US Sales and Marketing Compliance Framework
Final Report and Recommendations
Prepared for:
Solstice Biomedical Devices Ltd. Unit 14, Clarion Business Park Sandyford, Dublin D18 X4F2, Ireland
and
Solstice Biomedical Inc. 200 Harborview Drive, Suite 1100 Boston, MA 02210
Prepared by:
Calderwood & Harkness LLP 1250 Avenue of the Americas, 38th Floor New York, NY 10020
Joel Strauss, Partner, Healthcare & Life Sciences Amy Whitfield, Associate, Healthcare & Life Sciences
Date: August 12, 2024
Matter Number: 1037-00003
Engagement Period: April 8, 2024 – August 15, 2024
ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
CONFIDENTIALITY AND PRIVILEGE NOTICE
This report ("Report") has been prepared by Calderwood & Harkness LLP ("C&H") at the direction of and for the sole benefit of Solstice Biomedical Devices Ltd. and Solstice Biomedical Inc. (collectively, "Solstice" or the "Company"). This Report is protected by the attorney-client privilege and constitutes attorney work product within the meaning of Federal Rule of Civil Procedure 26(b)(3) and applicable state equivalents. The information, analysis, conclusions, and recommendations contained herein reflect confidential communications between C&H and Solstice and are based upon the exercise of professional legal judgment by C&H attorneys.
This Report shall not be disclosed, disseminated, distributed, or copied, in whole or in part, to any third party without the prior written consent of Calderwood & Harkness LLP, except as specifically authorized by Solstice's General Counsel, Declan Harrington. Any unauthorized disclosure of this Report to non-privileged parties may result in a waiver of the attorney-client privilege and/or work product protection, and Solstice should consult with C&H before making any such disclosure. Disclosure to external auditors, lenders, or investors — including, without limitation, Pinnacle Auditing & Advisory LLP, Northbridge National Bank, N.A., or Alder Peak Ventures, LP — should be made only after careful consideration of the potential privilege implications and, where practicable, pursuant to a common interest or confidentiality agreement.
This Report incorporates certain factual inputs and compliance program design deliverables prepared by Meridian Consulting Group LLC ("Meridian"), a healthcare compliance consulting firm retained by Solstice in March 2024 and led by Dr. Lena Voss and James Cho. Meridian's deliverables are factual compliance program design inputs that have been reviewed, analyzed, and incorporated into C&H's independent legal analysis set forth herein. To the extent Meridian's work product has been shared with C&H at the direction of counsel and for purposes of rendering legal advice, Solstice should treat such materials as protected under the attorney-client privilege and work product doctrine, subject to the same restrictions on disclosure described above.
Nothing in this Report constitutes a guarantee or assurance of any particular legal outcome. The legal analysis reflects the law as of the date of this Report and is subject to change based on subsequent legislative, regulatory, or judicial developments.
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I. EXECUTIVE SUMMARY OF FINDINGS AND RISK ASSESSMENT
I.A. Engagement Background and Scope
Solstice Biomedical Devices Ltd. ("Solstice," "SBD," or the "Company"), an Irish-headquartered private limited company specializing in the design, development, and commercialization of advanced cardiac monitoring devices, retained Calderwood & Harkness LLP ("C&H") to conduct a comprehensive sales-and-marketing compliance review in advance of the Company's first commercial launch in the United States. The engagement was opened on April 8, 2024, pursuant to an engagement letter dated April 5, 2024, executed by Declan Harrington, General Counsel and Company Secretary of SBD, and Joel Strauss, Partner, Healthcare & Life Sciences, at C&H.
The product at the center of this engagement is the Pulsar™ CRM System, a subcutaneous implantable cardiac monitor featuring a proprietary cloud-based remote telemetry platform that enables continuous, real-time cardiac rhythm monitoring and data transmission to clinicians. The Pulsar CRM System received FDA 510(k) clearance on February 9, 2024, under Clearance No. K232847. It is classified as a Class II medical device under Product Code MHX. The predicate device relied upon in the 510(k) submission was the CardioStar™ SC-200, manufactured by Vantage Medical Technologies Inc. (510(k) No. K201156). The cleared intended use of the Pulsar CRM System is continuous cardiac rhythm monitoring in adult patients with suspected or documented cardiac arrhythmias.
To establish a domestic commercial presence, Solstice formed a wholly owned US subsidiary, Solstice Biomedical Inc. ("SBI"), a Delaware corporation, on January 22, 2024. SBI's Delaware file number is 7924813, and its federal employer identification number (EIN) is 93-4718206. SBI maintains its principal offices at 200 Harborview Drive, Suite 1100, Boston, MA 02210. The planned date for the US commercial launch of the Pulsar CRM System is October 1, 2024, and Solstice projects US Year-1 revenue of approximately $26 million for the fiscal year ending December 31, 2025.
The scope of C&H's engagement encompassed a thorough analysis of the full spectrum of federal and state laws, regulations, and industry codes governing the sale and marketing of medical devices in the United States, as applied to Solstice's specific commercial plans, organizational structure, contractual arrangements, and go-to-market strategy. Specifically, the engagement addressed the following areas:
• The federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), including applicable safe harbors set forth in 42 C.F.R. § 1001.952, as applied to Solstice's distribution arrangements, physician consulting and speaker programs, sales compensation structure, and meal and hospitality practices;
• The federal False Claims Act, 31 U.S.C. §§ 3729–3733, including the implied certification theory of liability and the nexus between AKS violations and FCA exposure;
• The Physician Payments Sunshine Act (Open Payments), 42 U.S.C. § 1320a-7h, including Solstice's reporting obligations as an applicable manufacturer, CMS registration requirements, and distributor pass-through reporting;
• FDA promotional and advertising regulations applicable to Class II 510(k)-cleared medical devices, including review of Solstice's draft promotional materials, Form 2253 obligations, and social media marketing;
• The AdvaMed Code of Ethics on Interactions with Healthcare Professionals (2020 Revision), which Solstice has adopted as its baseline standard for US healthcare professional interactions; and
• Applicable state marketing compliance laws across twelve jurisdictions selected based on the Company's planned commercial activities: California, Colorado, Connecticut, Louisiana, Maine, Massachusetts, Minnesota, Nevada, New Jersey, Oregon, Vermont, and Washington, D.C.
This Report sets forth C&H's findings, risk assessments, and detailed recommendations across each of these areas. It is intended to serve as a comprehensive reference for Solstice's legal, compliance, commercial, and executive leadership teams as they finalize preparations for the October 1, 2024 launch.
I.B. Company Profile and Stakeholder Context
A thorough understanding of Solstice's corporate structure, financial position, and stakeholder relationships is essential to contextualizing the compliance recommendations set forth in this Report.
Solstice Biomedical Devices Ltd. is a private limited company incorporated under Irish law and headquartered at Unit 14, Clarion Business Park, Sandyford, Dublin D18 X4F2, Ireland. The Company completed its Series C financing in November 2023, raising aggregate equity capital of €187 million and achieving a post-money valuation of €640 million. The lead investor in the Series C round was Alder Peak Ventures, LP, which holds approximately 22.6% of Solstice's fully diluted equity and maintains a board observer seat occupied by Raj Subramaniam. Alder Peak Ventures has been an active participant in the Company's strategic decision-making and has expressed particular interest in receiving regular updates regarding the US compliance program through its board information rights.
For the fiscal year ended December 31, 2023, Solstice reported revenue of €38.4 million, derived entirely from sales in the European Union and the United Kingdom. The Company has generated no prior US revenue, making the planned October 2024 launch its first entry into the US market.
In connection with its US expansion, Solstice secured a $35 million revolving credit facility from Northbridge National Bank, N.A., pursuant to a credit agreement dated December 12, 2023. Notably, the credit facility includes a covenant requiring the Company to maintain US regulatory compliance programs. Failure to establish and maintain such programs could constitute a covenant breach, potentially triggering default provisions and acceleration of amounts outstanding under the facility. This covenant provides additional financial impetus for the timely implementation of the compliance program recommendations set forth herein.
Solstice's statutory auditors are Pinnacle Auditing & Advisory LLP, with offices in Dublin and a US affiliate at 101 Federal Street, 22nd Floor, Boston, MA 02110. Any disclosure of this Report to Pinnacle or its US affiliate should be made only in accordance with the privilege considerations outlined in the Confidentiality and Privilege Notice above.
For purposes of US distribution, Solstice entered into an exclusive distribution agreement with Ascendant Distribution Solutions LLC ("ADS"), a Cleveland, Ohio-based medical device distributor with FY2023 revenue of approximately $214 million. The ADS Distribution Agreement (Reference No. SBD-ADS-2024-0315) was executed on March 15, 2024, and provides ADS with exclusive US distribution rights for the Pulsar CRM System across all 50 states and US territories. The ADS relationship is analyzed in detail in Section IV of this Report.
Solstice also retained Meridian Consulting Group LLC ("Meridian"), a specialized healthcare compliance consulting firm, in March 2024 to assist with the design and buildout of its US compliance program infrastructure. Meridian's engagement has been led by Dr. Lena Voss and James Cho, and their deliverables — including draft policies, training curricula, and program design recommendations — have been reviewed by C&H and incorporated into the legal analysis and recommendations contained in this Report.
I.C. Overall Risk Assessment Summary
Based on our comprehensive review of Solstice's planned US commercial operations, contractual arrangements, compensation structures, promotional materials, and compliance program infrastructure, C&H has assessed the Company's compliance risk profile across the key regulatory areas within the scope of this engagement. The following summary risk matrix presents our categorization of each major area as High, Medium, or Low risk:
Overall Conclusion: Solstice's planned US commercial program is fundamentally sound in its design and capable of achieving compliance with applicable federal and state laws, provided that the recommendations in this Report are implemented prior to the October 1, 2024 launch date. We have identified several time-critical remediation items — particularly with respect to the sales compensation accelerator structure, promotional materials revisions, ADS Distribution Agreement amendments, state registrations, and compliance training — that must be addressed on an expedited basis to meet the launch timeline. The prioritized recommendations and implementation timeline are set forth in Sections X.A and X.B below.
I.D. Key Recommendations Summary (Top 10 Priority Items)
The following ten items represent the highest-priority recommendations arising from our engagement. Each is discussed in detail in the relevant section of this Report. We strongly recommend that Solstice's leadership team treat these items as prerequisites to the October 1, 2024 launch.
1. Revise sales compensation plan to add compliance guardrails to the 2.0x accelerator. At a minimum, allocate 15–20% of variable compensation to compliance-based metrics, add contractual clawback provisions, and consider capping accelerated earnings at 200% of at-plan variable compensation per quarter. (See Section V.E.)
2. Complete state registrations in Vermont ($500/year) and Massachusetts ($2,000/year plus PhRMA/AdvaMed Code adoption attestation) immediately. Both registrations must be in effect before any commercial sales activity in those states. (See Sections III.B.1 and III.B.2.)
3. Amend ADS Distribution Agreement Sections 7 and 12 per proposed redlines. Proposed amendments strengthen sub-distributor compliance provisions, expand audit rights, and add Sunshine Act data-collection and reporting obligations. (See Section IV.E and Appendix D.)
4. Finalize CMS Manufacturer ID registration. The application was submitted in June 2024 and must be confirmed and finalized before the launch date to ensure Open Payments reporting capability. (See Section II.C.4.)
5. Establish Medical-Legal-Regulatory (MLR) review committee before promotional materials are finalized. No promotional materials, sales training content, or speaker slide decks should be disseminated without MLR committee approval. (See Section II.D.4.)
6. Revise identified promotional claims in draft sales materials to align with 510(k) cleared indications. Specific claims regarding device performance, comparative efficacy, and patient population scope require revision. Detailed redlines provided separately. (See Section II.D.2.)
7. Hire permanent US-based Compliance Officer by Q4 2024. The current arrangement of a Dublin-based interim Compliance Officer is insufficient for sustained US commercial compliance operations. (See Section VII.C.)
8. Roll out compliance training for all 53 US commercial employees before October 1, 2024. Training curriculum has been developed; delivery must be completed and certifications obtained before launch. (See Section VIII.A.)
9. Implement Open Payments tracking and data-collection system for CY2024. The system must be operational before the first transfer of value to a covered recipient, which will occur at or near launch. (See Section II.C.6.)
10. Execute California Fair Pricing Act disclosure. The Pulsar CRM System's wholesale acquisition cost (WAC) of $4,950 exceeds the $2,500 threshold triggering disclosure requirements under California law. (See Section III.C.)
II. FEDERAL COMPLIANCE FRAMEWORK
II.A. Federal Anti-Kickback Statute Analysis (42 U.S.C. § 1320a-7b(b))
II.A.1. Overview of the AKS. The federal Anti-Kickback Statute ("AKS") is the cornerstone federal statute governing financial relationships between medical device manufacturers and those who are in a position to refer, recommend, or arrange for the purchase or use of products reimbursable under federal healthcare programs, including Medicare and Medicaid. The AKS is codified at 42 U.S.C. § 1320a-7b(b) and prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration (whether in cash or in kind) to induce or reward the referral of patients, or the ordering, purchasing, leasing, recommending, or arranging for the ordering, purchasing, or leasing of any item or service reimbursable under a federal healthcare program.
The statute is broadly drafted and applies to both sides of a financial transaction: the party offering or paying remuneration (the "offer/payment" prong, 42 U.S.C. § 1320a-7b(b)(2)) and the party soliciting or receiving remuneration (the "solicitation/receipt" prong, 42 U.S.C. § 1320a-7b(b)(1)). Remuneration is defined expansively to include anything of value, whether direct or indirect, overt or covert, in cash or in kind.
Penalties. Violations of the AKS carry severe consequences. The statute is a criminal law provision, and willful violations constitute a felony offense punishable by imprisonment of up to five years, criminal fines of up to $100,000 per violation, or both. In addition, the Office of Inspector General of the Department of Health and Human Services ("OIG") may impose civil monetary penalties of up to $100,000 per violation pursuant to 42 U.S.C. § 1320a-7a, as well as treble damages. Perhaps most significantly, individuals or entities convicted of AKS violations are subject to mandatory exclusion from participation in all federal healthcare programs, which for a medical device manufacturer would effectively bar the company from the US market for products reimbursed by Medicare, Medicaid, TRICARE, and other federal programs.
Intent Standard. The Affordable Care Act ("ACA"), enacted in 2010, amended the AKS to clarify the intent standard. Under 42 U.S.C. § 1320a-7b(h), a person need not have actual knowledge of the statute or specific intent to commit a violation. This lowered intent standard means that the government is not required to prove that a defendant knew about the AKS or intended to violate it — only that the defendant's conduct was knowing and willful in the general sense of acting voluntarily and intentionally.
One-Purpose Test. Federal courts have consistently applied the "one-purpose test" in interpreting the AKS. Under this standard, remuneration violates the statute if even one purpose — among potentially several purposes — of the payment is to induce or reward referrals. The arrangement need not have inducement of referrals as its sole or even primary purpose; a single illegitimate purpose is sufficient to trigger liability. This broad standard significantly expands the range of arrangements that may be subject to AKS scrutiny and underscores the importance of structuring all financial relationships involving healthcare professionals and referral sources to satisfy an applicable statutory safe harbor.
The AKS has direct and significant implications for Solstice's planned US commercial operations, given that the Pulsar CRM System will be reimbursed under Medicare and Medicaid as a cardiac monitoring device implanted and used in the clinical setting. All financial arrangements between Solstice (or its distributor, ADS) and physicians, hospitals, health systems, and other healthcare professionals or entities that are in a position to order, recommend, or influence the purchase or use of the Pulsar CRM System must be carefully structured to comply with the AKS and, where possible, to satisfy one or more of the statutory safe harbors.
II.A.2. Applicable Safe Harbors. Congress authorized the OIG to promulgate regulatory safe harbors describing specific payment and business practices that, although potentially implicating the AKS, are not subject to criminal prosecution or civil sanctions. These safe harbors are set forth in 42 C.F.R. § 1001.952 and provide a "bright line" test: if an arrangement meets all elements of an applicable safe harbor, it is immune from AKS prosecution. Failure to satisfy a safe harbor, however, does not mean that an arrangement violates the AKS; it simply means that the arrangement must be evaluated on its facts and circumstances to determine whether it falls within the statute's prohibition.
Three safe harbors are of primary relevance to Solstice's planned US commercial arrangements:
Personal Services and Management Contracts Safe Harbor (42 C.F.R. § 1001.952(d)). This safe harbor protects payments made under an arrangement between a principal and an agent for the provision of personal services if the following conditions are met: (i) the arrangement is set out in writing and signed by the parties; (ii) the writing specifies the services to be provided by the agent; (iii) if the arrangement is intended to provide for services on a periodic, sporadic, or part-time basis, the writing specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals; (iv) the term of the arrangement is for not less than one year; (v) the aggregate compensation paid to the agent over the term of the arrangement is set in advance, is consistent with fair market value in arms'-length transactions, and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under a federal healthcare program; and (vi) the services performed under the arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law.
This safe harbor has direct application to Solstice's physician consulting agreements, speaker program agreements, and the ADS Distribution Agreement, each of which involves the payment of compensation for services rendered. The detailed analysis of each arrangement against the elements of this safe harbor is set forth in Section II.A.3 below.
Employee Safe Harbor (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 requires that the employee have a bona fide employment relationship — i.e., the employer treats the individual as a W-2 employee for federal employment tax purposes. This safe harbor is directly applicable to Solstice's sales compensation structure, as all territory managers, regional directors, and area VPs are W-2 employees of Solstice Biomedical Inc. The limitations of this safe harbor, particularly in the context of aggressive incentive compensation structures, are discussed in detail in Section V below.
discount Safe Harbor (42 C.F.R. § 1001.952(h)). This safe harbor may be relevant to Solstice's pricing arrangements with hospital and health system purchasers to the extent that Solstice offers discounts on the Pulsar CRM System or related components. The discount safe harbor requires, among other things, that the discount be properly disclosed and accurately reported by the buyer on applicable cost reports. While a full analysis of Solstice's pricing strategy is beyond the scope of this engagement, we note this safe harbor as potentially applicable and recommend that any discount arrangements be reviewed against its requirements before implementation.
II.A.3. Analysis of Specific Solstice Arrangements. ##### II.A.3.a. ADS Distribution Agreement — 18% Commission Structure
Overview. Under the ADS Distribution Agreement (Ref. SBD-ADS-2024-0315, dated March 15, 2024), Solstice has granted ADS exclusive US distribution rights for the Pulsar CRM System. ADS's compensation consists of a commission equal to 18% of net US sales, which, based on Solstice's Year-1 revenue projection of $26 million, is estimated to yield Year-1 commission payments to ADS of approximately $4.68 million.
Safe Harbor Analysis. The ADS Distribution Agreement has been structured to satisfy the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d). The key elements and our assessment are as follows:
• Written agreement: The ADS Distribution Agreement is a written, executed agreement signed by authorized representatives of both Solstice and ADS on March 15, 2024. This element is satisfied.
• Specification of services: The agreement identifies with specificity the distribution, marketing support, customer service, and logistics services to be provided by ADS. This element is satisfied.
• Term of at least one year: The agreement has a five-year initial term (March 15, 2024 through March 14, 2029) with two two-year renewal options. This element is satisfied.
• Aggregate compensation set in advance and consistent with FMV: The commission rate of 18% of net US sales is specified in the agreement, and the method of calculating compensation is determinable in advance. However, the critical question is whether the 18% commission rate is consistent with fair market value in arms'-length transactions for exclusive cardiac device distribution services of comparable scope. C&H has conducted preliminary benchmarking against publicly available industry data and comparable distribution arrangements, which suggests that exclusive cardiac device distribution commissions typically range from 12% to 22%, depending on the scope of services, exclusivity, product complexity, and market characteristics. The 18% rate falls within this range but is above the midpoint, and we were unable to identify a sufficient number of closely comparable arrangements to form a definitive FMV conclusion based on benchmarking alone. We therefore recommend that Solstice retain an independent fair market value assessment firm to prepare a formal FMV opinion confirming that the 18% commission rate is consistent with fair market value for the specific scope of services contemplated by the ADS Distribution Agreement.
• Compensation not determined in a manner taking into account volume or value of referrals: The 18% commission is calculated as a percentage of net US sales. In the context of a bona fide distribution arrangement, the OIG has recognized that percentage-based compensation tied to sales volume is not per se inconsistent with the personal services safe harbor, provided that the other safe harbor elements are met and that the percentage rate itself reflects fair market value. This element can be satisfied if the FMV requirement is met, but the percentage-of-sales structure warrants careful documentation.
Sub-Distributor Risk. The ADS Distribution Agreement permits ADS to engage up to five authorized sub-distributors to assist in the distribution of the Pulsar CRM System within the United States. Each sub-distributor is required to obtain Solstice's prior written approval and to execute a Compliance Certification. However, the current agreement provisions governing sub-distributor compliance are insufficiently detailed, as discussed further in Section IV.C below. Each layer of sub-distribution creates additional remuneration flows that must be analyzed under the AKS, and the potential for compliance gaps increases with each additional intermediary in the distribution chain. This is assessed as a High Risk area requiring immediate remediation through the proposed amendments to the ADS Distribution Agreement.
Recommendations:
• Retain an independent FMV assessment firm to prepare a formal fair market value opinion on the 18% commission rate.
• Execute the proposed amendments to Sections 7 and 12 of the ADS Distribution Agreement to strengthen sub-distributor compliance provisions, as detailed in Section IV.E and Appendix D.
• Ensure that all sub-distributor agreements include flow-down AKS compliance representations, warranties, and covenants.
##### II.A.3.b. Physician Consulting Agreements
Overview. Solstice plans to engage up to 35 physician consultants (Key Opinion Leaders / KOLs) during its first year of US commercialization. Consultants will provide advisory services relating to clinical application, product development feedback, and market insights. Compensation will be structured at hourly rates ranging from $350 to $500 per hour, tiered by specialty and academic rank, with an annual per-consultant cap of $12,000. Total maximum Year-1 consulting spend is projected at up to $420,000.
Safe Harbor Analysis (Personal Services and Management Contracts). Each physician consulting engagement must satisfy the elements of the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d) to receive safe harbor protection:
• Written agreement: Each consultant will execute a written consulting agreement using a template developed by C&H (delivered separately; see Appendix A). This element will be satisfied.
• Specification of services: Each consulting agreement will include an Exhibit A (Scope of Services) that specifically identifies the consulting services to be provided, including but not limited to clinical advisory board participation, product feedback sessions, market research interviews, and publication review. The scope of services must be defined with particularity for each engagement — generic or boilerplate descriptions of services should be avoided. This element can be satisfied with careful attention to the specificity of Exhibit A for each consultant.
• Term of at least one year: Consulting agreements will be structured with a one-year initial term. For engagements involving sporadic or part-time services, the agreement will specify the schedule of intervals, their precise length, and the exact charge for each interval. This element will be satisfied.
• Aggregate compensation set in advance and consistent with FMV: The hourly rate for each consultant will be specified in Exhibit B (Compensation Schedule), and the annual cap of $12,000 will be stated in the agreement. The question of whether the hourly rates are consistent with fair market value requires documentation. Preliminary benchmarking suggests that physician consulting rates for cardiac device manufacturers typically range from $300 to $600 per hour, depending on the consultant's specialty, geographic market, academic rank, and the nature of the services. The $350 to $500 range proposed by Solstice falls within this market range. However, we recommend that Solstice retain an independent FMV valuation firm to document the fair market value of physician consulting services at the proposed rates, stratified by specialty and academic rank, before executing the first consulting agreement.
• Compensation not tied to volume or value of referrals: The consulting agreements must not link compensation to the consultant's prescribing, ordering, or recommending patterns with respect to the Pulsar CRM System or any other Solstice product. Compensation must be for services actually rendered, and the selection of consultants must not be based on their volume of referrals or anticipated business generation. This element requires ongoing vigilance and documentation.
Selection Criteria and Legitimate Business Need. The AKS analysis does not end with safe harbor compliance. The OIG has consistently emphasized that physician consulting arrangements must serve a legitimate business need, that the number of consultants retained must be proportionate to that need, and that the selection of consultants must be based on objective criteria relating to their qualifications and expertise — not on their prescribing or ordering patterns. Solstice must maintain file documentation for each consulting engagement that includes: (i) a written statement of the legitimate business need for the engagement; (ii) the criteria used to select the consultant; (iii) evidence that the consultant's qualifications satisfy the selection criteria; and (iv) documentation of the deliverables produced by the consultant. Any engagement that lacks documented deliverables or a clear business purpose will be vulnerable to the inference that the payments were made to reward or induce referrals.
Recommendations:
• Retain an independent FMV valuation firm before executing physician consulting agreements.
• Require written deliverables for all consulting services rendered.
• Maintain documentation of selection criteria independent of prescribing or ordering patterns.
• Ensure that the number of consultants (up to 35 in Year 1) is proportionate to documented business needs.
##### II.A.3.c. Speaker Programs
Overview. Solstice plans to conduct 180 speaker programs in Year 1, consisting of 120 live presentations and 60 virtual presentations. Speaker honoraria will be set at $1,500 per live presentation and $750 per virtual presentation, with an annual per-speaker cap of $18,000. Estimated total Year-1 speaker program spend is approximately $225,000.
Safe Harbor Analysis. Speaker program agreements are analyzed under the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d), applying the same elements discussed above for consulting agreements. A template speaker program agreement has been developed by C&H (delivered separately; see Appendix B) and is designed to satisfy all safe harbor elements, including written agreement, specification of services (delivery of educational presentations using approved slide decks), annual term, and compensation set in advance at FMV.
Risk Areas. Speaker programs have been a significant area of enforcement focus for the OIG and the Department of Justice in recent years. The OIG has identified several features of speaker programs that may raise AKS concerns:
• Frequency of programs per speaker: Speakers who deliver a large number of programs may be perceived as receiving compensation for their prescribing or ordering activity rather than for legitimate educational services. The $18,000 annual cap corresponds to twelve live programs per speaker per year (12 × $1,500 = $18,000), which is at the higher end of typical industry caps. C&H recommends monitoring program frequency per speaker closely and investigating any speaker who approaches the annual cap to confirm ongoing legitimate educational need.
• Programs as reward for high-volume users: There is a risk that speaker program participation could be perceived — or could in fact function — as a reward for physicians who are high-volume users of the Pulsar CRM System. To mitigate this risk, speaker selection must be based on documented clinical expertise and presentation skills, not prescribing or ordering patterns. The speaker roster should be reviewed periodically to ensure that participation is not correlated with high prescribing volume.
• Attendee selection: Programs must be attended by healthcare professionals with a genuine educational need, not by individuals who are invited primarily to cultivate prescribing relationships. Solstice should maintain audience caps and document the educational purpose and target audience for each program.
• Venue selection: Programs held at lavish restaurants, resorts, or entertainment venues raise heightened scrutiny. Solstice's speaker program policy must prohibit programs at resort or entertainment venues and require that all programs be held in modest, business-appropriate settings.
Recommendations:
• Prepare needs-assessment documentation for each program, identifying the educational gap, target audience, and legitimate business purpose.
• Limit program frequency per speaker and monitor for anomalies.
• Maintain audience caps and document attendance at each program.
• Prohibit programs at resort or entertainment venues.
• Require use of Solstice-approved slide decks only; prohibit off-label discussion.
• Require speaker training completion before first presentation (see Section VIII.D).
##### II.A.3.d. Sales Compensation
Solstice's sales compensation structure raises important questions under the AKS, notwithstanding the broad protection afforded by the employee safe harbor. A detailed discussion of this topic, including the employee safe harbor analysis, OIG guidance, and specific recommendations regarding the 2.0x accelerator multiplier, is set forth in Section V of this Report.
##### II.A.3.e. Meal and Hospitality
Overview. Solstice's planned meal and hospitality program for healthcare professionals provides for a per-person cap of $150 per attendee per event, which is aligned with the AdvaMed Code of Ethics (2020 Revision). Meals are intended to be modest and incidental to legitimate educational purposes, such as speaker programs, product training sessions, or clinical advisory board meetings.
Analysis. The $150 per-person cap is consistent with industry standards and the AdvaMed Code. The OIG generally views modest meals provided in connection with legitimate educational programs as presenting low AKS risk, provided that they are not lavish, are not provided as standalone events without an accompanying educational purpose, and are not accompanied by entertainment. The key compliance requirements are: (i) maintain the $150 per-person cap and ensure it is not exceeded; (ii) document the educational purpose of each event at which meals are provided; (iii) prohibit entertainment, recreational activities, and gifts to attendees; and (iv) track all meal expenses for Open Payments reporting purposes.
Recommendation: Maintain the current cap and controls. No changes required, but ongoing monitoring of expense reports for compliance is recommended.
II.B. False Claims Act Analysis (31 U.S.C. §§ 3729–3733)
II.B.1. Overview. The federal False Claims Act ("FCA") imposes liability on any person who knowingly submits or causes the submission of a false or fraudulent claim for payment to the federal government, or who knowingly makes a false record or statement material to a false or fraudulent claim. The FCA's penalties are severe: violators are subject to treble damages (three times the amount of damages sustained by the government) plus per-claim civil penalties currently ranging from $13,946 to $27,894 per violation (adjusted for inflation as of 2024).
The FCA includes a robust qui tam (whistleblower) provision that permits private citizens — known as relators — to file suit on behalf of the government and to receive a share of any recovery, typically between 15% and 30%. The qui tam mechanism has made the FCA one of the most powerful and frequently invoked tools in federal healthcare fraud enforcement. Relators in the medical device industry are frequently current or former employees, including sales representatives, who have firsthand knowledge of potentially non-compliant practices.
Of particular significance for Solstice, the ACA amended the AKS to include an express provision at 42 U.S.C. § 1320a-7b(g) stating that a claim for items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. This statutory nexus means that AKS violations are not merely criminal and administrative risks — they also give rise to treble-damages FCA liability for every claim submitted to Medicare, Medicaid, or other federal healthcare programs that is tainted by the underlying AKS violation.
II.B.2. Implied Certification Theory. The implied certification theory of FCA liability holds that when a party submits a claim for federal healthcare program reimbursement, it impliedly certifies compliance with the laws, regulations, and contractual conditions that are prerequisites to payment — including compliance with the AKS. In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the Supreme Court endorsed the implied certification theory, holding that the FCA can be violated when a party submits a claim for payment that makes specific representations about the goods or services provided but omits its violations of legal requirements that are material to the government's payment decision.
Under the Escobar framework, the materiality of the omitted information is assessed by examining, among other factors, whether the government consistently refuses to pay claims when it discovers noncompliance with the requirement at issue. The government has successfully argued in numerous cases that compliance with the AKS is material to Medicare and Medicaid payment decisions, and courts have generally agreed.
Relevance to Solstice. The Pulsar CRM System will be reimbursed under Medicare Part B and Medicaid for implantation and monitoring procedures. Each claim for reimbursement of a Pulsar CRM System-related procedure submitted by an implanting hospital, ambulatory surgical center, or physician practice impliedly certifies compliance with applicable federal healthcare program requirements, including the AKS. If any of Solstice's financial arrangements with physicians, distributors, or other referral sources are found to violate the AKS, the government (or a qui tam relator) could pursue FCA claims based on every Medicare or Medicaid claim associated with the tainted arrangement. Given the projected Year-1 revenue of $26 million and the likelihood that a significant portion of that revenue will be derived from Medicare and Medicaid-reimbursed procedures, the potential FCA exposure is substantial.
II.B.3. Risk Mitigation. The existence of a robust compliance program is a significant mitigating factor in government enforcement decisions regarding FCA liability. The DOJ's guidance on corporate compliance programs, as well as OIG guidance, recognizes that the existence and effectiveness of a company's compliance program may be considered in determining whether to bring an enforcement action, the terms of any settlement, and the severity of any penalties imposed.
Specific risk mitigation measures for Solstice include:
• Internal reporting mechanisms. Solstice has contracted with Clearpath Ethics Services Inc. to provide a 24/7 anonymous compliance hotline (telephone and web-based), which will enable employees, contractors, and distributor personnel to report suspected compliance violations confidentially and without fear of retaliation. The hotline is discussed further in Section VII.E.
• Prompt self-disclosure. In the event that Solstice identifies a potential AKS or FCA violation, the Company should consider voluntary self-disclosure to the OIG under its Self-Disclosure Protocol. Prompt self-disclosure demonstrates good faith and typically results in significantly reduced penalties compared to government-initiated investigations.
• Robust documentation and monitoring. Meticulous documentation of all financial arrangements with healthcare professionals and referral sources, including FMV analyses, business need justifications, and deliverables, is essential to demonstrating that arrangements were structured in good faith to comply with the AKS and applicable safe harbors.
II.C. Physician Payments Sunshine Act / Open Payments Compliance (42 U.S.C. § 1320a-7h)
II.C.1. Statutory and Regulatory Overview. The Physician Payments Sunshine Act, codified at 42 U.S.C. § 1320a-7h, requires applicable manufacturers of covered drugs, devices, biologicals, and medical supplies to report annually to the Centers for Medicare & Medicaid Services ("CMS") certain payments and other transfers of value made to covered recipients. CMS publishes this data on its Open Payments website, making it available for public viewing.
An "applicable manufacturer" is defined to include any entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply and that operates in the United States, or is under common ownership with an entity that operates in the United States, and that has a covered product. Solstice Biomedical Inc. qualifies as an applicable manufacturer upon the commercial launch of the Pulsar CRM System, which is an FDA-cleared Class II medical device and therefore a covered product.
"Covered recipients" include physicians (as defined by the Social Security Act, including doctors of medicine, osteopathy, dentistry, podiatry, optometry, and chiropractic) and teaching hospitals. The 2022 amendments to the statute expanded the definition of covered recipients to include physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives, with reporting beginning for data collected in CY2022.
Categories of reportable payments and transfers of value include, but are not limited to: consulting fees, honoraria, gifts, entertainment, food and beverage, travel and lodging, education, research, charitable contributions, royalties or licenses, current or prospective ownership or investment interests, and compensation for services other than consulting.
II.C.2. Reporting Thresholds (CY2024). For calendar year 2024, the per-instance reporting threshold is $12.49, and the aggregate annual threshold is $100 per covered recipient. Any individual payment or transfer of value meeting or exceeding $12.49 must be reported. Additionally, if the aggregate value of all payments or transfers of value to a single covered recipient in a calendar year meets or exceeds $100, all such payments — including those individually below the $12.49 threshold — must be reported. These thresholds are indexed by CMS and updated periodically.
Given the magnitude of Solstice's planned physician consulting fees (up to $12,000 per consultant), speaker honoraria ($750 to $1,500 per presentation), and meal and hospitality expenditures ($150 per-person cap), virtually all payments and transfers of value to covered recipients will exceed the per-instance threshold and must be tracked and reported.
II.C.3. Estimated Year-1 Reportable Transfers. Based on Solstice's planned physician engagement programs and commercial activities, C&H estimates that total Year-1 reportable transfers of value will be approximately $650,000, broken down as follows:
This estimate represents a significant reporting obligation, and the data collection and tracking infrastructure must be robust enough to capture, validate, and report every reportable transfer of value accurately and on time.
II.C.4. CMS Registration and Reporting. Solstice submitted its CMS Manufacturer ID application in June 2024. As of the date of this Report, the application remains pending. It is critical that this registration be finalized before the October 1, 2024 launch date to ensure that Solstice is prepared to comply with its Open Payments reporting obligations from the first day of commercial activity.
Reportable data for CY2024 must be submitted to CMS by March 31, 2025. Before the data is published, covered recipients will have a 45-day review window to dispute or correct data attributed to them. Solstice must be prepared to manage this dispute resolution process efficiently.
Recommendation: Confirm CMS Manufacturer ID registration status on an expedited basis. If the application has not been processed by September 1, 2024, contact CMS directly to ensure timely completion.
II.C.5. Distributor Pass-Through Reporting. Under the Open Payments regulations, an applicable manufacturer is responsible for reporting not only payments and transfers of value that it makes directly to covered recipients, but also those made by agents, distributors, or other third parties acting on its behalf or at its direction. This "pass-through" reporting requirement has direct implications for Solstice's relationship with ADS.
Under the current ADS Distribution Agreement, ADS is authorized to engage in certain marketing support and customer service activities that may involve transfers of value to covered recipients — including, for example, meals provided at product training events, educational materials, or other items of value. To the extent that ADS makes such transfers of value on behalf of or at the direction of Solstice, those transfers are reportable by Solstice under Open Payments.
The current ADS Distribution Agreement does not contain sufficiently detailed provisions regarding ADS's obligations to track and report transfers of value to covered recipients. C&H has proposed amendments to the agreement to add explicit Sunshine Act data-collection and reporting obligations, including requirements that ADS: (i) track all transfers of value to covered recipients made in connection with the Pulsar CRM System; (ii) report such data to Solstice in a format and on a timeline that enables Solstice to meet its CMS reporting deadlines; and (iii) impose flow-down reporting requirements on any sub-distributors engaged by ADS.
These proposed amendments are detailed in Section IV.E and Appendix D.
II.C.6. Recommendations.
1. Assign Open Payments reporting responsibility to Theresa Brennan (Director, US Regulatory Affairs), with compliance oversight by Siobhán Mulcahy (Head of Global Compliance / interim US Compliance Officer) or her successor.
2. Implement an automated tracking system for Open Payments data collection, integrated with Solstice's customer relationship management (CRM) platform and expense management system. The system must be capable of capturing, in real time, all transfers of value to covered recipients, including consulting fees, speaker honoraria, meals, travel, and any other items of value. The system should generate reports in CMS-compatible format and include data validation tools to ensure accuracy.
3. Establish a dispute resolution and data review process to manage the 45-day physician review window preceding CMS publication.
4. Implement data validation procedures and quality controls, including periodic reconciliation of Open Payments tracking data against accounts payable records, consulting and speaker program records, and expense reports.
5. Ensure ADS reporting obligations are formalized through the proposed Distribution Agreement amendments before the launch date.
II.D. FDA Promotional and Advertising Compliance
II.D.1. Regulatory Framework for Class II Device Promotion. The Pulsar CRM System received FDA 510(k) clearance on February 9, 2024, under Clearance No. K232847, as a Class II medical device. As a 510(k)-cleared device, the Pulsar CRM System may be legally marketed in the United States for its cleared intended use: continuous cardiac rhythm monitoring in adult patients with suspected or documented cardiac arrhythmias. All promotional and advertising claims must be consistent with this cleared indication for use.
The regulatory framework governing the promotion and advertising of medical devices is grounded in the Federal Food, Drug, and Cosmetic Act ("FD&C Act"), particularly Sections 301 (prohibited acts), 502 (misbranding), and 510(k) (premarket notification), as well as the implementing regulations in Title 21 of the Code of Federal Regulations, particularly Parts 801 (labeling), 807 (premarket notification), and 812 (investigational device exemptions). Promotional materials for medical devices are subject to the general prohibition on misbranding under Section 502 of the FD&C Act, which provides that a device is misbranded if its labeling is false or misleading in any particular, or if its labeling fails to bear adequate directions for use.
The prohibition on off-label promotion is a fundamental principle of FDA device regulation. While healthcare professionals may use FDA-cleared devices for off-label purposes in the exercise of their independent medical judgment, manufacturers are prohibited from promoting their devices for uses beyond the cleared indications. Off-label promotion may result in regulatory enforcement actions, including warning letters, seizure orders, injunctions, and civil or criminal penalties. The recent focus on off-label promotion enforcement, particularly in the device context, underscores the importance of ensuring that all of Solstice's promotional claims are strictly aligned with the Pulsar CRM System's cleared intended use.
II.D.2. Review of Draft Promotional Materials. C&H, in consultation with Meridian Consulting Group, conducted a detailed review of Solstice's draft promotional materials, including sales aids, detail pieces, website content, and sales training decks, prepared under the direction of Patrick Dunne, Director, US Marketing. The review identified several areas requiring revision to ensure alignment with the 510(k) cleared indications and applicable FDA requirements:
1. Performance claims exceeding scope of 510(k) clearance data. Certain draft materials included quantitative performance claims — including statements regarding detection sensitivity and specificity rates — that were derived from internal bench testing or non-US clinical data not included in the 510(k) submission. Promotional claims must be limited to data that is substantiated by the evidence submitted to and reviewed by FDA in the 510(k) clearance process, or that can be independently substantiated through truthful and non-misleading means. We have identified specific claims in the draft materials that require deletion or revision, as detailed in the separate promotional materials redline deliverable.
2. Comparative claims against predicate device. The draft materials contained several comparative claims against the CardioStar™ SC-200, the predicate device manufactured by Vantage Medical Technologies Inc. (510(k) No. K201156). While comparative claims are not per se prohibited, they must be truthful, non-misleading, and adequately substantiated. Certain of the comparative claims in the draft materials — particularly those asserting superior battery life, smaller device footprint, and faster data transmission speed — require substantiation through head-to-head testing or other reliable data. In the absence of such substantiation, these claims should be revised to remove the comparative element or to include appropriate qualifiers and disclosures.
3. Draft website language implying broader patient population. Portions of the draft website copy described the Pulsar CRM System in terms that could be interpreted as suggesting its applicability to pediatric patients or to patient populations not within the cleared intended use (adult patients with suspected or documented cardiac arrhythmias). This language must be revised to clearly delineate the cleared patient population and to avoid any implication of a broader intended use.
4. Fair balance. Several draft materials lacked adequate presentation of risks, contraindications, and warnings alongside efficacy and performance claims. FDA requires that promotional materials present a fair balance of information regarding the benefits and risks of a device. All promotional materials must be revised to include a balanced presentation of risks, contraindications, and warnings drawn from the device's labeling.
Specific recommended revisions have been provided in a separate attachment (promotional materials redline), which has been delivered to Patrick Dunne and Theresa Brennan for implementation.
II.D.3. Form 2253 Obligations. Under 21 C.F.R. § 807.81(a)(3), the manufacturer of a 510(k)-cleared device must submit advertisements and promotional labeling to FDA at the time of initial dissemination. This submission is made using FDA Form 2253 ("Premarket Notification: Advertisement and Promotional Labeling for Devices"). Solstice must file Form 2253 with each new advertisement or piece of promotional labeling at the time it is first disseminated. Responsibility for Form 2253 filings should be assigned to Theresa Brennan (Director, US Regulatory Affairs), who should maintain a tracking log of all filings.
II.D.4. Medical-Legal-Regulatory (MLR) Review Committee. C&H strongly recommends that Solstice establish a permanent Medical-Legal-Regulatory (MLR) Review Committee before any promotional materials are finalized or disseminated in connection with the US launch. The purpose of the MLR Committee is to ensure that all promotional materials, sales training content, speaker slide decks, website content, social media posts, and other public-facing communications are reviewed and approved for regulatory compliance before use.
Proposed Composition:
• Patrick Dunne — Director, US Marketing (marketing perspective)
• Theresa Brennan — Director, US Regulatory Affairs (regulatory review)
• Dr. Nadia Farouk — VP, Medical Affairs (medical/clinical accuracy review)
• Siobhán Mulcahy or designated US Compliance Officer (compliance review)
Scope of Review: All promotional materials, detail pieces, sales aids, website content, press releases, social media posts, speaker slide decks, product training materials, and any other materials that contain claims or representations about the Pulsar CRM System must receive MLR Committee approval prior to external use.
A detailed standard operating procedure (SOP) for the promotional materials review process has been prepared and is provided in Appendix C.
II.D.5. Social Media and Digital Marketing. Solstice's US marketing strategy includes a digital marketing component that involves social media platforms, the Company's website, email marketing, and potentially other digital channels. The promotion of medical devices through digital and social media channels is subject to the same FDA requirements that apply to traditional promotional materials, including the prohibition on off-label promotion, the requirement for fair balance, and the requirement for truthful and non-misleading claims.
FDA has issued several guidance documents addressing the use of internet and social media for device promotion, including "Internet/Social Media Platforms: Correcting Independent Third-Party Misinformation About Prescription Drugs and Medical Devices" (2014, revised) and "Internet/Social Media Platforms with Character Space Limitations: Presenting Risk and Benefit Information for Prescription Drugs and Medical Devices" (2014). These guidances provide frameworks for presenting risk and benefit information on character-limited platforms (such as Ashford Systems and paid search advertisements) and for correcting misinformation posted by independent third parties.
Solstice should implement the following controls for social media and digital marketing:
• All social media posts related to the Pulsar CRM System must be pre-approved by the MLR Committee.
• Sales personnel must not post unapproved promotional claims about the Pulsar CRM System on personal or professional social media accounts.
• KOL speakers must be informed that their social media posts about the Pulsar CRM System, if they relate to their engagement as a Solstice speaker, may be attributable to Solstice and must comply with applicable FDA requirements.
• Solstice should monitor its social media channels and the social media posts of engaged speakers for off-label claims or other non-compliant content.
III. STATE-BY-STATE COMPLIANCE REQUIREMENTS AND ACTION ITEMS
III.A. Overview and Methodology
In addition to the federal regulatory framework described in Section II, Solstice's US sales and marketing activities are subject to a patchwork of state laws and regulations that impose additional requirements on medical device manufacturers, including manufacturer registration, aggregate spend reporting, gift bans, marketing code adoption mandates, and pricing transparency disclosures. These state-level requirements vary significantly in scope, applicability, and enforcement and must be addressed on a jurisdiction-by-jurisdiction basis.
C&H surveyed twelve jurisdictions for purposes of this engagement: California, Colorado, Connecticut, Louisiana, Maine, Massachusetts, Minnesota, Nevada, New Jersey, Oregon, Vermont, and Washington, D.C. These jurisdictions were selected based on the presence of specific device or pharmaceutical marketing laws, gift bans, aggregate spend reporting requirements, or registration requirements that are directly applicable to Solstice's planned US commercial activities. The selection was informed by Solstice's initial sales territory deployment plan and the geographic distribution of target implanting centers and cardiac electrophysiology practices.
It is important to note that this analysis does not cover all 50 states and the District of Columbia. As Solstice's commercial footprint expands beyond the initial launch territories, additional states may impose requirements that necessitate further review. C&H recommends that the Company conduct supplemental state-law analyses as it enters new markets.
III.B. States Requiring Registration or Fee Payment
III.B.1. Vermont. Vermont requires manufacturers of prescription drugs and medical devices to register with the Vermont Office of the Attorney General before engaging in marketing activities within the state.