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Policy & oversight

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

The 2027 hospital outpatient proposed rule introduces a new billing group called Software as a Medical Service, giving AI diagnostic tools their own reimbursement codes in Medicare for the first time if the rule is finalized.

By the Goodsurance editorial teamJuly 16, 2026

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.

CMS proposed Medicare's first billing category for AI diagnostic software. The comment window closes August 31.

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.

In plain words

CMS proposed a plan to create new billing codes for computer programs that use AI to help doctors diagnose conditions or recommend treatments. Right now, Medicare has no clear way to pay for these tools on their own. Under the plan, starting in 2027, certain AI programs would get their own payment codes. CMS says it does not plan to make patients or Medicare pay more overall. Doctors, hospitals, and companies that make these tools can send comments to CMS until August 31, 2026.

Source: CMS
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