CMS Renames "SaaS" to "Software as a Medical Service" (SaMS): What the CY2027 OPPS Rule Means for You

On 7 July 2026, CMS published the Calendar Year 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center proposed rule (CMS-1850-P). Most of the coverage went to site-neutral payment changes and the proposed 2.4 percent OPPS rate increase. Buried further in is a change that matters far more to anyone selling algorithm-driven clinical software: CMS is retiring the generic label "Software as a Service" and proposing "Software as a Medical Service" (SaMS) in its place.

This is not a rebrand. It is the agency's first concrete attempt to build a dedicated Medicare payment pathway for clinical software, with its own payment status indicator, a designated code list, and an explicitly interim methodology meant to hold the space until a permanent valuation framework exists.

What changed, and why CMS made the switch

In earlier rulemaking cycles CMS referred to reimbursable clinical algorithms informally as "Software as a Service." The agency now says that term risks confusion with generic cloud computing language used in every other sector, from CRM platforms to file storage. In the CY2027 proposed rule it defines Software as a Medical Service as software-based technology that supports clinical decision-making through algorithmic analysis, including tools that independently produce a diagnosis, a risk score, or a treatment recommendation.

The terminology shift sits inside a four-part interim framework:

A new payment status indicator, "O1," defined as "Software as a Medical Service, paid under OPPS; separate APC payment." O1 carries the same mechanics as the existing status indicator "S," meaning SaMS services would be paid separately and would not be subject to multiple-procedure discounting, at least for CY2027.

Thirty-six HCPCS codes designated as SaMS, listed in Table 61 of the proposed rule. Of those, CMS proposes reassigning 21 codes currently paid under standard clinical Ambulatory Payment Classifications into New Technology APCs, a category historically reserved for services without enough claims history to value conventionally.

Ten laboratory-algorithm codes moving off the Clinical Laboratory Fee Schedule. These cover algorithm-only analyses run on laboratory test data, such as certain oncology recurrence and tumour-profiling assays. CMS reasons that once the underlying lab data exists, the downstream algorithmic analysis is not a CLIA-regulated laboratory service and should be paid the same way as imaging-based SaMS.

Rate protection for low-volume tools. Using its equitable adjustment authority under Section 1833(t)(2)(E) of the Social Security Act, CMS proposes freezing CY2026 rates for several thin-claims-volume technologies — named examples include Atherosclerosis Imaging-QCT, LiverMultiScan and the Optellum lung cancer prediction tool — rather than letting standard rate-setting maths cut their payment because the data is sparse.

The technologies CMS references or that fall under the 36 codes are a recognisable cross-section of the AI-enabled device market: retinal imaging, FFR-CT coronary testing, echocardiogram-based heart failure detection, CT-based fracture risk scoring, eye-movement concussion assessment, algorithmic EKG cardiac risk scoring, quantitative brain MRI comparison, and AI-assisted prostate cancer mapping from biopsy imaging.

Why CMS calls this interim

CMS is unusually direct that this is a bridge, not a destination. The agency acknowledges a structural mismatch: OPPS valuation was built around material resources — clinical labour, physical supplies, room time, equipment overhead — while the value of SaMS sits in a proprietary algorithm and scalable, largely non-material infrastructure. Rather than force clinical software through a model designed for physical procedures, CMS is using New Technology APCs as a temporary holding structure while it collects cost and utilisation data for a SaMS-specific methodology later.

Two carve-outs preserve continuity. Codes already conditionally packaged under status indicator "Q1" keep their current clinical APC and packaging assignment. Codes assigned "E1," "N" or "M," none of which are separately paid under CY2026 OPPS, see no change.

One important question is still open. CMS asked for comment on whether O1 should instead behave like status indicator "T," which would apply multiple-procedure discounting when several SaMS codes appear on the same claim. That is a program-integrity safeguard the agency is actively weighing, and it is the single variable most likely to move your revenue model between the proposed and final rule.

Timeline

The rule was published 7 July 2026 under file code CMS-1850-P, with a comment deadline of 31 August 2026. CMS is expected to publish the final OPPS regulation by early November 2026, with finalised SaMS policies taking effect 1 January 2027 on the standard annual OPPS update cycle rather than through separate legislation.

Because the comment window has closed, the job now is monitoring the final rule — specifically for changes to code designations, the O1-versus-T decision, and the treatment of low-volume technologies — rather than preparing submissions.

What it means, by stakeholder

For software developers, reimbursement strategy and regulatory strategy stop being separate workstreams. Qualifying for O1 and for a Table 61 or 62 designation turns on demonstrating an independent clinical function, not simply holding an FDA clearance. If you are still sequencing your FDA premarket pathway decision before thinking about payment, this rule is the argument for running both tracks together.

For investors, a dedicated Medicare payment pathway strengthens the case that qualifying software can generate reimbursement independent of hospital subscription budgets. That materially changes diligence on recurring revenue assumptions, which until now largely rested on enterprise IT spend.

For hospitals and health systems, separate outpatient payment under O1 removes a real adoption barrier. AI tools that previously had to be absorbed into a bundled procedure payment can now justify standalone acquisition.

For companies with pending or future submissions, products should be evaluated against the SaMS definition and the code lists now. CMS has signalled this framework will evolve into a permanent methodology, and early positioning is cheaper than retrofitting.

CMS also flagged that unclear SaMS acquisition models — subscription, licence and per-use "per-click" billing — raise program integrity and fraud-and-abuse concerns it is watching. If you are structuring commercial agreements around anticipated SaMS payment, build compliance review into that process now rather than after the final rule publishes.

Three actions to take now

Map your technology against the SaMS code tables. Determine whether your product's HCPCS code, or a code you are pursuing, falls within the 36 SaMS designations or the 10 lab-algorithm codes moving off the CLFS.

Model both payment scenarios. Build projections under the proposed O1 mechanics and under the alternative T-like discounting CMS is considering, so a change in the final rule does not blindside a pricing or fundraising model.

Review your commercial contracting language. Subscription, licence and per-click structures should be assessed against the program-integrity concerns CMS has already raised in this rulemaking.

The wider point

Clearance has never been the finish line. A US clearance decision tells you that you may sell; it says nothing about whether a hospital gets paid for using the product, and the same gap exists in Europe, where a CE mark under EU MDR and UKCA routes is followed by an entirely separate, country-by-country payment conversation. Our medical device market access guide walks through how those two tracks interact and what evidence each one actually asks for.

The CY2027 OPPS rule is the clearest signal yet that Medicare payment infrastructure for algorithmic clinical software is being built in real time. Teams that align regulatory and reimbursement strategy today will be positioned to convert this interim policy into durable, standalone Medicare revenue when the permanent SaMS methodology arrives. That is exactly the judgement MedTech Compass is built to support: scoring regulatory route, reimbursement route and evidence readiness together, so market selection reflects where you will actually get paid.

This article summarises a proposed rule for general strategic awareness. It is not legal or regulatory advice. Assess SaMS eligibility, payment modelling and contracting structure against your specific product, codes and business model, and consult qualified regulatory and healthcare counsel before finalising decisions tied to this rulemaking.