Medicare Proposes Its First Dedicated Payment Category for AI Clinical Software, With Comments Closing August 31

As the public comment period closes August 31, one of the most-discussed elements of Medicare's 2027 Hospital Outpatient Prospective Payment System proposed rule is the agency's effort to build a dedicated payment structure for what it calls Software as a Medical Service, or SaMS.

The proposal, published in the Federal Register on July 7, 2026, would create a Medicare payment category for clinical software that uses algorithms to analyze patient data and produce a diagnosis, a risk score, or a treatment recommendation. Such tools are increasingly deployed in radiology, pathology, cardiology, and other hospital outpatient settings.

Under the proposal, CMS would designate 36 existing billing codes as SaMS and create a new payment status indicator, O1, marking those services as separately payable in the outpatient system. The agency also proposes moving 21 SaMS codes from standard ambulatory payment groups into new-technology payment groups, which typically carry higher rates for a limited window. Services in the new category would not be subject to multiple-procedure payment reductions.

CMS has described the framework as an interim approach, signaling that permanent rules would follow. Stakeholders including health system technology officers, digital health companies, and clinical societies have submitted comments debating whether the proposal adequately values these tools or introduces new billing complexity.

For beneficiaries, the implication is indirect: Medicare's willingness to pay separately for AI decision-support tools may influence which software hospitals use and what diagnostic aids are routinely available in outpatient care.