CMS is proposing to create a new payment pathway for algorithm-driven diagnostic software, including AI tools, as part of its 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgery Center proposed rule, issued July 2.
The proposal marks CMS’ first attempt to build a standardized payment structure for what it calls “Software as a Medical Service” — clinical software that uses algorithms to analyze patient data and produce a diagnosis, risk score or treatment recommendation.
Six things to know:
1. CMS is renaming the category. The agency has referred to these products in past rulemakings as “Software as a Service.” It is now proposing to call them Software as a Medical Service, stating that the SaaS label risks confusion with generic cloud-computing terminology used outside healthcare.
2. The agency said it has been evaluating how to develop a comprehensive and consistent approach to SaMS payment for several years “with the novel and evolving nature of these technologies.” CMS’ outpatient payment methodology is designed around physical resources — supplies, equipment, staff time — rather than products whose value comes from a proprietary algorithm. CMS said that makes it difficult to set an accurate rate, and it flagged a separate concern about how some of these tools are sold, through subscription, license or per-use “per-click” fees, which raises program integrity questions.
3. A new status indicator would flag these products for the first time. CMS is proposing to create status indicator “O1” and designate 36 Healthcare Common Procedure Coding System codes as SaMS. Of those, 21 would move out of standard clinical Ambulatory Payment Classification groups and into New Technology APCs, the payment track CMS typically reserves for new procedures that do not yet have enough claims data for a permanent home.
4. The proposal covers a range of AI-assisted diagnostics. Examples listed in the rule include AI analysis of retina images for disease detection, echocardiogram-based heart failure detection, coronary blood flow estimates derived from CT angiography, CT-based bone fracture risk scoring, eye-movement-based concussion assessment, algorithmic EKG-based cardiac risk scoring, quantitative brain MRI comparison and AI-assisted prostate cancer mapping from biopsy imaging.
5. A separate proposal would move some algorithmic lab analyses out of the lab fee schedule. CMS is proposing to reassign 10 HCPCS codes covering algorithmic analyses run on existing lab data, such as a secondary computer interpretation of a genomic sequence, from the Clinical Laboratory Fee Schedule into the same SaMS payment track. Unlike the lab fee schedule, the outpatient payment system applies beneficiary cost-sharing and budget-neutrality adjustments, so patients could begin owing a copay on tests that previously carried none.
6. CMS called the proposal an interim policy rather than a permanent fix. The agency said it plans to work toward a more comprehensive, long-term valuation methodology as it gathers more data. It is seeking comment on whether the new status indicator should allow full separate payment or instead be discounted when billed alongside other procedures, and on whether additional codes should be included on the list.
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