How to Report the Value and Terms of an Investment Interest (42 CFR § 403.904(e)(3))

Under the Sunshine Act, manufacturers and group purchasing organizations must publicly report physicians’ ownership or investment interests. For small practices, the most consequential line item is the requirement to report the value and terms of such interests under 42 CFR 403.904(e)(3). Getting those two words, value and terms, right determines whether the public record accurately reflects the economic reality and whether your practice can quickly resolve manufacturer questions during the annual review window.

“Value” is not a guess; it must be supported by documents such as brokerage statements, cap tables, or note ledgers. “Terms” are not a narrative; they must specify the instrument’s deal points (for example, percentage ownership, vesting, interest rate, maturity, put/call rights, and transfer restrictions) consistent with 403.904(e)(3) and related definitions in 403.902. A simple intake form and a compact evidence bundle for each interest will let your clinic respond swiftly to filer validations, protect reputation, and reduce the risk of protracted disputes.

Most small practices think “Open Payments” equals lunches and honoraria. But if a physician (or an immediate family member) holds stock, partnership units, LLC membership interests, convertible notes, or options in a manufacturer or a GPO, the ownership or investment interest must be reported, including its value and terms. Because the filing obligation sits with manufacturers/GPOs, your clinic’s best defense is a consistent, objective set of documents that prove what the interest is worth and what the contractual terms are on the date the filer measured them.

This article translates 42 CFR 403.904(e)(3) into a step-by-step, low-cost operational playbook designed for lean teams. You will learn the exact data to assemble, the documents that prove it, and the governance cadence that keeps you ready for CMS’s annual review and dispute window without hiring new staff.

Legal Framework & Scope Under 42 CFR 403.904(e)(3)

What the rule requires.
 Section 403.904(e) sets the reporting requirements for physician ownership or investment interests held in applicable manufacturers or GPOs. Subparagraph (e)(3) requires reporting the value of the interest and the terms of the interest. In practice, “value” refers to a determinable monetary figure at the relevant point in time, and “terms” refers to the contractual/economic features that define the interest (e.g., instrument type and rights). The filer also reports identity elements (e.g., physician and entity information) and other required data under 403.904(e).

Definitions you must use.
 The terms “ownership or investment interest,” “covered recipient,” and “immediate family member” are defined in 42 CFR 403.902. Those definitions capture a wide set of instruments, equity, debt, and other arrangements, and they extend to interests held by immediate family members when linked to the physician.

Distinguishing federal vs. state layers.
 The federal Open Payments program sets the public reporting baseline. States and institutions may impose separate COI disclosures for employment or credentialing, but those do not change the federal duty to report the value and terms under 403.904(e)(3). Your clinic can keep state/COI processes separate while ensuring the federal evidence bundle remains complete and dispute-ready.

Operational impact.
 Accurate “value and terms” reporting reduces: (1) data calls from manufacturers during compilation, (2) post-submission disputes that consume staff time, and (3) reputational risk from entries that misrepresent the scope of a clinician’s financial ties. A well-structured file tied to 403.904(e)(3) is the fastest way to resolve questions without escalation.

CMS administers Open Payments, setting data specifications, overseeing filer submissions, and hosting the review/dispute period. Small practices are implicated when:

• A manufacturer/GPO contacts your clinic to confirm the value method or obtain documents supporting the terms (for example, a partnership agreement).

• A physician sees a public entry whose value appears inflated or whose terms are mis-stated, triggering a dispute.

• Media or payers query entries that suggest an outsized economic relationship, requiring you to produce objective proof of the instrument’s value and terms.

While CMS audits manufacturers/GPOs rather than clinics, your clinic’s documentation discipline determines how easy it is to correct an over- or under-stated entry during the review window. The quicker you can supply dated, authoritative documents, the quicker the filer can correct.

Below is a compact set of controls that transform 403.904(e)(3) into everyday practice. Each control includes how to implement, evidence to retain, and a low-cost method, and each maps directly to the rule.

Control 1. Build a single “Ownership & Investment Intake Form” keyed to 403.904(e)(3)

How to implement. Create a one-page form for each physician (and immediate family member) interest in a manufacturer or GPO. Required fields: issuer legal name, instrument type (stock, partnership/LLC units, note/loan, option/RSU, warrant), acquisition date, measurement date, monetary value, and terms (e.g., % ownership, voting rights, vesting, interest rate, maturity, convertibility, transfer restrictions).

 Evidence to retain. Brokerage statement or cap table for equity; note/ledger for loans; plan or option agreement for equity awards; operating/partnership agreement for units. Tie each datum to a document.

 Low-cost method. Google Forms or a locked spreadsheet tab with drop-downs for instrument type and a text field for “terms summary.”

 Authority. 42 CFR 403.904(e)(3) (value and terms reporting).

Control 2. Define a valuation method per instrument and keep it stable

How to implement. Adopt a simple, supportable rule per instrument type:

• Public stock: last closing price on the measurement date multiplied by shares held.

• Private units: most recent board-approved price or third-party valuation; if unavailable, use latest arm’s-length transaction price.

• Notes/loans: outstanding principal plus any accrued interest on measurement date.

• Options/RSUs: for “value,” document the fair value or intrinsic value that the filer is using; clinic should keep the grant and vesting documentation, so the filer can apply its policy.

 Keep a short memo stating the method used.

 Evidence to retain. Price source (ticker snapshot), cap table, purchase agreement, term sheet, note ledger, grant letter.

 Low-cost method. A two-column “Method / Source Doc” box at the top of each evidence bundle.
 Authority. 42 CFR 403.904(e)(3) (must report value).

Control 3. Standardize the “terms” summary with mandatory fields

How to implement. Force six terms fields for every interest: instrument type; % ownership or units/shares; voting/control rights; vesting or lock-up; transfer restrictions; economic rights (dividend/interest/convertibility/maturity).

 Evidence to retain. Operating agreement sections; shareholder agreement; option plan; note. Highlight relevant clauses.

 Low-cost method. A template paragraph with bracketed inserts: “On [date], Physician acquired [instrument] representing [X units/%], with [voting], [vesting], [transfer restriction], and [economic right] per [document section].”

 Authority. 42 CFR 403.904(e)(3) (must report terms).

Control 4. Maintain a two-lane map: transfer-of-value vs. ownership reporting

How to implement. In your registry, add two distinct flags: “Transfer-of-Value” (403.904(b) categories) and “Ownership/Investment” (403.904(e)). This prevents staff from confusing a stock grant (transfer) with a standing ownership (e).

 Evidence to retain. Separate folders: “(b) Transfers” vs “(e) Ownership.” Cross-reference only when a single event creates both.

 Low-cost method. Color-code registry rows (e.g., blue for (e), green for (b)).

 Authority. 42 CFR 403.904(b) and 403.904(e); your article’s focus is (e)(3).

Control 5. Tie family holdings to the same evidence standard

How to implement. Ask physicians to disclose relevant immediate family holdings. Apply the same valuation and terms template. Clarify whether the interest is directly in the manufacturer/GPO versus held through mutual funds (transfer exclusions live elsewhere, but ownership can still apply if the family directly owns the issuer).

 Evidence to retain. Redacted statements, membership certificates, or note documents showing title and terms.

 Low-cost method. A privacy-aware attestation with a secure upload link for proofs.

 Authority. 42 CFR 403.902 (immediate family); 42 CFR 403.904(e)(3).

Control 6. Lock a “measurement date” for each cycle and calendar the review window

How to implement. Even though filers choose their own data cut, your clinic should pick a consistent internal measurement date (e.g., Dec 31) for assembling value proofs and terms summaries so you can respond quickly to inquiries. Set calendar reminders 30 days before the CMS review/dispute window to reconfirm access and freeze the evidence bundles.

 Evidence to retain. Dated screenshots/ PDFs of statements as of the measurement date; calendar invites for readiness drills.

 Low-cost method. Shared calendar with “evidence freeze” and “portal check” entries.

 Authority. 42 CFR 403.904(e)(3) (value reporting requires a determinable date).

Control 7. Prepare a one-page dispute brief template

How to implement. When a manufacturer’s reported value or terms appears wrong, your dispute brief should: (1) cite 403.904(e)(3), (2) state your valuation method, (3) attach the source document page(s), and (4) quote the contract clause that controls the term at issue.

 Evidence to retain. The brief itself plus supporting exhibits and an email trail.

 Low-cost method. A fill-in PDF or mail-merge doc with placeholders.

 Authority. 42 CFR 403.904(e)(3) and the general dispute process under 403.904.

Playbook wrap-up: These seven controls let lean clinics prove value and terms decisively with minimal overhead, aligning daily operations with 403.904(e)(3) and shortening any dispute.

Case Study

Scenario (de-identified). A family medicine physician acquired 2% LLC membership units in a small device manufacturer five years ago for $20,000. The operating agreement gives pro-rata distributions, no special voting rights, and right of first refusal on transfers. Last year the issuer issued a convertible note to all members; the physician subscribed for $10,000, 6% interest, maturity in 24 months, convertible at a 20% discount in a qualified financing. During the Open Payments cycle, the manufacturer reports: value = $100,000 and “terms = preferred equity with board seat” for the physician’s interest.

Problems.

1. The filer used a company valuation that implies 2% equals $100,000, but the physician has no appraisal or transaction to support that number, and the filer appears to have misread the cap table.
   
   
2. The filer described terms that do not match the physician’s LLC units (no preferred equity, no board seat).
   
   
3. The filer omitted the convertible note detail that affects economic rights but is not itself “preferred equity.”
   
   

Clinic response (using the playbook).

• Provide the intake form showing instrument type (LLC units), original investment of $20,000, and no subsequent arm’s-length pricing.

• Attach the operating agreement sections proving: no preferred class, no board seat, transfer restrictions, and pro-rata distribution rights.

• Provide the subscription agreement for the convertible note (6%, 24-month maturity, 20% discount) and the outstanding principal as of the measurement date for the note’s value.

• Submit a one-page dispute brief citing 403.904(e)(3) and proposing corrected entries: (1) Value of equity = most recent determinable basis (original $20,000) absent a later arm’s-length price; (2) Terms = LLC units (no preference), percentage interest, transfer restriction, and distribution rights; (3) Value and terms of the note reported separately (principal outstanding, interest rate, maturity, convertibility clause).

Outcome. The manufacturer accepts the documents, corrects the term description for the LLC units, and separates the note as a distinct interest with its own value and terms. The corrected public profile aligns with economic reality, and the clinic retains the dispute brief for future cycles.

Checklist wrap-up: These tasks make your “value and terms” reporting defensible and fast to verify, which reduces corrections and reputational exposure under 403.904(e)(3).

Risk Traps & Fixes Under 42 CFR 403.904(e)(3)

Before listing traps, remember the linkage: value must be a determinable figure, and terms must reflect the instrument’s real rights and restrictions. Each error below includes the legal reference and a practical consequence.

• Trap: Using speculative enterprise valuations for “value.”

   Fix: Anchor value to a determinable basis, closing price for public shares, last arm’s-length transaction, board-approved price, or outstanding principal for notes, supported by documents; cite 403.904(e)(3).

   Consequence: Avoids inflated public entries and dispute friction.

• Trap: Describing terms generically (e.g., “equity interest”) without rights.

   Fix: Summarize six mandatory fields (type, %, voting, vesting/lock-up, transfer restrictions, economic rights) and quote the governing document; cite 403.904(e)(3).

   Consequence: Reduces clarifying data calls from filers.

• Trap: Collapsing distinct interests into one line (equity + convertible note).

   Fix: Treat each instrument as its own interest with separate value and terms; cite 403.904(e)(3).

   Consequence: Prevents misstatements that mislead payers/media.

• Trap: Mixing ownership with transfers-of-value workflows.

   Fix: Maintain separate (b) vs (e) folders and registry flags so a stock grant (transfer) does not distort the ownership value/terms report; cite 403.904(b) and 403.904(e)(3).

   Consequence: Prevents double-counting and classification errors.

• Trap: Ignoring immediate family member interests.

   Fix: Apply the same value and terms template to family holdings when they constitute reportable ownership/interests; use 403.902 definitions and 403.904(e)(3).

   Consequence: Avoids omissions that undermine transparency.

• Trap: No “measurement date” discipline.

   Fix: Freeze evidence as of a consistent annual measurement date; footnote if a later arm’s-length price supersedes prior figures; cite 403.904(e)(3).

   Consequence: Speeds verification and dispute resolution.

Wrap-up: Addressing these traps ensures that the public record mirrors the real economics and that your clinic can prove it quickly under 403.904(e)(3).

Keep the process small and rhythmic. Appoint one compliance lead to own the intake form, evidence bundle, and dispute template. Designate a physician delegate in the CMS portal so the clinic, not a distracted inbox, receives the pre-publication notices. Train staff in 15-minute bursts: how to tell equity from debt, how to find the six terms fields in a document, and when to escalate a new investment for intake.

Track two metrics: (1) percentage of interests with a complete evidence bundle (target: 100%), and (2) average turnaround time from a manufacturer’s data call to sending back a complete package (target: under 3 business days). Those numbers demonstrate operational control if anyone asks, and they reduce the risk of inaccurate public entries that require time-consuming disputes.

The single fastest way to reduce Open Payments friction is to master “value and terms” under 42 CFR 403.904(e)(3). If your clinic can show, in one click, what an interest is worth and which rights it carries, manufacturers can file accurately the first time, and you can fix mistakes quickly during the review window.

Next steps for a small clinic (immediate and concrete):

1. Deploy the Ownership & Investment Intake Form today and collect one form per interest (physician and immediate family).

2. Assemble an evidence bundle for each interest: value proof and the governing document pages that show the six terms fields.

3. Split your registry into (b) Transfers and (e) Ownership with clear flags, and set a measurement date.

4. Create a one-page dispute brief template keyed to 403.904(e)(3) with slots for value method, terms citations, and exhibits.

5. Calendar the review window and run a 20-minute “readiness drill” to confirm portal access and that each bundle opens cleanly.

• 42 CFR 403.904 — Reports of payments or other transfers of value and of physician ownership or investment interests
  

• 42 CFR 403.902 — Definitions (Open Payments)

• 42 U.S.C. 1320a-7h — Transparency reports and reporting of physician ownership or investment interests