The Exclusion for Publicly Traded Securities: When Disclosure is Not Required (42 CFR § 403.904(i)(7))

For small practices, the Sunshine Act’s Open Payments program is not only about meals and honoraria, it also touches securities and funds. The publicly traded securities' exclusion at 42 CFR 403.904(i)(7) can remove certain transactions from payment/transfer-of-value reporting, but it does not carte blanche erase ownership reporting where required under 403.904(e). Misunderstanding that boundary is a common reason for erroneous listings or missed disputes.

In plain terms, (i)(7) generally excludes value routed through publicly traded securities or mutual funds, particularly where the covered recipient does not control specific investment decisions. However, stock grants, RSUs, options, warrants, or directed equity given by a manufacturer to a physician are not protected by (i)(7) and are typically reportable as transfers of value under 403.904(b), with physician ownership separately handled under 403.904(e). A lean, evidence-first workflow helps small clinics decide what is excluded, what is reportable, and how to prove the decision quickly during CMS’s review window.

Public reporting is unforgiving when securities are involved. Patients and payers will not parse regulatory subparagraphs; they will see only a name and a number. Your job is to anticipate which securities-related items must be reported, which are excluded under 403.904(i)(7), and where ownership reporting under 403.904(e) still applies. Because manufacturers and GPOs file the data, a clinic’s leverage comes from having a short, consistent set of documents that prove why a securities' situation is or is not reportable.

This article provides a practical, small-practice playbook to classify securities and fund scenarios quickly, tie each decision to 42 CFR 403.904(i)(7) or the appropriate reporting rule, and assemble the proof manufacturers need to file accurately, or to correct postings during the dispute period.

Legal Framework & Scope Under 42 CFR 403.904(i)(7)

What (i)(7) covers.
 Section 403.904(i) lists exclusions from reporting payments or other transfers of value. Subparagraph (i)(7) addresses publicly traded securities and mutual funds. In effect, if the value arises through holdings like exchange-listed stocks or mutual funds, particularly where the covered recipient does not control specific investment choices, those flows are excluded from the payment/transfer reporting regime.

What (i)(7) does not cover.
 The exclusion does not shield directed, company-originated equity compensation (e.g., a manufacturer grants a physician stock, RSUs, or options) because the company is knowingly providing value to a named covered recipient. Those items fall in the reportable categories under 403.904(b) (e.g., compensation, gifts, or other enumerated categories) and often also create a reportable ownership entry under 403.904(e).

Interaction with ownership reporting.
 Ownership is handled by 403.904(e). Even if a dividend paid by a public company via a brokerage account is excluded as a transfer under (i)(7), a physician’s ownership or investment interest in a manufacturer or GPO may still be separately reportable under 403.904(e) with identity and financial elements. In other words, (i)(7) is not a universal shield: it lives in the transfer world, while 403.904(e) governs ownership disclosures.

Key definitional hooks.
 Terms like “covered recipient,” “immediate family member,” and “ownership or investment interest” come from 403.902. These definitions determine who can be linked to a report and what constitutes an interest requiring disclosure. Keeping definitions in view prevents two common errors: (1) treating a spouse’s independent fund as if held by the physician directly, and (2) assuming that a mutual-fund holding automatically kills ownership reporting (it does not eliminate 403.904(e) obligations if the physician actually holds a reportable ownership interest in the manufacturer or GPO).

Bottom line of the framework: Use 403.904(i)(7) only to exclude transfers of value through public securities and funds; do not rely on it to avoid ownership reporting where 403.904(e) applies, or to avoid reporting directed equity compensation under 403.904(b).

CMS administers Open Payments and oversees (1) intake of manufacturers’ reports, and (2) the review and dispute window during which physicians (or their delegates) can challenge accuracy. Common triggers that involve clinics include:

• Pre-publication disputes where a physician sees dividends or fund transactions mistakenly listed as transfers despite the (i)(7) exclusion.

• Manufacturer validation outreach to confirm whether an equity item was a direct grant (reportable transfer) or merely a broker-routed public security transaction (potentially excluded).

• Post-publication media or payer inquiries when public entries appear to show conflicted investments; clinics need documentation to explain whether the item belongs under 403.904(b), is excluded under (i)(7), or sits within 403.904(e) as ownership only.

Practically, CMS expects filers to apply (i)(7) correctly and to fix errors during the dispute cycle. Clinics that can present concise, dated evidence usually resolve these issues without escalation.

The controls below convert the (i)(7) exclusion into concrete, low-cost steps. Each item explains implementation, evidence to retain, and a low-cost method, with explicit tie-backs to 42 CFR 403.904(i)(7) (and related provisions).

Control 1. Run a three-question securities test for every entry.

 How to implement: For any securities/fund item connected to your clinicians, ask: (A) Is the security publicly traded (exchange-listed) or the interest held via a mutual fund? (B) Did the physician (or family member) direct the specific investment decision, or is it advisor-/fund-directed? (C) Was the value a company-originated grant/option (directed equity)?

 Evidence to retain: Brokerage statement identifying exchange ticker; prospectus or plan statements showing fund discretion; grant or option agreements if present.

 Low-cost method: A one-page checklist stapled to the monthly statement.

 Authority: 42 CFR 403.904(i)(7) (transfer exclusion) with reporting categories in 403.904(b).

Control 2. Separate “transfer” events from “ownership” disclosures at intake.

 How to implement: In your registry, create two columns per issuer: Transfer status (reportable vs excluded under (i)(7)) and Ownership status (reportable under 403.904(e) or not in scope).

This ensures dividends through a brokerage aren’t misfiled as transfers, while still prompting you to consider ownership reporting.

 Evidence to retain: End-of-year positions; issuer identity confirmation (legal entity).

 Low-cost method: Add a conditional formatting rule that flags any row where Transfer = Excluded but Ownership = Yes, so staff remember the separate ownership workflow.

 Authority: 42 CFR 403.904(i)(7); 42 CFR 403.904(e).

Control 3. Prove the “no control over decisions” fact pattern.

 How to implement: When relying on (i)(7) for mutual funds or managed accounts, obtain a one-sentence advisor attestation (or custodial statement notation) that the fund/account does not allow clinician-level direction to buy or avoid a particular manufacturer.

 Evidence to retain: Advisor email or custodial policy excerpt; discretionary account agreement.

 Low-cost method: A standard email template to the advisor/custodian.

 Authority: 42 CFR 403.904(i)(7).

Control 4. Treat directed equity (grants/options/RSUs) as reportable transfers unless proven otherwise.

 How to implement: If a manufacturer issues stock, RSUs, or options to a named physician, classify it as a reportable transfer under 403.904(b) and assess ownership under 403.904(e). Do not apply (i)(7); it is not designed to shield company-originated directed equity.

 Evidence to retain: Grant notice, plan document, vesting schedule; issuer legal name.

 Low-cost method: A red-flag tag “DIRECTED EQUITY – REVIEW” in your spreadsheet.

 Authority: 42 CFR 403.904(b); 403.904(e); exclusion (i)(7) inapplicable.

Control 5. Use a family-link screen without over-collecting personal data.

 How to implement: Ask physicians to disclose if any immediate family member holds relevant securities/funds. Your test is still the same: publicly traded? No directed decision? No company grant? Then (i)(7) may exclude the transfer. But reassess ownership under 403.904(e) if the family holding falls within reportable scope.

 Evidence to retain: Redacted statements showing title and lack of directed decision-making; brief attestation.

 Low-cost method: A privacy-aware tick-box form with a secure upload link.

 Authority: 42 CFR 403.904(i)(7); 42 CFR 403.902 (definitions); 403.904(e).

Control 6. Pre-stage dispute packets for excluded transfers that appear anyway.

 How to implement: If a manufacturer reports a dividend or fund-through item as a transfer, prepare a packet citing 403.904(i)(7) with (1) a statement proving exchange listing, (2) a note that the account is discretionary or fund-directed, and (3) confirmation that no company grant occurred.

 Evidence to retain: Ticker/custodial evidence; advisor attestation; copy of dispute submission.

Low-cost method: A template letter that merges clinician, account, and issuer details.

 Authority: 42 CFR 403.904(i)(7); dispute mechanics under 403.904.

Control 7. Track issuer identity precisely (brand vs legal entity).

 How to implement: Record the legal issuer name for each row. For funds, capture the fund family and share class; for stocks, capture the listed company, not a product brand. This prevents misalignment between your proof and the manufacturer’s filing.

 Evidence to retain: Account statement’s legal issuer name; fund prospectus page header.

 Low-cost method: A data-validation list of legal entities.

 Authority: 42 CFR 403.904 (data elements); exclusion test 403.904(i)(7).

Control 8. Calendar the CMS review window and lock evidence before it opens.

 How to implement: Two reminders: T-30 days to confirm portal access; T-7 days to freeze the securities evidence folder with read-only permissions, so your dispute packet is one click away.

 Evidence to retain: Dated screenshot of portal access; folder access logs.

 Low-cost method: Shared calendar plus a “readiness drill.”

 Authority: 42 CFR 403.904 (review/dispute administration).

Playbook wrap-up: These controls ensure you apply 403.904(i)(7) correctly, prove the exclusion with minimal paper, and still fulfill any ownership reporting implications under 403.904(e).

Case Study

Scenario (de-identified): An internal medicine physician holds a diversified mutual fund in a retirement account. The fund happens to own shares in a drug manufacturer. During the next Open Payments cycle, the physician sees a small “general payment” entry from that manufacturer, apparently tied to dividends routed through the mutual fund.

Analysis tied to the rule:

• The value flowed through a mutual fund where the physician did not direct the specific investment decisions. That is precisely the situation contemplated by 403.904(i)(7) for exclusion from transfer-of-value reporting.

• There was no grant or directed equity from the manufacturer to the physician; the physician never received options or RSUs.

• Ownership under 403.904(e) may still be reviewed, but in this case the physician does not own stock directly in the manufacturer; only the fund does.

Action: The clinic delegate files a dispute, attaching: (1) custodial statement showing the mutual fund (not issuer stock in the physician’s name), (2) the fund’s discretionary management notation, and (3) a short memo citing 403.904(i)(7). The manufacturer withdraws the transfer entry.

Consequence avoided: A misleading public entry implying a direct financial relationship with the manufacturer; potential payer or media questions about conflicts.

Checklist wrap-up: These actions keep your evidence aligned with 403.904(i)(7) while preserving accuracy for other reporting obligations in 403.904.

Risk Traps & Fixes Under 42 CFR 403.904(i)(7)

Because securities are technical, small paperwork gaps can trigger bad decisions. The traps below are specific to (i)(7) and the surrounding rules.

• Trap: Treating mutual-fund dividends as a reportable transfer.
   Fix: Document fund discretion and cite 403.904(i)(7) to exclude the transfer while separately considering ownership under 403.904(e) if applicable.
   Consequence: Avoids unnecessary, and misleading, public entries.

• Trap: Applying the exclusion to directed equity (e.g., a manufacturer grants RSUs).
   Fix: Classify as a reportable transfer under 403.904(b) and evaluate ownership under 403.904(e); do not invoke (i)(7).
   Consequence: Prevents under-reporting risk and CMS challenges.

• Trap: Confusing the brand with the legal issuer, making your evidence look mismatched.
   Fix: Record the legal entity and, for funds, the fund family/share class; align all exhibits with those names.
   Consequence: Streamlines manufacturer validation and dispute success.

• Trap: Assuming (i)(7) eliminates all disclosure about securities.
   Fix: Remember the distinct ownership reporting under 403.904(e); exclusions for transfers do not automatically foreclose ownership obligations.
   Consequence: Reduces post-publication questions about why ownership appears without a matching transfer.

• Trap: No proof of no control over investment decisions.
   Fix: Obtain a one-sentence advisor or custodian note; save the account agreement showing discretionary management.
   Consequence: Provides the decisive fact CMS and manufacturers look for when applying (i)(7).

Wrap-up: Addressing these traps ensures accurate use of 403.904(i)(7) and clean separation between transfer exclusions and ownership reporting.

Embed the (i)(7) test into your routine, not just when disputes arise. Assign a single compliance owner to (1) maintain the securities/fund registry, (2) track advisor/custodian confirmations annually, and (3) pre-stage dispute packets. Keep training brief and practical: a 10-minute quarterly reminder that “mutual-fund flows usually live under 403.904(i)(7) unless a directed grant exists,” plus two screenshots showing where evidence sits.

Monitor two simple metrics: (1) “% of securities row with advisor/custodian ‘no control’ proof” and (2) “% of potential disputes assembled before the review window.” A short annual leadership note summarizing which items were excluded under (i)(7), and why, helps the clinic answer patient or payer questions with confidence.

The publicly traded securities' exclusion at 42 CFR 403.904(i)(7) is narrow but powerful. Used correctly, it keeps passive, fund-level flows out of transfer reporting while preserving transparency where it truly matters: directed equity and ownership. The clinic’s role is to decide, fast and in writing, which rule applies, then keep a thin file that proves the decision.

Immediate next steps for a small clinic

1. Deploy the one-page Securities & Funds Attestation and collect responses from all physicians (and relevant family links).

2. Split your registry columns into Transfer (i)(7) status and Ownership (403.904(e)) status for each issuer/fund, and populate them for current accounts.

3. Request and file advisor/custodian confirmations of non-directed decision-making for discretionary accounts and mutual funds.

4. Tag any directed equity (grants/options/RSUs) for separate 403.904(b) transfer reporting considerations and 403.904(e) ownership review.

5. Pre-assemble a dispute packet template citing 403.904(i)(7) with placeholders for ticker, fund name, and the “no control” statement, and schedule a 15-minute portal readiness drill before the CMS review window.

• 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