The Digital Pathology Association (DPA) Reimbursement Task Force is committed to defining and shaping a pathway to reimbursement for Digital Pathology and AI solutions. As part of this objective, we want to keep our global community of over 4,500 pathologists, scientists, and industry leaders informed about critical regulatory shifts affecting digital pathology and AI image analysis.

 

This summer, the Centers for Medicare & Medicaid Services (CMS) issued proposed Medicare payment rules for 2027 that could significantly impact how software-only artificial intelligence algorithms are reimbursed. The proposals were published in the CY2027 Outpatient Prospective Payment System (OPPS) Proposed Rule and the CY2027 Physician Fee Schedule (PFS) Proposed Rule. We have summarized the key aspects of these proposals, what they mean for our field, and how the DPA is advocating on your behalf.

 

What Is Changing?

In its proposed rules, CMS introduced new terminology, Software as a Medical Service (SaMS), to describe software and artificial intelligence tools used to support clinical decision-making.

 

Importantly, CMS proposed removing 10 software-only diagnostic algorithms (including several digital-pathology enabled algorithm-only laboratory developed tests) from the traditional Clinical Laboratory Fee Schedule (CLFS). CMS proposes shifting these tools to local Medicare contractor pricing under the Physician Fee Schedule (PFS) under contractor pricing or placing them into temporary hospital outpatient payment categories.

 

Why This Matters to Our Community

Moving software-only algorithms off the clinical laboratory payment system introduces several key risks for developers, laboratories, and clinicians:

 

  • Less transparency and significant payment rate variation: The CLFS offers a more transparent and consistent framework for pricing algorithm-only LDTs, with established processes for resource-based analysis, public input, crosswalking, and market-based rate updates. In contrast, contractor pricing is less transparent, limits stakeholder input, and may produce variable rates across MAC jurisdictions, making the CLFS better suited to recognize the value of these innovative services.
  • Billing Uncertainty: The proposed rules leave it unclear whether clinical laboratories can directly bill Medicare for software-only tests under the new fee structures. Without a clear direct billing pathway, laboratories could face significant administrative burdens or indirect hospital arrangements that delay patient access to these AI image analysis products.
  • Regional Payment Inconsistency: Relying on local regional Medicare contractors to set prices often leads to inconsistent payment rates across the country and payment delays for healthcare providers.

 

Key Positions and Recommendations Taken by the DPA

 

In formal comment letters submitted to CMS, the DPA pushed back against these proposed changes and offered practical solutions:

 

  1. Keep Diagnostic Algorithms on the Lab Fee Schedule: Software algorithms analyze digital images generated directly from human tissue specimens. Because they are an integral part of clinical laboratory testing, they belong on the Clinical Laboratory Fee Schedule.
  2. Pause Major Changes Until Rules Are Clear: Federal agencies are currently re-evaluating regulatory oversight for data-only facilities. CMS should delay major payment reclassifications until overall regulatory frameworks are finalized.
  3. Establish National Pricing If Shifted: If CMS proceeds with removing these tests from the laboratory fee schedule, it should set consistent national payment rates rather than relying on fragmented local Medicare contractor decisions.
  4. Protect Direct Billing and Fair Value: CMS must ensure clinical laboratories retain a clear pathway to bill for these services directly and must not apply arbitrary payment cuts when a lab runs multiple distinct algorithms on the same specimen.

 

Key Upcoming Dates

 

  • Fall 2026 (on or before October 30, 2026): CMS is expected to release its Final Rules containing the finalized policy decisions.
  • January 1, 2027: Anticipated effective date for the finalized policy changes.

 

The Reimbursement Task Force will review the final rules as soon as they are published and provide our members with updated assessment and guidance.

 

Read the Full DPA Comment Letters

 

You can read the full text of the DPA’s formal submissions to CMS here: