July 2026 — Doxiverse Staff
The Centers for Medicare & Medicaid Services has taken its first concrete step toward a standardized way of paying for AI-driven diagnostic software, proposing a new Medicare payment category called "Software as a Medical Service" in a pair of rules released this month.
Why it matters: Hospitals and practices using AI diagnostic tools from AI-assisted retina imaging to echocardiogram analysis have had no consistent path to reimbursement, often relying on inconsistent regional pricing or temporary billing codes that don't guarantee payment. This proposal is CMS's first attempt to fix that, and it will directly affect which AI tools are financially viable for a hospital or practice to keep using.
What CMS Actually Proposed
CMS introduced the new category in two related rulemakings: the calendar year 2027 Hospital Outpatient Prospective Payment System (OPPS) proposed rule, released July 2, 2026 and the CY2027 Physician Fee Schedule proposed rule, released July 14, 2026. Together, they lay out a payment framework CMS is calling "Software as a Medical Service," or SaMS, software that uses algorithmic analysis to support a diagnosis, risk score, or treatment recommendation.
Under the proposal, roughly three dozen existing procedure codes tied to algorithm-driven diagnostics would move into what CMS calls New Technology Ambulatory Payment Classifications, with payment rates initially held at their 2026 levels to avoid disrupting current reimbursement while the agency studies the issue further. Separately, CMS is also proposing to shift certain lab-data algorithm codes, the kind used in some genomic and pathology analyses out of the Clinical Laboratory Fee Schedule and into contractor-priced physician payment instead, arguing these secondary analyses don't require a CLIA-certified lab to perform once the underlying test or image already exists.
CMS has been building toward this for a while. The agency first asked for public comment on how to value software-based clinical services back in 2025, and a related HHS request for information on accelerating clinical AI adoption followed later that year. The agency describes this proposal as an interim policy, not a permanent one. It says that it plans to keep developing a more comprehensive valuation approach, potentially incorporating outcomes-based metrics, in future rulemaking cycles.
What This Means for Hospitals and Practices
If finalized, this would be the first time CMS pays for a defined category of AI diagnostic software rather than leaving reimbursement to inconsistent, case-by-case contractor pricing. That matters most for radiology, cardiology, and pathology groups already running AI-assisted diagnostic tools clinically, since a clearer payment pathway changes the economics of keeping or expanding those tools.
It's worth noting what this proposal does not do: it does not create new billing codes from scratch, and it does not resolve the underlying question CMS itself has raised repeatedly that how to value software whose cost structure (subscription fees, per-use licensing) looks nothing like the labor-and-supplies model traditional Medicare payment categories were built around. CMS is explicit that the 2027 rule is a bridge, not a destination.
What's Still Unsettled
This is a proposed rule, not a final one. The physician fee schedule comment period is open through September 14, 2026, and CMS could revise the framework including which codes are covered and how payment rates are set before anything takes effect. Hospital finance and compliance teams with AI diagnostic tools in current use should treat this as a signal to start reviewing their AI inventory and code mappings now, not as a locked-in policy to plan around yet.
Sources:
- CMS CY2027 OPPS Proposed Rule, Federal Register, July 2, 2026
- CMS CY2027 Physician Fee Schedule Proposed Rule, July 14, 2026
- Wilson Sonsini Goodrich & Rosati, legal analysis, July 2026
- Reed Smith, Health Industry Washington Watch, July 2026
This article summarizes proposed federal rulemaking as of July 26, 2026. Provisions may change before finalization. This is not legal or reimbursement advice; hospitals and practices should consult their compliance and billing teams for guidance specific to their situation.