakeview acquisition on August 15, 2022 require specific attention. These agreements were originally drafted for a stand-alone physician practice and may not have contemplated the referral relationships created by integration into AHT's broader network of clinics and ancillary services. Pre-acquisition, Lakeview physicians referred patients to unaffiliated laboratories, imaging centers, and other providers; post-acquisition, these same physicians may now be referring patients to AHT-owned or AHT-affiliated ancillary services, creating new financial relationships that implicate the anti-kickback statute. The Lakeview legacy employment agreements should be reviewed to confirm that compensation formulas comply with the Massachusetts statute in light of the changed referral landscape, and to ensure that the employment exception's requirements are satisfied. We note that several Lakeview legacy agreements were identified in the GW Report as having potential FMV substantiation issues, which compounds the state-law risk.
Risk Assessment for W-2 Employed Physicians: Lower risk, provided that compensation levels fall within FMV ranges, the bona fide employment relationship is maintained, and productivity bonuses are based on personally performed services rather than ancillary referral volume. The Lakeview legacy employment agreements present moderate risk due to FMV substantiation gaps and the changed referral landscape post-acquisition.
2. Medical Director and Independent Contractor Arrangements. AHT's thirty-eight (38) medical director and independent contractor arrangements present a significantly higher level of risk under the Massachusetts anti-kickback statute than the W-2 employment arrangements discussed above. This elevated risk results from the combination of three factors: (1) above-FMV compensation, (2) the absence of a Massachusetts safe harbor for personal services and management contracts, and (3) the physicians' position to refer commercially insured patients to AHT's ancillary services.
The key factual indicators supporting an elevated risk assessment are as follows:
• The thirty-eight arrangements carry aggregate annual compensation of approximately $1.92 million.
• The mean contracted hours for medical director services are 8.4 hours per month across the arrangements.
• The resulting effective average hourly rate is approximately $501.28 per hour.
• Based on industry survey data from MGMA, SullivanCotter, and the American Medical Group Association, this effective hourly rate exceeds the 90th percentile for medical director compensation in multiple specialties.
• Stipend ranges across the thirty-eight arrangements vary from $25,000 to $110,000 per year.
Under the federal AKS, the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d) may protect these arrangements if all elements are satisfied, including: (1) the arrangement is set out in writing and signed by the parties; (2) the arrangement covers all of the services to be provided; (3) the term is for at least one year; (4) the aggregate compensation is set in advance, is consistent with FMV, and is not determined in a manner that takes into account the volume or value of referrals; and (5) the services do not involve the counseling or promotion of a business arrangement that violates any state or federal law. The critical issue under the federal analysis is whether the above-90th-percentile compensation rates satisfy the FMV requirement. As discussed in the federal AKS compliance assessment memorandum, the Northbridge Valuation Advisors preliminary opinion indicates that effective hourly rates above the 90th percentile are unlikely to be sustained as FMV absent extraordinary justification (e.g., a physician with highly specialized expertise performing services for which a unique market premium exists).
Under the Massachusetts statute, the risk is further elevated because no equivalent personal services and management contracts safe harbor exists. Even if AHT restructures these arrangements to satisfy every element of the federal safe harbor — including bringing compensation within FMV ranges — the arrangements receive no formal safe harbor protection under Massachusetts law. Instead, each arrangement must be analyzed under the general prohibition of M.G.L. c. 175H, § 3 and defended on the grounds that the compensation is not remuneration offered or paid to induce referrals.
The above-FMV compensation is particularly problematic under the Massachusetts statute because of the broader payer scope. Under the federal AKS, the concern is that above-FMV medical director compensation induces referrals of Medicare and Medicaid patients. Under the Massachusetts statute, the concern extends to referrals of commercially insured patients. Given that commercial payer revenue constitutes thirty-nine percent (39%) of AHT's net revenue, the universe of referrals potentially implicated by the above-FMV compensation is substantially larger under state law.
The three Lakeview medical director agreements ($45,000, $60,000, and $72,000 in annual stipends) assumed in the August 15, 2022 acquisition present additional concerns. These arrangements were originally negotiated for a stand-alone practice where the medical directors' referral influence was limited. Post-acquisition, these medical directors are now part of AHT's broader network and may be in a position to refer commercially insured patients to a wider range of AHT ancillary services. The Lakeview medical director agreements should be analyzed under the Massachusetts statute in light of this changed referral landscape, and the compensation levels should be substantiated at FMV through updated Northbridge Valuat

MEMORANDUM

MATTER NO.: 1010-00003

I. EXECUTIVE SUMMARY

II. SCOPE AND LIMITATIONS

III. BACKGROUND ON AHT'S MASSACHUSETTS OPERATIONS

VI. APPLICATION TO AHT'S MASSACHUSETTS ARRANGEMENTS

Record

Parties

Dates

Amounts