Policy & oversight
Medicare Proposes Its First Dedicated Payment Category for AI Clinical Software, With Comments Closing August 31
The 2027 outpatient payment proposed rule would create a new Medicare payment track called Software as a Medical Service, covering tools that use algorithms to generate diagnoses, risk scores, or treatment recommendations.
By the Goodsurance editorial teamAugust 30, 2026
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.
Medicare may pay separately for AI diagnostic software used in hospital outpatient settings for the first time. The public comment window closed August 31.
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.
In plain words
Medicare is considering a new way to pay hospitals for computer tools that help doctors make medical decisions. Right now many of these AI tools are not paid for separately. The new rule would create a payment category called Software as a Medical Service. Comments from the public were due by August 31. This would be the first time Medicare has its own payment track just for AI clinical tools, and it could affect which tools hospitals make available to patients.
Understand the basics first
Source: Federal Register (CMS-1850-P)
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