The Centers for Medicare & Medicaid Services (CMS) has finalised an interim Medicare payment policy for software that helps clinicians diagnose disease and make treatment decisions. The policy, set out in the calendar year 2027 hospital outpatient and physician fee schedule final rules issued on 4 November 2026, gives these tools a name of their own, Software as a Medical Service (SaMS), and a payment lane of their own from 1 January 2027.
What CMS Finalised
The first change is the name. CMS is retiring the generic label Software as a Service (SaaS) for these tools and replacing it with Software as a Medical Service. The agency said the new term better describes software that supports clinical decision-making through algorithmic analysis, rather than ordinary cloud software.
The second change is where the payment sits. CMS is assigning SaMS to New Technology Ambulatory Payment Classifications (APCs) on an interim basis, at rates that closely match what the services were paid in 2026. Thirty-six procedure codes are designated as SaMS, and 21 of them move from clinical APCs into New Technology APCs. A new status indicator, O1, marks SaMS on outpatient claims and pays the service separately, without the multiple procedure discount that would otherwise reduce payment when several services are billed together.
CMS also moved 14 stand-alone algorithmic analyses performed on laboratory test data from the Clinical Laboratory Fee Schedule to the outpatient schedule, where they will be paid as other diagnostic tests. Under the physician fee schedule, the same analyses will be priced nationally, using a crosswalk to the outpatient rates, rather than priced by individual Medicare contractors. For SaMS analyses that are not laboratory-based, CMS said FDA marketing authorisation is required before Medicare will pay. And the agency was clear on one limit: a SaMS designation sets out how a service may be paid if it is covered, but it does not by itself establish Medicare coverage.
Why the Change Was Needed
Software tools that analyse scans, lab results and other clinical data have grown fast over the past decade, and Medicare payment had not kept up. Similar tools were paid in different ways depending on where they sat in the payment system, and some were effectively buried inside payment for another procedure. CMS had been working on a broader approach for several years and asked the public for input in July 2025, before proposing the interim policy in the 2027 outpatient rule issued in July 2026.
Examples in the proposal included automated retinal imaging analysis, coronary blood-flow measurement derived from CT scans, fracture-risk assessment, ECG risk analysis and quantitative brain MRI analysis. The final rule keeps the core of that proposal largely as written, with some changes made in response to comments.
Why This Matters for Healthcare Organizations
For hospitals and health systems, the change brings predictability. A diagnostic tool that qualifies as SaMS will have a named payment category and a rate close to its 2026 level for 2027, instead of sitting in a clinical payment group built for something else. Separate payment under the O1 indicator also means the software is paid on its own, which matters for tools used alongside a scan or a procedure.
For vendors and the clinics that buy their tools, two details deserve attention. The first is the FDA authorisation requirement for non-laboratory SaMS analyses, which makes regulatory status a payment question, not just a compliance one. The second is that designation is not coverage: finance and revenue teams should check whether a given SaMS service is covered for their patients rather than assuming the new code guarantees payment. Laboratory-based analyses also move fee schedules, so billing teams should confirm the new outpatient coding before January.
Analysis: A Holding Pattern, Not a Finished Model
CMS has been open that this is a holding pattern. The agency described the 2027 policy as an interim first step and said it will consider expanding and clarifying its scope in future rulemaking. That leaves the important questions for later: how SaMS should be valued over the long term, whether payment should reflect clinical outcomes, and whether one framework should apply across hospital outpatient departments, physician offices and other settings. The physician fee schedule proposal asked for comment on a consistent cross-setting framework, which suggests the next round of rulemaking will test that idea.
For now, the practical effect is stability. Rates are held near 2026 levels, the category has a name and a payment indicator, and the lab analyses have a home on the outpatient schedule. The longer debate about what medical software is worth to Medicare is still to come, and the 2028 rulemaking cycle is where it is likely to surface.
Clinics reviewing how technology fits into their front desk and clinical workflows can explore MedClinicX's AI patient portal, see how after-hours calls are handled on our AI medical receptionist page, or explore the demos and request a quote. For related coverage, see our earlier articles on CMS finalising the 2027 outpatient payment rule and CMS finalising the 2027 physician fee schedule.
Sources and References
- Centers for Medicare & Medicaid Services — Calendar Year 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Final Rule (CMS-1850-F) fact sheet, 4 November 2026: https://www.cms.gov/newsroom/fact-sheets/calendar-year-2027-hospital-outpatient-prospective-payment-system-opps-ambulatory-surgical-center-0
- Centers for Medicare & Medicaid Services — Calendar Year 2027 Medicare Physician Fee Schedule Final Rule fact sheet, 4 November 2026: https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2027-medicare-physician-fee-schedule-final-rule
- Reed Smith — CMS Finalizes Interim Payment Policy for Software as a Medical Service in Hospital Outpatient, Physician Fee Schedule Rules, 6 November 2026: https://www.reedsmith.com/our-insights/blogs/health-industry-washington-watch/102o8ks/cms-finalizes-interim-payment-policy-for-software-as-a-medical-service-in-hospita/
Reporting based on the sources above, accessed 8 November 2026. The CMS outpatient fact sheet was read directly, and the Reed Smith analysis of both final rules was read directly and cross-checked against it. MedClinicX did not conduct original reporting or interviews for this article. Corrections: contact us via https://medclinicx.com/contact