CMS Proposes the First Medicare Payment Category for Algorithm-Based Clinical Software

In its Calendar Year 2027 Hospital Outpatient Prospective Payment System proposed rule, published July 2, 2026, the Centers for Medicare and Medicaid Services proposed a new payment category called Software as a Medical Service, abbreviated SaMS. The category would apply to clinical software that uses algorithms to analyze patient data and produce a diagnosis, a risk score, or a treatment recommendation.

If finalized, CMS would assign 36 Healthcare Common Procedure Coding System codes to the SaMS category, paired with a new status indicator labeled O1. That indicator signals that the service is reimbursed separately rather than bundled inside the payment for another procedure. CMS described the 2027 plan year as transitional and stated that payment rates would remain close to 2026 levels, so the proposal is not designed to increase total Medicare spending.

Before SaMS, clinical AI tools lacked a defined Medicare billing identity. Some received payment folded into other diagnostic procedure reimbursements, while others relied on short-term new-technology add-on payments that expire. A permanent, named category would give digital health developers a more predictable path to Medicare coverage.

The SaMS proposal is one component of a larger outpatient payment rule that also addresses hospital outpatient department rates and other policies. CMS is accepting public comments through August 31, 2026, with a final rule expected later in the year and any changes taking effect January 1, 2027.