The PPSA Exemption for Warranties and Services Under a Contract (42 CFR § 403.904(i)(6))

Small practices routinely receive “no-charge” part replacements or service visits tied to medical device contracts. Under the Physician Payments Sunshine Act (PPSA), not every no-cost transfer has to be reported to Open Payments. The key exemption at 42 CFR § 403.904(i)(6) removes from reporting those transfers that consist of items or services provided under a contractual warranty, including service agreements and warranty replacements when the terms are stated in the purchase or lease. Understanding this carve-out prevents over-reporting that can distort a physician’s public profile and reduce trust. Equally, misusing the warranty exemption risks under-reporting and enforcement exposure. With a few targeted controls, a small clinic can classify warranty-related transfers correctly, retain the right evidence, and communicate cleanly with manufacturers and group purchasing organizations.

When a device fails and the manufacturer replaces a module for free, or a field engineer arrives under a service plan to recalibrate equipment, the clinic may wonder: “Is this a reportable transfer of value?” The PPSA aims to illuminate payments or other transfers of value from applicable manufacturers to covered recipients. But not all no-cost activity equals a reportable transfer. The warranty and service contract exemption in § 403.904(i)(6) recognizes that fulfilling a negotiated warranty or service term is fundamentally different from conferring a new, discretionary benefit. For lean clinics, getting this right avoids needless disputes during the Open Payments review period and reduces administrative noise, while preserving transparency where it truly matters.

Legal Framework & Scope Under 42 CFR § 403.904(i)(6)

The Open Payments rule requires applicable manufacturers and GPOs to report most transfers of value made to physicians and certain other covered recipients. However, § 403.904(i) sets out specific exclusions, and paragraph (i)(6) covers transfers that are items or services provided under a contractual warranty, including service agreements, when the terms are set in the purchase or lease, and it expressly includes replacement of a covered device or covered drug under that warranty. In other words, when a “no-charge” activity merely satisfies a contractually defined warranty obligation, it is excluded from reporting.

Three textual anchors govern scope:

1. “Contractual warranty”: The obligation must arise from a written contract or purchase/lease agreement.

2. “Service agreements”: Ongoing maintenance, calibration, or support that is included in the original consideration similarly qualifies.

3. “Replacement”: Swapping a defective device or component under warranty falls within the exclusion, provided the replacement aligns with the written terms.

This exemption is not a blanket pass for anything free. If a manufacturer provides additional services or parts outside the four corners of the warranty or service agreement, that incremental benefit can be reportable. Misclassification typically arises when marketing gestures are labeled “warranty goodwill,” but lack a contractual basis.

Federal preemption or state variations do not alter the federal reporting duty here; Open Payments is a federal program with its own definitions and exclusions. States may operate parallel marketing disclosure laws, but for federal Open Payments, § 403.904(i)(6) controls. Understanding the boundary of this exemption reduces disputes with manufacturers during data submission and decreases administrative friction in the yearly review-and-dispute cycle.

CMS administers Open Payments, oversees data submission, publication, and the physician dispute process. While CMS is not auditing clinics for reporting (the reporting entities are manufacturers and GPOs), clinics are often pulled into reconciliation and disputes when an entry appears reportable but was actually a contract fulfillment under § 403.904(i)(6). Common triggers include:

• Data anomalies flagged by CMS or manufacturers (e.g., unusually high “education” or “gift” entries) that mask unrecognized warranty work.

• Physician disputes during the review period where the clinic asserts the activity was a warranty service call or replacement.

• Manufacturer compliance reviews that require clinics to provide evidence of warranty scope, serial numbers, and dates to substantiate exclusion decisions.

Clear documentation of the contract clause, the work order, and the serial/lot detail shortens disputes and helps manufacturers defend a proper exclusion.

The following controls allow a small clinic to confidently apply § 403.904(i)(6) without sophisticated software. Each control includes implementation steps, evidence to retain, and a low-cost approach.

Control 1. Warranty Source Test (Is it truly in the contract?)

• How to implement: Before accepting any no-charge service/part, the office manager or biomedical lead verifies the source clause in the purchase/lease: warranty duration, covered components, service response, and replacement rights.

• Evidence to retain: Copy of the signed agreement pages with the warranty clause; device inventory record linking serial numbers to the contract.

• Low-cost approach: Maintain a “Warranty Register” spreadsheet with columns for device, serial, in-service date, warranty end date, covered services, and a link to the clause.

• Why it maps to § 403.904(i)(6): The exemption requires the item/service to be under a contractual warranty or service agreement; documenting the clause is the threshold test.

Control 2. Work Order + Serial Linkage

• How to implement: Require every field service visit or part swap to generate a work order listing the covered device, serial/lot, failure description, and the contract/warranty ticket number.

• Evidence to retain: Signed service ticket, parts packing slip indicating no-charge under warranty, and emails confirming the RMA.

• Low-cost approach: Scan and store PDFs in the Warranty Register folder; name files as “Device_Serial_Date_Ticket.pdf.”

• Why it maps to § 403.904(i)(6): Establishes that the transfer is a replacement/covered service contemplated by the contract.

Control 3. “No-Charge” Reason Codes

• How to implement: Ask the vendor to specify a reason code on invoices/tickets: “WARR” for warranty, “SVC-AG” for service agreement, “GOODW” for goodwill, “MKT” for marketing.

• Evidence to retain: Copies of zero-dollar invoices with reason codes.

• Low-cost approach: Add a one-line clause to purchase orders: “All no-charge items/services must indicate the basis: WARR, SVC-AG, GOODW, or MKT.”

• Why it maps to § 403.904(i)(6): Differentiates contractual fulfillment (excluded) from non-contractual transfers (potentially reportable).

Control 4. Replacement Decision Tree

• How to implement: Use a one-page flow:

1.     Is the device/component listed on the Warranty Register and in term? If yes, proceed.

2.     Does the contract authorize replacement for the failure mode? If yes, excluded.

3.     If no to either, classify the transfer under the appropriate PPSA category (e.g., gift, education) for manufacturer inquiry.

• Evidence to retain: The annotated decision tree with the contract reference and work order number.

• Low-cost approach: Print the flow and keep it at the nurses’ station or service binder.

• Why it maps to § 403.904(i)(6): Ensures that only warranty-authorized replacements are treated as excluded.

Control 5. Service Agreement Boundary Check

• How to implement: For annual calibrations or PM (preventive maintenance), confirm the service cadence and scope in the agreement. If a technician performs extra, value-added training, document it separately.

• Evidence to retain: Service log showing PM completed per clause; separate note if additional training or accessories were provided.

• Low-cost approach: A basic PM checklist with a field “Contract clause reference.”

• Why it maps to § 403.904(i)(6): Distinguishes included service from add-ons that may be reportable by the manufacturer.

Control 6. Counter-Party Affirmation Language

• How to implement: Add to purchase orders and work orders: “Vendor affirms that any no-charge items/services are provided solely under the contractual warranty/service agreement identified as [Contract ID], consistent with 42 CFR § 403.904(i)(6).”

• Evidence to retain: Executed purchase order or email confirmation.

• Low-cost approach: Paste the sentence into a standard email template.

• Why it maps to § 403.904(i)(6): Creates contemporaneous proof that the transfer is contract-fulfilling, not a discretionary payment.

Control 7. Intake Gate for “Starter Kits” and Bundles

• How to implement: When a device ships with a “starter kit” of disposables or software credits, confirm whether these are included in the purchase price and contractually defined. If not, ask the vendor to classify and, if needed, the manufacturer will report appropriately.

• Evidence to retain: Packing lists, contract language on bundled items, email from vendor clarifying basis.

• Low-cost approach: Add a column in the Warranty Register: “Bundled items, contract clause?”

• Why it maps to § 403.904(i)(6): Prevents mistakenly sheltering non-warranty extras under the warranty umbrella.

Control 8. Annual Warranty Close out and Renewal Review

• How to implement: Each December, reconcile expiring warranties, renewals, and upgrades. Flag devices with lapsed warranty, so any future no-charge assistance is not automatically treated as excluded.

• Evidence to retain: Year-end register snapshot and email to vendors confirming coverage dates.

• Low-cost approach: A calendar reminder plus a one-page “Warranty Year-End Checklist.”

• Why it maps to § 403.904(i)(6): Ensures the exclusion is claimed only during active term.

Together, these controls create a tight, low-cost framework that supports excluding bona fide warranty/service-contract transfers while surfacing items that manufacturers may need to report.

Case Study

A three-physician ambulatory surgery center purchased a surgical visualization system with a three-year warranty and an annual preventive maintenance visit. Eighteen months later, the imaging module failed; the manufacturer replaced the module at no cost and performed recalibration. Six months after that, a sales representative left a set of premium disposable accessories as a “courtesy,” also at no charge.

During the Open Payments review period, the physicians noticed two entries: a high-value “equipment replacement” and a mid-value “educational support” attributed to the accessories. The practice believed both were warranty-related and thus excluded. After pulling the contract, the compliance lead confirmed that module replacement and recalibration were expressly included in the warranty clause, validating the exclusion under § 403.904(i)(6). However, the premium accessories were not listed anywhere in the purchase or service agreement; they were a marketing gesture and therefore appropriately reportable by the manufacturer.

Outcome: The clinic used the Warranty Source Test and Work Order + Serial Linkage controls to substantiate the exclusion for the module swap. It did not dispute the accessories' entry because it was outside the contract. Result: The public profile remained accurate, and the clinic avoided a protracted dispute with the manufacturer.

This table focuses only on steps that establish a contractual basis for exclusion and document the linkage required to defend the classification.

Risk Traps & Fixes Under 42 CFR § 403.904(i)(6)

Before applying the exemption, be aware of common mistakes. The following list explains why the error matters and how to fix it.

• Calling marketing gestures “warranty” without contract language; if there is no clause authorizing the free item/service, the manufacturer may treat it as reportable, and disputing it wastes staff time. Fix: Capture the exact contract provision before accepting the transfer. Reference: § 403.904(i)(6).

• Failing to link replacements to device serial/lot numbers, which undermines proof that the swap is the same model/component under coverage. Fix: Require serial/lot on work orders and RMA. Reference: § 403.904(i)(6).

• Assuming warranty survives upgrades or scope changes, which can lapse coverage. Fix: Confirm terms after upgrades, extended service, or relocations. Reference: § 403.904(i)(6).

• Treating training or accessories added during a PM visit as “part of service,” even when not enumerated in the agreement. Fix: Separate and classify add-ons; let the manufacturer decide reportability. Reference: § 403.904(i)(6).

• Overlooking bundled “starter kits” not listed in the contract, leading to under-reporting. Fix: Reconcile packing lists against the warranty/service agreement. Reference: § 403.904(i)(6).

• Not memorializing vendor affirmation, which extends to disputes. Fix: Add one sentence on all POs and tickets referencing the basis for exclusion. Reference: § 403.904(i)(6).

• Letting warranties lapse without notice, so later no-charge service is misclassified. Fix: Run the annual close out/renewal checklist. Reference: § 403.904(i)(6).

Applied together, these fixes ensure the exemption is used precisely as intended, minimizing dispute time while preserving transparency.

A small clinic can build reliable warranty-exemption discipline without new headcount. Assign policy ownership to the office manager, with support from the biomed lead for serial/lot integrity. Train front-line staff once per year on the Warranty Source Test and the Reason Code convention. Track two outcome metrics quarterly: (1) percentage of warranty claims with a linked contract clause in the file; (2) number of Open Payments disputes avoided due to proper classification at intake. Include a standing agenda item in quarterly leadership huddles to review expirations, renewals, and any ambiguous “no-charge” offers from vendors.

The PPSA’s warranty/service agreement exemption prevents routine contract fulfillment from appearing as industry influence. To use it correctly, clinics must anchor every no-charge item or service to the actual contract clause, and must segregate any extras that fall outside the agreement. The results are fewer disputes, a cleaner public profile, and less administrative drag.

Next steps for a small clinic:

1. Stand up the Warranty Register this week and attach the specific contract pages for every covered device.

2. Adopt the Reason Code policy for all no-charge vendor activity (WARR, SVC-AG, GOODW, MKT) and communicate it to vendors.

3. Implement the Replacement Decision Tree at the point of service to determine exclusion eligibility before accepting a transfer.

4. Schedule the year-end close out to reconcile expirations and renewals, and notify vendors of coverage status.

5. Add vendor affirmation language to purchase orders and service tickets, referencing 42 CFR § 403.904(i)(6).

Compliance should be a living process. By leveraging a regulatory tool, your practice can maintain real-time oversight of requirements, identify vulnerabilities before they escalate, and demonstrate to both patients and payers that compliance is built into your culture.

• eCFR: 42 CFR § 403.904 — Reports of payments or other transfers of value
  

• CMS Open Payments FAQs — Exclusions
  

• 42 U.S.C. § 1320a-7h — Transparent Reporting of Manufacturer Payments
  

• CMS: What is Open Payments?