LANGFORD MOSS & CRANE LLP
Attorneys at Law 1717 Pennsylvania Avenue NW, Suite 850 Washington, DC 20006
Healthcare Regulatory Due Diligence Memorandum
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Beatrice Holloway, Esq., Calderwood & Harkness LLP Graham Whitfield, Ardent Capital Management III LLC Priya Ranganathan, Ardent Capital Management III LLC
FROM: Dr. Patricia Langford, Of Counsel, Langford Moss & Crane LLP
DATE: January 28, 2025
RE: Healthcare Regulatory Due Diligence — Proposed Acquisition of MedVance Health Systems, Inc. (EIN 62-7083149) by Ardent Healthcare Holdings Inc. (EIN 93-2047861)
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the addressees and their authorized representatives in connection with the above-referenced matter. This memorandum should not be disclosed to any third party without the prior written consent of Langford Moss & Crane LLP and Calderwood & Harkness LLP. Any disclosure may constitute a waiver of applicable privileges.
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I. PURPOSE AND SCOPE
Langford Moss & Crane LLP ("LMC") has been engaged by Calderwood & Harkness LLP ("C&H") (C&H Matter No. 0478231.0001) on behalf of Ardent Capital Partners III LP ("Ardent Capital" or the "Sponsor") and Ardent Healthcare Holdings Inc. (the "Purchaser") in connection with the proposed acquisition (the "Transaction") of one hundred percent (100%) of the outstanding equity interests of MedVance Health Systems, Inc. (the "Company" or "MedVance") for a purchase price of Six Hundred Twenty Million Dollars ($620,000,000) (the "Purchase Price"), subject to customary working capital and other adjustments as set forth in the draft Stock Purchase Agreement (the "SPA") currently under negotiation. The Purchaser is a newly formed acquisition vehicle organized under the laws of the State of Delaware for the purpose of effectuating the Transaction on behalf of Ardent Capital.
The scope of this memorandum is limited to the review and assessment of the healthcare regulatory compliance posture of MedVance across its four operating states — Tennessee, Alabama, Georgia, and Kentucky — with particular focus on the following substantive areas:
1. State Licensure and Certificate-of-Need ("CON") Status. Review of the validity, currency, and good standing of all state healthcare facility licenses and permits held by MedVance, and the status of any CON approvals applicable to MedVance's facilities and services. Assessment of the licensure transfer and CON transfer requirements triggered by the Transaction in each of the four operating states.
2. Federal Fraud and Abuse Laws. Analysis of MedVance's compliance with the federal Physician Self-Referral Law (commonly known as the "Stark Law"), codified at 42 U.S.C. § 1395nn and its implementing regulations at 42 C.F.R. Part 411, and the federal Anti-Kickback Statute ("AKS"), codified at 42 U.S.C. § 1320a-7b(b) and its implementing regulations at 42 C.F.R. Part 1001. This analysis encompasses physician compensation arrangements, lease agreements, vendor relationships, and other financial arrangements with potential fraud and abuse exposure.
3. HIPAA Privacy and Security Compliance. Review of MedVance's compliance posture under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health ("HITECH") Act, and the implementing regulations at 45 C.F.R. Parts 160 and 164, including the Privacy Rule, Security Rule, and Breach Notification Rule.
4. Medicare and Medicaid Enrollment and Participation. Confirmation of current Medicare and Medicaid enrollment status for all MedVance facilities and assessment of the change-of-ownership ("CHOW") filing requirements applicable to the Transaction under federal and state program rules.
5. Other Regulatory Considerations. Review of compliance with the Emergency Medical Treatment and Labor Act ("EMTALA"), Medicare Conditions of Participation, state survey and accreditation history, state-level fraud and abuse statutes, and excluded persons screening protocols.
In conducting this review, LMC has examined and relied upon the following categories of materials and information:
• Data Room Documents. All documents produced by MedVance and its counsel, Whitaker, Poole & Simms LLP, through the Thackeray Solutions virtual data room established for the Transaction (Data Room Index version dated January 15, 2025), encompassing approximately 2,400 documents across seventeen (17) document categories as set forth in Appendix A to this memorandum.
• Management Interviews. Telephonic and video interviews conducted by Dr. Patricia Langford and LMC associates between January 6, 2025 and January 22, 2025 with the following members of MedVance's senior management team: Daniel Burch, Chief Executive Officer; Angela Moretti, Chief Financial Officer; Dr. Samir Patel, Chief Medical Officer; and Karen Tolliver, Chief Operating Officer. Written summaries of each interview were prepared by LMC and are maintained in the engagement file.
• Publicly Available Records. Publicly available regulatory filings, state licensure databases (including the Tennessee Department of Health licensure verification system, the Alabama Department of Public Health online license lookup, the Georgia Healthcare Facility Regulation online portal, and the Kentucky Cabinet for Health and Family Services license database), CMS Provider Enrollment and Certification records, the Office of Inspector General's List of Excluded Individuals and Entities ("LEIE"), the General Services Administration's System for Award Management ("SAM.gov"), and published enforcement actions and settlement agreements.
It is important to note that this memorandum addresses healthcare regulatory compliance matters only and does not address corporate, tax, environmental, real estate, intellectual property, employment, ERISA, or general commercial legal matters. For those workstreams, the addressees should refer to C&H's comprehensive due diligence report (expected to be circulated on or about February 5, 2025) and the quality-of-earnings analysis being prepared by Blackwell Thornton LLP (the "QofE Report"). To the extent that any findings in this memorandum have financial implications relevant to the Purchase Price or working capital adjustments, those findings should be cross-referenced with the QofE Report and addressed in collaboration with C&H and the Sponsor's deal team.
LMC has not conducted an independent compliance audit or on-site inspection of any MedVance facility. Our analysis is based on, and limited by, the completeness and accuracy of the documents produced in the data room and the representations made by MedVance's management during the interview process. We have assumed, without independent verification, that the data room is complete and that management's representations are truthful and accurate. To the extent that additional documents or information come to light following the date of this memorandum, LMC's analysis and conclusions may require revision.
We recommend that the key findings set forth in this memorandum be addressed through specific representations, warranties, pre-closing covenants, closing conditions, and post-closing obligations in the definitive SPA, as described in greater detail in Section IX below. Where appropriate, we also recommend that certain matters be addressed through the representations and warranties insurance policy being placed with Northbridge Specialty Insurance Company (Policy No. NSI-POLI-2025-04418) or through specific indemnification provisions.
II. EXECUTIVE SUMMARY AND KEY FINDINGS
Overall Assessment. Based on our review of the diligence materials and management interviews described above, LMC concludes that MedVance maintains a generally compliant healthcare regulatory posture. We have not identified any material violations of applicable healthcare laws or regulations that would, in our judgment, preclude the consummation of the Transaction or constitute a "Material Adverse Effect" as that term is likely to be defined in the SPA. However, we have identified several areas that require remediation, enhanced scrutiny, or specific contractual protections, and we have set forth detailed recommendations in the sections that follow.
Summary of Key Findings
The principal findings of our healthcare regulatory due diligence review are summarized below, organized by priority level:
Critical Path Items:
• State Licensure Transfers. The Transaction constitutes a change of controlling interest (or change of ownership, depending on the applicable state's terminology) for purposes of state healthcare facility licensure in all four operating states. Each state requires either prior written approval or a new license application in connection with the change. The estimated aggregate timeline for obtaining all four state licensure approvals is eight to twelve (8–12) weeks from the date of filing, with Kentucky representing the longest lead-time jurisdiction at an estimated six to eight (6–8) weeks. Tennessee and Georgia typically process licensure transfer applications more quickly (three to five weeks). We recommend that the SPA condition closing on receipt of all four state licensure transfer approvals and that applications be filed promptly upon execution of the SPA.
• Managed Care Contract Notices. Several of MedVance's managed care contracts contain change-of-control or assignment provisions that require advance notice to, or in some cases consent of, the payor. The most significant of these are the contracts with BlueLine Health Plan of Tennessee (requiring 60-day prior written notice) and SouthPoint Insurance Co. (requiring 30-day prior written notice). Failure to provide timely notice could trigger termination rights in favor of the payor. We recommend that notices be issued promptly after SPA execution to ensure compliance by the target closing date of April 15, 2025.
Items Requiring Pre-Closing Remediation:
• Stark Law — Flagged Item #1. A medical director agreement at MedVance's Tennessee acute-care facility (MedVance Regional Medical Center, Nashville) includes a quarterly productivity bonus that is tied, in part, to the volume of imaging referrals directed to a MedVance-owned imaging center. This compensation structure raises a potential "volume or value" concern under the Stark Law and may not satisfy the requirements of the employment exception or the personal services exception. We recommend immediate review and restructuring of this arrangement prior to closing.
• Stark Law — Flagged Item #2. A lease arrangement between MedVance and a physician group at MedVance's Georgia outpatient facility (MedVance Outpatient Center, Dalton) has been operating on a month-to-month basis since its initial term expired in June 2024. The Stark Law's rental exception requires a lease term of at least one year. We recommend that the Company execute a new written lease at fair market value for a fixed term of at least one year prior to closing.
• HIPAA — Business Associate Agreements. The data room contains a list of approximately seventy-five (75) business associates, but only forty-eight (48) executed Business Associate Agreements ("BAAs") were produced. We recommend that MedVance produce or confirm execution of the remaining BAAs prior to closing to ensure compliance with the HIPAA Privacy Rule's business associate requirements.
Items Requiring Post-Closing Attention:
• Medicare CHOW. The Transaction constitutes a Medicare change of ownership under 42 C.F.R. § 489.18. CHOW applications must be filed with the applicable Medicare Administrative Contractor within thirty (30) days following the closing date. Existing provider agreements will be automatically assigned to the Purchaser, but timely filing is essential to avoid any interruption in Medicare reimbursement.
• Medicaid CHOW. CHOW notifications and/or applications must be filed with each of the four state Medicaid agencies (TennCare, Alabama Medicaid Agency, Georgia Department of Community Health, and Kentucky Department for Medicaid Services) promptly after closing. Requirements vary by state, and engagement with each agency should begin in advance of closing to clarify filing obligations.
• HIPAA Security Remediation Verification. MedVance's most recent HIPAA Security Risk Assessment (2023) identified several moderate-risk findings, including inconsistent implementation of multi-factor authentication and aging server infrastructure. Management represents that most items have been remediated, but independent verification is recommended post-closing.
• HIPAA Notice of Privacy Practices. The NPP should be updated post-closing to reflect the new ownership structure within a reasonable period.
Litigation:
• Two (2) medical malpractice lawsuits are currently pending against MedVance, with aggregate exposure estimated at Four Million Two Hundred Thousand Dollars ($4,200,000). Both matters are fully reserved on MedVance's books per management representations. Neither lawsuit involves allegations of healthcare regulatory fraud, false claims, or government program violations. These matters are addressed in greater detail in C&H's comprehensive litigation review.
No Evidence of Material Regulatory Enforcement:
• We have not identified any pending or threatened actions by the U.S. Department of Justice, the Office of Inspector General of the Department of Health and Human Services, the Centers for Medicare & Medicaid Services, or any state attorney general's office. No qui tam (False Claims Act) actions, Civil Investigative Demands, or corporate integrity agreements are reflected in the data room, and management has confirmed that none are pending or threatened.
• No current employees, contractors, or vendors of MedVance appear on the OIG LEIE or SAM.gov exclusion lists.
III. STATE LICENSURE AND CERTIFICATE-OF-NEED COMPLIANCE
A. Overview of MedVance's Facility Footprint
MedVance Health Systems, Inc. was founded in 2009 by Dr. Catherine Ryland, who currently serves as Founder and Chair of the Board of Directors. Since its founding, MedVance has grown through a combination of organic development and targeted acquisitions to operate a portfolio of healthcare facilities across four southeastern states. The current facility footprint, as disclosed in the data room and confirmed through management interviews with Karen Tolliver (COO), is as follows:
Tennessee:
• MedVance Regional Medical Center, Nashville — 312-bed acute-care hospital (License No. TN-HC-2009-01447; expires September 30, 2025)
• MedVance Ambulatory Surgery Center, Murfreesboro — multi-specialty ambulatory surgical center (License No. TN-ASC-2014-00832; expires December 31, 2025)
• MedVance Outpatient Clinic, Clarksville — outpatient primary care and specialty clinic (License No. TN-OPC-2016-01294; expires June 30, 2025)
Alabama:
• MedVance Community Hospital, Huntsville — 186-bed acute-care hospital (License No. AL-HCF-2011-03218; expires March 31, 2025)
• MedVance Rehabilitation Center, Decatur — inpatient rehabilitation facility (License No. AL-IRF-2015-00467; expires August 31, 2025)
Georgia:
• MedVance Surgical Hospital, Dalton — 64-bed specialty surgical hospital (License No. GA-HF-2013-07891; expires November 30, 2025)
• MedVance Outpatient Center, Dalton — outpatient diagnostic and treatment center (License No. GA-OPC-2017-02344; expires July 31, 2025)
Kentucky:
• MedVance Medical Center, Bowling Green — 224-bed acute-care hospital (License No. KY-HCF-2012-04156; expires April 30, 2025)
• MedVance Ambulatory Surgery Center, Bowling Green — ambulatory surgical center (License No. KY-ASC-2018-00612; expires October 31, 2025)
All current licenses are maintained under the oversight of Karen Tolliver, Chief Operating Officer, who assumed responsibility for licensure and regulatory affairs from Dr. Ryland in 2017. Based on our review of the licensure records in the data room and verification against publicly available state licensure databases (searches conducted between January 8, 2025 and January 20, 2025), we confirm that all current licenses are active and in good standing. We have not identified any suspensions, revocations, conditions, or pending disciplinary proceedings with respect to any MedVance facility license. All license renewal applications that have come due within the past three (3) years were timely filed and approved without adverse conditions.
We note that the Alabama facility licenses (MedVance Community Hospital, Huntsville, License No. AL-HCF-2011-03218, and MedVance Rehabilitation Center, Decatur, License No. AL-IRF-2015-00467) have expiration dates of March 31, 2025 and August 31, 2025, respectively. Given the target closing date of April 15, 2025, the Huntsville hospital license will need to be renewed on or before March 31, 2025 — or, if the licensure transfer application is filed and approved prior to that date, the transfer approval may effectively supersede the renewal requirement. We recommend coordinating with the Alabama Department of Public Health to confirm the appropriate approach and to avoid any gap in licensure.
B. Tennessee. Governing Authority. The Tennessee Department of Health, Health Care Facilities Division, is the primary regulatory authority responsible for the licensure and oversight of healthcare facilities in Tennessee.
Applicable Statutes and Regulations. Healthcare facility licensure in Tennessee is governed by Tenn. Code Ann. §§ 68-11-201 et seq. (the "Health Care Facilities Licensure Act") and the implementing regulations promulgated by the Board for Licensing Health Care Facilities. Tennessee's Certificate of Need program is governed by Tenn. Code Ann. §§ 68-11-1601 et seq. and is administered by the Health Services and Development Agency ("HSDA").
Current Licensure Status. MedVance operates three (3) licensed facilities in Tennessee:
(i) MedVance Regional Medical Center, Nashville (License No. TN-HC-2009-01447) — 312-bed acute-care hospital; license current through September 30, 2025.
(ii) MedVance Ambulatory Surgery Center, Murfreesboro (License No. TN-ASC-2014-00832) — multi-specialty ambulatory surgical center; license current through December 31, 2025.
(iii) MedVance Outpatient Clinic, Clarksville (License No. TN-OPC-2016-01294) — outpatient primary care and specialty clinic; license current through June 30, 2025.
All three licenses were verified as active and in good standing through the Tennessee Department of Health licensure verification system as of January 15, 2025.
CON Status. MedVance Regional Medical Center was established under CON Approval No. TN-CON-2009-0187, which authorized the construction and operation of a 300-bed acute-care hospital in the Nashville metropolitan area. A subsequent CON amendment (No. TN-CON-2016-0412) authorized the addition of twelve (12) beds, bringing the total licensed bed capacity to 312. Both CON approvals are current and in compliance with all material conditions. The MedVance Ambulatory Surgery Center in Murfreesboro was established under CON Approval No. TN-CON-2014-0293. No pending CON applications or CON-related violations have been identified. The Clarksville outpatient clinic does not require a CON under Tennessee law.
Change-of-Ownership Requirements. Under Tennessee law, a change in the controlling interest of a licensed healthcare facility requires prior written approval of the Tennessee Department of Health. The application for change of ownership must include, among other things: (a) the identity and organizational structure of the new controlling entity; (b) evidence of the financial capacity of the new owner to operate the facility in compliance with applicable licensure standards; (c) the compliance history of the new owner and its affiliates with respect to healthcare facility operations; and (d) such other information as the Department may require.
Assessment. We recommend that the licensure transfer application be filed promptly upon execution of the SPA, with a target filing date of approximately February 12, 2025. Based on current agency processing times and informal pre-filing conversations between LMC and the Tennessee Department of Health (conducted on January 14, 2025), we estimate that the application will be processed within three to four (3–4) weeks of filing, yielding an estimated approval date of approximately March 5–12, 2025. This timeline is well within the target closing date of April 15, 2025.
Risk Factor. Ardent Healthcare Holdings Inc. is a newly formed entity with no prior Tennessee licensure history. The Tennessee Department of Health may require additional documentation regarding Ardent Capital's healthcare portfolio and management capabilities, including information about other healthcare facilities owned or operated by Ardent Capital's portfolio companies. We recommend that the Purchaser prepare a comprehensive ownership and management capabilities package for submission with the application, including organizational charts, biographical information for key principals (including Graham Whitfield and Priya Ranganathan), and a summary of Ardent Capital's healthcare investment track record.
C. Alabama. Governing Authority. The Alabama Department of Public Health ("ADPH"), Division of Health Care Facilities, is the primary regulatory authority responsible for the licensure and oversight of healthcare facilities in Alabama. The State Health Planning and Development Agency ("SHPDA") administers Alabama's Certificate of Need program.
Applicable Statutes and Regulations. Healthcare facility licensure in Alabama is governed by Ala. Code §§ 22-21-20 et seq. and the implementing regulations of the State Board of Health. Alabama's CON program is governed by Ala. Code §§ 22-21-260 et seq. and the rules of the SHPDA.
Current Licensure Status. MedVance operates two (2) licensed facilities in Alabama:
(i) MedVance Community Hospital, Huntsville (License No. AL-HCF-2011-03218) — 186-bed acute-care hospital; license current through March 31, 2025.
(ii) MedVance Rehabilitation Center, Decatur (License No. AL-IRF-2015-00467) — inpatient rehabilitation facility; license current through August 31, 2025.
Both licenses were verified as active and in good standing through the ADPH online license lookup system as of January 16, 2025.
CON Status. MedVance Community Hospital, Huntsville, was established under CON Approval No. AL-CON-2011-0054, which authorized the construction and operation of a 175-bed acute-care hospital. A subsequent CON amendment (No. AL-CON-2019-0118) authorized the addition of eleven (11) beds. The MedVance Rehabilitation Center, Decatur, was established under CON Approval No. AL-CON-2015-0091. Both CON approvals appear to be in compliance with their material conditions, including utilization reporting requirements. No pending CON applications, contested proceedings, or CON-related violations have been identified.
Change-of-Ownership Requirements. Alabama requires pre-approval of a change of ownership of a licensed healthcare facility. The ADPH must be notified of the proposed change, and a new license application must be submitted. Additionally, under Alabama law, the transfer of ownership of a facility that holds a CON approval requires notification to the SHPDA and, in certain circumstances, may require a separate CON review. Under Ala. Code § 22-21-275, a change of ownership of a CON-approved facility is generally exempt from a new CON review if the facility will continue to operate under the same terms and conditions as the existing CON, but the SHPDA retains discretion to require additional review if it determines that the change of ownership materially alters the nature or scope of the approved project.
Assessment. We recommend that the licensure transfer application be filed with ADPH promptly upon SPA execution, with a target filing date of approximately February 12, 2025. Based on historical processing times, we estimate that the ADPH will require four to six (4–6) weeks to process the application, yielding an estimated approval date of approximately March 18–26, 2025. Alabama has historically processed licensure transfer applications somewhat more slowly than Tennessee, and we recommend early engagement with ADPH staff (including the Division Director's office) to facilitate timely processing.
As noted above, the Huntsville hospital license expires on March 31, 2025. Coordination between the licensure transfer application and the annual renewal process will be necessary. We recommend contacting the ADPH to determine whether the two processes can be consolidated or, alternatively, whether MedVance should file a separate renewal application to preserve the license pending approval of the transfer.
Specific Risk. Our review of the data room documents does not indicate that any of MedVance's Alabama CON approvals contain restrictions on transfer or conditions that would be triggered by a change of ownership. However, given the SHPDA's discretionary authority to require CON review in connection with a change of ownership, we recommend that MedVance or the Purchaser make a direct inquiry to the SHPDA to confirm that no additional CON review is required. This inquiry should be made at the time of or promptly after filing the licensure transfer application with the ADPH.
D. Georgia. Governing Authority. The Georgia Department of Community Health ("DCH"), Healthcare Facility Regulation Division, is the primary regulatory authority responsible for the licensure and oversight of healthcare facilities in Georgia. The DCH also administers Georgia's CON program.
Applicable Statutes and Regulations. Healthcare facility licensure in Georgia is governed by O.C.G.A. §§ 31-7-1 et seq. and the rules and regulations of the DCH. Georgia's CON program is governed by O.C.G.A. §§ 31-6-40 et seq. and DCH Rule 111-2-2.
Current Licensure Status. MedVance operates two (2) licensed facilities in Georgia:
(i) MedVance Surgical Hospital, Dalton (License No. GA-HF-2013-07891) — 64-bed specialty surgical hospital; license current through November 30, 2025.
(ii) MedVance Outpatient Center, Dalton (License No. GA-OPC-2017-02344) — outpatient diagnostic and treatment center; license current through July 31, 2025.
Both licenses were verified as active and in good standing through the Georgia DCH Healthcare Facility Regulation online portal as of January 17, 2025.
CON Status. Georgia maintains an active CON program that applies to hospitals, nursing facilities, ambulatory surgical centers, and certain other facility types and services. MedVance Surgical Hospital, Dalton, was established under CON Approval No. GA-CON-2013-0462. The outpatient center does not appear to be subject to a separate CON requirement based on the services it provides. No pending CON applications, contested proceedings, or CON-related violations have been identified with respect to either Georgia facility.
Change-of-Ownership Requirements. Georgia requires notification to and approval by the DCH in connection with a change of ownership of a licensed healthcare facility. The applicant must submit a change-of-ownership application, including identification of the new owner, evidence of financial viability, and compliance history. For facilities holding CON approvals, the transfer of a CON requires a separate application to the DCH unless the transfer qualifies for an exemption under DCH Rule 111-2-2-.24. Under that rule, certain changes of ownership may be exempt from a full CON review if the new owner agrees to continue operating the facility in accordance with the terms and conditions of the existing CON and the transfer does not involve a material change in the scope or nature of the facility's services.
Assessment. We recommend that the licensure transfer application be filed with the Georgia DCH promptly upon SPA execution, with a target filing date of approximately February 12, 2025. Georgia's online application system has facilitated increasingly efficient processing times in recent years, and we estimate that the application will be processed within three to five (3–5) weeks of filing, yielding an estimated approval date of approximately March 19–27, 2025.
Background Check Requirements. Georgia law requires updated criminal background checks (Georgia Bureau of Investigation and FBI) for new "controlling persons" of licensed healthcare facilities. The term "controlling persons" includes individuals who hold a direct or indirect ownership interest of ten percent (10%) or more, as well as officers and directors of the entity that directly or indirectly controls the facility. Because Ardent Healthcare Holdings Inc. is the proposed new owner, and Ardent Capital Management III LLC serves as the investment manager and general partner of the Sponsor, the DCH may require the principals of Ardent Capital Management III LLC — including Graham Whitfield and Priya Ranganathan — to submit fingerprints and complete personal disclosure forms. We recommend that these individuals be prepared to submit the required information promptly upon filing to avoid any delays in the licensure transfer process.
E. Kentucky. Governing Authority. The Kentucky Cabinet for Health and Family Services ("CHFS"), Office of Inspector General ("OIG"), is the primary regulatory authority responsible for the licensure and oversight of healthcare facilities in Kentucky.
Applicable Statutes and Regulations. Healthcare facility licensure in Kentucky is governed by KRS §§ 216B.010 et seq. and the implementing regulations promulgated by the CHFS. Kentucky's CON program is governed by KRS §§ 216B.040 et seq. and administered by the CHFS.
Current Licensure Status. MedVance operates two (2) licensed facilities in Kentucky:
(i) MedVance Medical Center, Bowling Green (License No. KY-HCF-2012-04156) — 224-bed acute-care hospital; license current through April 30, 2025.
(ii) MedVance Ambulatory Surgery Center, Bowling Green (License No. KY-ASC-2018-00612) — ambulatory surgical center; license current through October 31, 2025.
Both licenses were verified as active and in good standing through the Kentucky CHFS license database as of January 18, 2025.
CON Status. Kentucky's CON program applies to acute-care hospitals, nursing facilities, and certain other facility types and capital expenditures above statutory thresholds. MedVance Medical Center, Bowling Green, is subject to CON Approval No. KY-CON-2012-0238, which authorized the construction and operation of a 210-bed acute-care hospital. A subsequent CON amendment (No. KY-CON-2020-0067) authorized the addition of fourteen (14) beds, bringing the total licensed capacity to 224. The ambulatory surgery center was established under CON Approval No. KY-CON-2018-0045. All CON approvals appear to be in compliance with their conditions. No pending CON applications or CON-related violations have been identified.
Change-of-Ownership Requirements. Under Kentucky law, a change of ownership of a licensed healthcare facility requires a new license application to be filed with the CHFS, Office of Inspector General. The statute requires that the change-of-information filing be submitted at least thirty (30) days prior to the effective date of the change of ownership. The application must include detailed information about the new owner, its management structure, financial capacity, and healthcare compliance history. Kentucky does not provide for a simple "transfer" of an existing license; rather, the new owner must apply for and receive a new license, and the existing license is surrendered upon issuance of the new license.
Assessment. Based on historical processing times and our experience with the Kentucky OIG, we estimate that the licensure application process in Kentucky will require six to eight (6–8) weeks from the date of filing. This is the longest estimated timeline among the four operating states and represents the critical path item for the Transaction's closing timeline. With a target filing date of approximately February 12, 2025, the estimated approval date would be approximately April 2–10, 2025 — within the target closing date of April 15, 2025, but with relatively little margin.
Recommendation. We strongly recommend that the Kentucky licensure application be filed as early as practicable — ideally simultaneously with SPA execution or, if permissible under a pre-filing protocol, prior to execution. LMC has had preliminary discussions with the Kentucky OIG (on January 21, 2025) to explore the feasibility of a pre-filing conference and to understand the documentation requirements. The OIG was receptive to an informal pre-filing discussion and indicated that the submission of a complete and well-documented application will facilitate expedited processing. We recommend that the Purchaser's regulatory team engage directly with the OIG to establish a working relationship and to ensure that the application is complete at the time of filing.
Risk Factor. Kentucky has been known to conduct on-site surveys of healthcare facilities in connection with change-of-ownership applications, particularly where the new owner has no prior Kentucky licensure history. If the OIG determines that an on-site survey is warranted, this could add two to four (2–4) additional weeks to the processing timeline, potentially pushing the approval date to late April or early May 2025. While we cannot predict with certainty whether an on-site survey will be required, we recommend that the SPA include a mechanism for a short extension of the closing date (e.g., thirty (30) days) to accommodate potential delays in the Kentucky licensure approval process.
We also note that the Bowling Green hospital license expires on April 30, 2025. If the licensure transfer process extends beyond that date, coordination with the OIG on renewal will be necessary to avoid any lapse in licensure.
F. Summary: Licensure Transfer Timeline and Critical Path
The following table summarizes the estimated timeline for licensure transfer filings and approvals across all four operating states:
Critical Path Analysis. The Kentucky licensure approval is the longest lead-time item and represents the critical path for the Transaction's closing timeline. We recommend that the SPA condition closing on the receipt of all four state licensure transfer approvals. If the Kentucky approval is delayed beyond April 15, 2025, a short extension mechanism (e.g., up to thirty (30) days) should be built into the SPA to accommodate the delay without triggering termination rights. The estimated filing and approval dates set forth above are based on current agency processing times and the informal pre-filing conversations described above; actual timelines may vary depending on agency workload, the completeness of the applications, and whether additional information or surveys are requested.
IV. FEDERAL FRAUD AND ABUSE COMPLIANCE
A. Physician Self-Referral Law (Stark Law — 42 U.S.C. § 1395nn)
Overview of Stark Law Applicability. The federal Physician Self-Referral Law, commonly known as the "Stark Law," prohibits a physician from making referrals for certain "designated health services" ("DHS") payable by Medicare (or Medicaid, where applicable) to an entity with which the physician (or an immediate family member of the physician) has a financial relationship, unless an applicable exception is satisfied. DHS include, among other categories, clinical laboratory services, physical therapy services, radiology and certain other imaging services, radiation therapy services and supplies, durable medical equipment, parenteral and enteral nutrients and supplies, prosthetics and orthotics, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services.
MedVance employs and contracts with numerous physicians who refer patients for DHS to MedVance facilities that submit claims to Medicare and Medicaid. Accordingly, the Stark Law is directly applicable to MedVance's physician compensation and financial arrangements. Violations of the Stark Law are strict liability violations — no intent to violate the law is required — and can result in denial or refund of claims, civil monetary penalties of up to $15,000 per service, exclusion from federal healthcare programs, and False Claims Act liability with treble damages.
Review of Physician Compensation Arrangements. LMC reviewed the following categories of physician compensation arrangements as disclosed in the data room:
(i) Employment Agreements. MedVance employs approximately eighty-seven (87) physicians across its nine facilities. We reviewed a representative sample of thirty-two (32) physician employment agreements, including agreements for primary care physicians, surgeons, hospitalists, emergency medicine physicians, and specialists in radiology, cardiology, and orthopedics.
(ii) Medical Director Agreements. MedVance has entered into fourteen (14) medical director agreements with physicians for the provision of administrative and clinical oversight services at various facilities and departments. We reviewed all fourteen agreements.
(iii) On-Call Coverage Agreements. MedVance compensates certain physicians for on-call coverage at its emergency departments and inpatient facilities. We reviewed eight (8) on-call coverage agreements.
(iv) Independent Contractor Arrangements. MedVance contracts with approximately twenty-three (23) physicians as independent contractors for the provision of clinical services, primarily in anesthesiology, pathology, and radiology. We reviewed twelve (12) representative independent contractor agreements.
Analysis of Compliance with Applicable Exceptions. Our analysis of the physician compensation arrangements reviewed focused on the following Stark Law exceptions:
Employment Exception (42 C.F.R. § 411.357(c)). The employment exception protects compensation paid by an employer to a physician who has a bona fide employment relationship with the employer, provided that: (a) the employment is for identifiable services; (b) the compensation paid is consistent with fair market value ("FMV") for the services actually rendered and is not determined in a manner that takes into account the volume or value of referrals; and (c) the compensation is provided under an arrangement that would be commercially reasonable even in the absence of referrals. Based on our review, the employed physician arrangements generally appear to satisfy the requirements of the employment exception. Compensation levels are supported by internal FMV analyses prepared by the Company's finance team (most recently updated in the fourth quarter of 2023 using MGMA and Sullivan Cotter compensation survey data). Compensation structures generally consist of a base salary with productivity bonuses tied to individual clinical work RVUs, which is a commonly accepted compensation methodology. We did not identify any employed physician compensation arrangements (other than Flagged Item #1, described below) in which compensation is determined based on the volume or value of referrals to MedVance.
Personal Services Exception (42 C.F.R. § 411.357(d)). The personal services exception protects remuneration paid to a physician under an arrangement for the provision of personal services, provided that: (a) the arrangement is set out in writing, signed by the parties, and specifies the services to be provided; (b) the arrangement covers all of the services to be provided by the physician (or the arrangement covers specifically identified services and is a separate identifiable transaction); (c) 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; (d) the services provided are commercially reasonable even absent referrals; and (e) the arrangement meets certain group practice-related requirements where applicable. Based on our review, the independent contractor medical director agreements and on-call coverage agreements generally appear to satisfy the requirements of the personal services exception. All reviewed arrangements are set forth in written agreements signed by both parties, specify the services to be provided, and set forth aggregate compensation in advance. Compensation levels appear consistent with FMV based on the Company's internal benchmarking. However, we note the flagged items discussed below.
In-Office Ancillary Services Exception (42 C.F.R. § 411.355(b)). Certain outpatient clinic arrangements at MedVance involve physicians who refer patients for ancillary services (e.g., laboratory, diagnostic imaging) that are provided within the same building or in a centralized building used by the physician's group practice. Based on our review of the applicable arrangements, these services appear to satisfy the supervision, location, and billing requirements of the in-office ancillary services exception. However, we note that the in-office ancillary services exception is highly fact-specific, and any changes to the physical location of services or the physician supervision arrangements could affect the applicability of this exception. We recommend ongoing monitoring of these arrangements post-closing.
Flagged Item #1 — Medical Director Agreement with Volume-Linked Bonus (Tennessee). One medical director agreement at MedVance Regional Medical Center in Nashville (the "Nashville Medical Director Agreement") provides for a quarterly productivity bonus that is calculated based, in part, on the volume of diagnostic imaging referrals directed by the medical director to MedVance Imaging Center, a MedVance-owned imaging facility located adjacent to the hospital. Specifically, Section 4.3 of the Nashville Medical Director Agreement provides that the medical director is eligible for a quarterly bonus of up to Fifteen Thousand Dollars ($15,000), calculated as follows: fifty percent (50%) based on quality metrics (patient satisfaction scores and compliance with clinical protocols) and fifty percent (50%) based on "departmental volume growth," defined as the year-over-year increase in the number of imaging studies performed at the MedVance Imaging Center.
This compensation structure raises a significant concern under the Stark Law's prohibition on compensation that takes into account the "volume or value" of referrals. While the quality-metric component of the bonus is not objectionable, the "departmental volume growth" component directly ties a portion of the medical director's compensation to the volume of imaging services referred to a MedVance-owned facility. This arrangement may not satisfy the employment exception or the personal services exception, depending on whether the medical director is an employee or independent contractor, because neither exception permits compensation that is determined based on the volume or value of referrals (other than the narrow exception for compensation based on personally performed services, which does not appear to apply here because the medical director is not personally performing the imaging studies).
Recommendation: We recommend that MedVance immediately review this arrangement with its compliance officer and outside counsel. If the medical director agreement does not satisfy any applicable Stark Law exception in its current form, the arrangement should be restructured prior to closing to remove the volume-linked component of the bonus. The restructured arrangement should base any productivity or performance bonus solely on quality metrics, personally performed services (measured by work RVUs), or other criteria that do not take into account the volume or value of referrals to MedVance. The pre-closing covenant in the SPA should specifically require remediation of this arrangement.
Flagged Item #2 — Expired Lease with Physician Group (Georgia). MedVance Outpatient Center, Dalton, leases approximately 3,200 square feet of clinical space to Dalton Orthopedic Associates, P.C. ("DOA"), a physician group whose members refer patients for designated health services (including physical therapy and diagnostic imaging) to MedVance facilities. The original lease agreement (the "Dalton Lease") was executed on July 1, 2019, for an initial term of five (5) years, expiring on June 30, 2024. The data room materials indicate that the Dalton Lease has been operating on a month-to-month holdover basis since the expiration of the initial term on June 30, 2024. No written renewal or extension agreement has been executed.
The Stark Law's rental of office space exception (42 C.F.R. § 411.357(a)) requires, among other conditions, that the lease have a term of at least one (1) year. While CMS has historically interpreted this requirement to mean that the lease must set out a term of at least one year at inception, and has generally not imposed a requirement of a new one-year term for each renewal, the regulations have been amended (effective January 1, 2021) to provide greater flexibility through the "writing requirement" amendments. However, the regulations still require that the arrangement be set out in writing and signed by the parties and that the rental charges be set in advance. A month-to-month holdover without a written agreement setting forth the current rental terms and duration raises a risk that the arrangement does not satisfy the technical requirements of the exception.
Recommendation: We recommend that MedVance execute a new written lease with DOA at fair market value for a fixed term of at least one (1) year, with rental charges set in advance and consistent with FMV. An independent FMV appraisal of the leased space should be obtained if one has not been conducted since the original lease was executed. This remediation should be completed prior to closing and addressed as a pre-closing covenant in the SPA.
SPA Recommendations. We recommend that the SPA include:
(a) Specific representations and warranties regarding MedVance's compliance with the Stark Law, including representations that all physician financial relationships involving referrals for DHS are structured to satisfy applicable Stark Law exceptions.
(b) Pre-closing covenants requiring remediation of Flagged Items #1 and #2 prior to the closing date.
(c) If either flagged item is not fully remediated by closing, disclosure on the applicable schedules to the SPA and a specific indemnity for any losses arising from the identified Stark Law exposure. Note that the R&W insurance policy (Northbridge Specialty Insurance Company, Policy No. NSI-POLI-2025-04418, with a limit of $62,000,000) may provide additional coverage for Stark Law-related losses, subject to policy exclusions for matters known at the time of binding. The Purchaser should consult with its insurance broker to confirm coverage and, if necessary, negotiate a "scrape" or reduction in the retention for known Stark Law matters.
B. Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))
Overview of AKS Applicability. The federal Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration (including any kickback, bribe, or rebate, whether in cash or in kind) to induce or reward the referral of business, or the generation of business, reimbursable under any federal healthcare program, including Medicare and Medicaid. Unlike the Stark Law, the AKS is an intent-based statute — a violation requires proof that the defendant acted "knowingly and willfully" with the intent to induce or reward referrals. However, courts have applied a broad interpretation of "remuneration" and have held that the AKS may be violated even where the arrangement has a legitimate business purpose, if one purpose of the remuneration is to induce referrals (the "one purpose" test).
MedVance receives substantial reimbursement from Medicare and Medicaid (aggregate federal healthcare program revenue estimated at approximately $285 million annually based on management representations; to be confirmed by the QofE Report). Accordingly, the AKS is directly applicable to MedVance's financial relationships with referring physicians, vendors, payors, and other parties who are in a position to generate or influence referrals of federal healthcare program business.
Review of Arrangements with Potential AKS Exposure. LMC reviewed the following categories of arrangements for potential AKS exposure:
(i) Physician Compensation Arrangements. The same employment agreements, medical director agreements, on-call coverage agreements, and independent contractor arrangements reviewed under the Stark Law analysis above were also analyzed for AKS compliance. The same two flagged items (the Nashville Medical Director Agreement and the Dalton Lease) present potential AKS concerns, as discussed below.
(ii) Joint Venture Arrangements. MedVance does not appear to have any active joint venture arrangements with referring physicians or physician groups. Data room materials include one historical joint venture (MedVance-Ryland Imaging Partners LLC, dissolved in 2017), which does not present a current compliance risk.
(iii) Vendor Contracts. LMC reviewed representative vendor contracts, including agreements with medical device suppliers, pharmaceutical distributors, and equipment vendors. No vendor contracts were identified that contain suspect remuneration tied to referrals or purchasing volumes in a manner that would implicate the AKS.
(iv) Marketing Agreements. MedVance's marketing activities are conducted primarily through an in-house marketing team. No payments to third-party referral agents or patient recruiters were identified in the data room.
(v) Patient Transport Arrangements. MedVance maintains agreements with two ambulance transport companies for patient transfer services. These agreements provide for payment at standard commercial rates for transport services rendered and do not appear to involve remuneration for referrals.
(vi) Payor Relationships. MedVance's managed care contracts with major payors, including BlueLine Health Plan of Tennessee and SouthPoint Insurance Co., were reviewed for AKS-related provisions. These contracts are arm's-length commercial arrangements that do not appear to involve suspect remuneration.
Safe Harbor Analysis. The AKS regulations establish a series of "safe harbors" (42 C.F.R. § 1001.952) that define specific practices and arrangements that will not be treated as violations of the AKS, even if they involve remuneration that could potentially induce referrals. An arrangement that satisfies all elements of an applicable safe harbor is deemed not to violate the AKS. However, failure to satisfy a safe harbor does not automatically mean that an arrangement violates the AKS — it simply means that the arrangement must be evaluated on its specific facts under the statute's general prohibition.
Our safe harbor analysis of MedVance's key arrangements is as follows:
Employment Safe Harbor (42 C.F.R. § 1001.952(i)). The employment 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 furnishing of items or services for which payment may be made under a federal healthcare program. MedVance's employed physician arrangements appear to satisfy this safe harbor.
Personal Services and Management Contracts Safe Harbor (42 C.F.R. § 1001.952(d)). This safe harbor protects payments for personal services and management contracts, subject to requirements substantially similar to the Stark Law's personal services exception (written agreement, specified services, FMV compensation set in advance, etc.). The same two flagged items identified in the Stark Law analysis above present potential issues under this safe harbor as well: (1) the volume-linked bonus in the Nashville Medical Director Agreement may not satisfy the requirement that compensation not take into account the volume or value of referrals, and (2) the month-to-month holdover of the Dalton Lease may not satisfy the one-year term requirement.
Space Rental Safe Harbor (42 C.F.R. § 1001.952(b)). The space rental safe harbor protects payments for the rental of office space, provided that certain conditions are met, including a written agreement with a term of at least one year. The Dalton Lease issue is the same as flagged under the Stark Law analysis.
discount Safe Harbor (42 C.F.R. § 1001.952(h)). MedVance participates in group purchasing arrangements through Granite Harbor Group (a healthcare group purchasing organization). Based on our review of the GPO participation agreement and representative vendor contracts facilitated through the GPO, these arrangements appear to comply with the discount safe harbor.
Review of MedVance's Compliance Program. MedVance maintains a corporate compliance program that is generally consistent with the OIG's Compliance Program Guidance for Hospitals and other healthcare entities. Key elements of the program include:
• A designated Corporate Compliance Officer (currently Margaret Sinclair, J.D., who reports directly to the Board of Directors and holds the title of Vice President, Compliance and Regulatory Affairs);
• Written compliance policies and procedures, including a Code of Conduct and specific policies addressing Stark Law, AKS, and HIPAA compliance;
• Annual compliance training for all employees, with additional specialized training for clinical staff, billing personnel, and management;
• A confidential compliance hotline (operated by an independent third-party vendor) for the reporting of compliance concerns;
• Internal audit protocols, including annual audits of physician compensation arrangements, billing practices, and coding accuracy;
• A Corporate Compliance Committee that meets quarterly and reports to the Board of Directors.
Based on our review of the compliance program materials in the data room and our interview with Margaret Sinclair (conducted on January 13, 2025), the compliance program appears to be well-established and actively functioning. The most recent annual compliance report (for fiscal year 2024) documents seventeen (17) compliance hotline reports received during the year, all of which were investigated and resolved without identification of any material violations.
No Evidence of Government Enforcement Activity. We have found no evidence in the data room of any pending or threatened qui tam (False Claims Act) litigation, OIG subpoenas, DOJ Civil Investigative Demands, Corporate Integrity Agreements, or other government enforcement activity. Daniel Burch (CEO) and Margaret Sinclair (VP, Compliance) each confirmed during their respective interviews that no such matters are pending or, to their knowledge, threatened.
Excluded Persons Screening. LMC independently verified, as of January 20, 2025, that no current MedVance employees, officers, directors, or key contractors appear on the OIG LEIE or the GSA SAM.gov exclusion lists. The Company's compliance program includes monthly screening of all employees, contractors, and vendors against these databases, and the screening records reviewed in the data room are current through December 2024.
Recommendations. We recommend the following with respect to AKS compliance:
(a) The same two flagged items identified in the Stark Law analysis (the Nashville Medical Director Agreement and the Dalton Lease) should be remediated prior to closing to address potential AKS exposure.
(b) The SPA should include specific AKS compliance representations and warranties.
(c) Post-closing, the Purchaser should consider engaging a healthcare compliance consultant to conduct a comprehensive AKS risk assessment within the first ninety (90) days of ownership. This assessment should include a review of all physician compensation arrangements, referral patterns, vendor contracts, and marketing activities to confirm that all arrangements either satisfy applicable safe harbors or present an acceptably low level of risk. This recommendation is consistent with standard post-acquisition compliance best practices and will also demonstrate the Purchaser's good faith commitment to compliance in the event of any future regulatory inquiry.
V. HIPAA PRIVACY AND SECURITY COMPLIANCE
A. HIPAA Privacy Rule (45 C.F.R. Parts 160, 164, Subparts A and E)
Covered Entity Status. MedVance Health Systems, Inc. is a "covered entity" under HIPAA as a healthcare provider that conducts standard electronic transactions (e.g., electronic claims submission to Medicare and Medicaid). All of MedVance's nine facilities operate under the corporate entity's single covered entity designation. MedVance is therefore subject to the HIPAA Privacy Rule (45 C.F.R. Part 164, Subpart E), the HIPAA Security Rule (45 C.F.R. Part 164, Subpart C), and the HIPAA Breach Notification Rule (45 C.F.R. Part 164, Subpart D).
Notice of Privacy Practices. LMC reviewed MedVance's current Notice of Privacy Practices ("NPP"), which is dated October 2022 (the most recent version in the data room). The NPP is available on MedVance's website and is provided to patients at the point of care. Based on our review, the NPP appears to comply with the requirements of 45 C.F.R. § 164.520, including:
• A description of the uses and disclosures of PHI that may be made by the covered entity, with specific examples;
• A statement of the individual's rights with respect to PHI, including the right to access, amend, and request restrictions on certain uses and disclosures;
• A description of the covered entity's duties with respect to PHI;
• Contact information for the designated privacy officer; and
• The effective date of the NPP.
We note that the NPP may need to be updated post-closing to reflect the new ownership structure (i.e., to identify Ardent Healthcare Holdings Inc. as the parent company of MedVance). While a change in ownership of a covered entity does not, by itself, require immediate issuance of a new NPP, the HIPAA Privacy Rule requires that the NPP accurately describe the covered entity's privacy practices. To the extent that the Transaction results in any material changes to MedVance's privacy practices (e.g., new affiliates that may receive PHI for healthcare operations purposes), the NPP should be updated within a reasonable period after closing.
Policies and Procedures. MedVance maintains a comprehensive set of HIPAA privacy policies and procedures, covering the following topics (among others): permitted uses and disclosures of PHI; minimum necessary standard; individual rights (access, amendment, accounting of disclosures, restrictions); de-identification of PHI; incidental disclosures; personal representatives; marketing and fundraising; research uses; and workforce sanctions for privacy violations. The policies were last reviewed and updated in 2023. LMC's review of the policies did not identify any material gaps or deficiencies.
Workforce Training. MedVance's HIPAA training program requires annual privacy and security training for all workforce members (defined to include employees, volunteers, trainees, and other persons whose conduct is under the direct control of the covered entity). Training records provided in the data room confirm that annual training was conducted for fiscal years 2022, 2023, and 2024, with completion rates exceeding ninety-five percent (95%) in each year. New workforce members receive HIPAA training within thirty (30) days of hire.
Business Associate Agreements. Under the HIPAA Privacy Rule, a covered entity must obtain satisfactory assurances from each of its "business associates" (i.e., persons or entitie