CMS Finalizes Interim Payment Policy for Software as a Medical Service in Hospital Outpatient, Physician Fee Schedule Rules

In July, we reported on CMS’s proposed “interim payment policy” for software-based technologies that support clinical decision-making through algorithmic analyses. This week, CMS adopted those proposals, with some clarifications, in the Calendar Year 2027 Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems final rule with comment period (the OPPS Final Rule) and the Calendar Year 2027 Payment Policies under the Physician Fee Schedule (PFS) final rule (the PFS Final Rule). The policies take effect January 1, 2027. 

CMS finalized the core of its interim payment policy proposal and other interrelated changes largely as written; however, it also made several changes in response to comments. In the 2027 rule, CMS:

• Finalized the change in terminology from “Software as a Service” (SaaS) to “Software as a Medical Service” (SaMS). 
• Assigned SaMS technologies to New Technology Ambulatory Payment Classifications (APCs), on an interim basis, at payment rates that closely match CY 2026 rates. 
• Created status indicator “O1,” which provides separate payment for SaMS without multiple procedure discounting.
• Moved fourteen “SaMS analyses performed on laboratory tests” from the Clinical Laboratory Fee Schedule (CLFS) to the OPPS as “other diagnostic tests.”
• Finalized national pricing, rather than the proposed contractor pricing, for the “SaMS analyses performed on laboratory tests” under the PFS, based on a crosswalk to the OPPS payment rates.

A Closer Look at What CMS Finalized

“SaMS” terminology adopted, while clarifying that FDA marketing authorization is required for non-laboratory analyses.

CMS finalized the change from “SaaS” to “SaMS” in both the OPPS and the PFS final rules. Agreeing with a commenter, CMS said the new term separates “clinical algorithms” from generic cloud tooling, including software that supports broader operational, administrative, or business functions. CMS also clarified that for non-laboratory SaMS analyses, FDA marketing authorization is required to receive Medicare payment. In the PFS Final Rule, some commenters argued that the definition is too broad, and in response, CMS kept its definition, “software-based technologies that support clinical decision making through algorithmic analysis, including those that provide clinical or diagnostic functionality,” but left the door open for future refinement of the definition and terminology.

Interim assignment to New Technology APCs, generally at CY 2026 rates.

CMS finalized the assignment of SaMS to New Technology APCs at payment rates that closely track CY 2026 rates. Many commenters asked for higher APC placements, citing resource costs and beneficiary access. CMS declined, stating that it “intended to preserve current payment rates for these services as much as possible for CY 2027.” CMS also rejected requests to keep longer-established services in their clinical APCs.  It said it was important to “consistently assign all designated SaMS to new technology APCs and not make exceptions for some services because they have been utilized for a longer period of time.” CMS added several services to the SaMS list in response to comments.

Status indicator “O1” finalized with no multiple procedure discounting.

CMS finalized status indicator “O1.” In the proposed rule, CMS asked whether a “T”-type indicator, which would apply multiple procedure discounting, would better address program integrity concerns. Commenters opposed that approach. They noted that algorithmic services do not rely on shared resources and that each algorithm “represents an independent service with its own development, validation, and computational costs.” CMS agreed and gave “O1” the same payment specifications as “S,” so SaMS will be paid separately without multiple procedure discounting. 

CMS also kept the “Q1” and “N” status indicator assignments as proposed, declining requests to move certain conditionally packaged codes to “O1.”

“SaMS analyses performed on laboratory tests” moved to the OPPS with a larger code list than originally proposed.

CMS finalized its position that stand-alone algorithmic analyses of prior laboratory test data are “other diagnostic tests” under section 1861(s)(3) of the Social Security Act, not “diagnostic laboratory tests,” and moved them from the CLFS to the OPPS. Commenters raised concerns about fragmenting integrated laboratory services, introducing beneficiary cost-sharing, and getting ahead of the pending CLIA Request for Information. CMS acknowledged these concerns but declined to delay the policy. The final list grew from 10 to 14 HCPCS codes, including removal of some codes, which are listed in Table 85 of the OPPS Final Rule.

National pricing replaces proposed contractor pricing for “SaMS analyses performed on laboratory tests” in the PFS Final Rule.

The biggest change from the proposals is in the PFS Final Rule. CMS had proposed using contractor pricing for SaMS analyses performed on laboratory tests under the PFS. Commenters argued that contractor pricing would reduce predictability and increase burden on the Medicare Administrative Contractors. CMS agreed and finalized national pricing based on a crosswalk to the OPPS payment rates. The same 14 codes, which are described in Table A-D8 of the PFS Final Rule, will receive active pricing under the PFS.

Practical Takeaways

• SaMS designation does not guarantee Medicare coverage. CMS expressly clarified that assigning a service to a New Technology APC with status indicator “O1” establishes how the service may be paid if covered but does not itself establish Medicare coverage. Stakeholders must still consider applicable coverage and medical necessity requirements.
• The interim framework is now in place, but it is still temporary. CMS repeatedly described the CY 2027 policy as “an interim first step” and said it will consider expanding and clarifying its scope in future rulemaking. Stakeholders should keep engaging with CMS ahead of the CY 2028 cycle, including on formal SaMS criteria and a long-term payment method.
• Seek SaMS coding, designation through rulemaking cycles and normal quarterly coding processes. Several technologies gained SaMS designation and “O1” status through the comment process. Stakeholders seeking SaMS designation for their technologies should consider using future rulemaking comment opportunities, including CMS’s normal quarterly coding processes for services that receive FDA clearance outside of the rulemaking cycle, to request designation and appropriate payment assignments.

Reed Smith will continue to follow developments with regard to SaMS and Medicare payment. If you have any questions about this rule or anything about Medicare payment, don't hesitate to reach out to the authors or to the health care lawyers at Reed Smith.