Isabelle Auble, a law student at the College of William & Mary and a member of the 2026 Reed Smith summer associate class, co-authored this post.
On July 7, 2026, CMS published a proposed rule updating the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for CY 2027 (the Proposed Rule). Among its many proposals, the Proposed Rule takes a significant step, in the form of an “interim payment policy” and other interrelated changes, toward a comprehensive and consistent payment methodology for software-based technologies that support clinical decision-making through algorithmic analyses (also referred to as software-based medical services with algorithmic analyses).
In summary, CMS proposes the following:
- Changing the terminology from “Software as a Service” (SaaS), as used in prior rulemaking, to “Software as a Medical Service” (SaMS).
- Temporarily assigning SaMS to New Technology Ambulatory Payment Classifications (APCs).
- Assigning existing and any new SaMS analyses performed on laboratory tests to New Technology APCs for payment under the OPPS instead of the Clinical Laboratory Fee Schedule.
- Creating a new status indicator—“O1”—which will allow for separate payment under the OPPS and track claims made under this structure.
CMS highlights the Proposed Rule as a first step in a transitional period, with stated goals to promote payment predictability, establish a uniform reimbursement framework, and minimize disruption to patient care as it continues to embrace technological advancement in health care.
The proposal represents a tangible shift in how CMS approaches SaMS reimbursement and gives providers, SaMS developers, and other interested parties a meaningful opportunity to help shape the policy. Comments on the proposed rule are due August 31, 2026.
The SaMS Payment Challenge
CMS has repeatedly raised the question: how do Medicare Part B payment systems, which primarily rely on material resources and costs to set payment rates, appropriately value SaMS technologies, whose value is driven by proprietary algorithms and scalable, non-material costs?
This challenge is further compounded by the various ways in which these technologies are acquired and billed, including subscription- and license-based arrangements as well as per-use or “per-click” fees. Ultimately, the SaMS interim payment policy introduces a temporary solution intended to allow for a consistent payment framework—through assignment of New Technology APCs—while CMS continues to consider comprehensive, long-term approaches.
Proposed Changes and the Interim Payment Policy
As detailed in Sections III.C.4. and X.B. of the Proposed Rule, CMS proposes four changes for SaMS:
Changing the term to SaMS
To avoid confusion with general cloud-based computing services, CMS would replace the term “SaaS” with “SaMS” to make clear that these services are specific to the health care context—hence the inclusion of the word “medical.”
Assignment to New Technology APCs (the interim payment policy).
As part of the interim payment policy, CMS would designate 36 HCPCS codes (listed in Table 61 of the proposed rule) as SaMS technologies. Of these, CMS proposes reassigning 21 codes currently paid under clinical APCs to New Technology APCs (which typically include new procedures that do not have sufficient claims history) and maintaining approximate rate continuity with CY 2026 payment. SaMS codes already assigned to New Technology APCs for CY 2026 would retain their existing assignments to minimize disruption during the transition. Underpinning its move to New Technology APCs, CMS reasons that the existing clinical APC structure, which groups services with comparable clinical characteristics and resource use, does not adequately accommodate SaMS “because current systems are designed for services relying on material resources rather than technologies driven by proprietary algorithms and scalable non-material costs.”
Paradigm shift for SaMS performed on laboratory tests.
CMS proposes to move 10 HCPCS codes currently paid under the Clinical Laboratory Fee Schedule to New Technology APCs under the OPPS, reasoning that these secondary analyses do not require CLIA-regulated laboratory services or entities, rendering CLFS payment inappropriate. Accordingly, CMS defends its uniform approach in stating that it seeks to treat all algorithmic analyses consistently: Regardless of whether the SaMS analysis is applied to an imaging test or a laboratory test, the service itself is the algorithmic analysis.
New status indicator
CMS would track future claims under new status indicator “O1” to distinguish SaMS from other services assigned to new technology APCs. Functionally, “O1” carries the same payment specifications as status indicator “S,” allowing for separate payments of services. CMS requests comment on this approach and on whether a status indicator with the specifications of “T,” allowing for multiple procedure discounting, would be more appropriate to address program integrity concerns where multiple SaMS codes appear on the same claim.
The interim policy includes two carve-outs. For conditionally packaged SaMS assigned status indicator “Q1,” CMS would maintain the existing clinical APC and status indicator assignments, reasoning that moving them to new technology APCs could disrupt patient access. CMS likewise proposes no changes for codes assigned status indicators “E1,” “N,” and “M,” because those services are not separately paid under the CY 2026 OPPS.
Practical Takeaways
The proposed rule is a concrete step toward standardizing SaMS reimbursement. Using New Technology APCs as a temporary framework will inform data collection and enhance claims tracking that CMS has stated it needs to develop accurate, long-term payment methodologies for these evolving services. Because CMS is explicitly using this period to inform a permanent methodology, it is important that industry participants submit comments on all the proposed changes to help shape the final policy.
Importantly, the fraud and abuse implications of unclear reimbursement pathways remain a live risk. CMS has flagged existing SaMS acquisition models within the Proposed Rule as raising program integrity concerns. Accordingly, SaMS developers, providers, and hospital outpatient facilities should continue to carefully assess how they commercialize and seek reimbursement for these services.
Reed Smith will continue to monitor developments on the Proposed Rule. If you have any questions, please do not hesitate to reach out to the authors or to other health care lawyers at Reed Smith.