The comment period on one of the more consequential coding proposals in this year’s outpatient payment rule closed August 31, 2026 — and the response from pathology and laboratory organizations was close to unanimous rejection. At issue is a new billing category CMS calls “Software as a Medical Service” (SaMS), which would pull ten HCPCS codes for algorithm-driven laboratory analyses out of the Clinical Laboratory Fee Schedule (CLFS) and into the Outpatient Prospective Payment System (OPPS) under a new “O1” status indicator.
For coding and compliance teams, this is not an abstract classification debate. If finalized, it would change how these services get billed, who can bill for them, and how much patients owe out of pocket.
What CMS Is Proposing
The CY2027 OPPS proposed rule argues that algorithmic analysis of laboratory-generated data — think AI models that interpret digital pathology slides or genomic data — doesn’t inherently require CLIA certification the way a physical lab test does. CMS’s proposed rationale, as summarized in coverage of the rule, is that “similar algorithmic services should be treated consistently” regardless of whether the underlying input is an image or lab-generated data. In other words, CMS wants to treat an AI reading a pathology slide the same way it treats an AI reading a radiology image.
The proposal would reclassify ten existing HCPCS codes under the new O1 indicator, shifting them from CLFS payment rules — which have minimal beneficiary cost-sharing — to standard OPPS coinsurance.
Who Objected, and Why
According to reporting published September 2, 2026, every major organization that commented took a position against the proposal as written:
- College of American Pathologists (CAP) — opposes removal from CLFS now, while staying open to a purpose-built framework later
- American Clinical Laboratory Association (ACLA) — mounted the most comprehensive challenge, proposing a conditional CLIA-certification requirement as a compromise
- Association for Molecular Pathology (AMP) — rejected the idea that an algorithm can be conceptually separated from the lab test that produced its input
- Coalition for 21st Century Medicine, Digital Pathology Association, and AdvaMed — raised structural, taxonomy, and manufacturer-implementation concerns respectively
The consensus argument across these comment letters: specimen-derived data is still laboratory testing, computational analysis is now integral to how that testing works, and payment policy shouldn’t get ahead of the regulatory questions CMS itself hasn’t settled — including an open CLIA request for information.
Where the Coding Gets Messy
Commenters also flagged operational problems with CMS’s own code list. Table 62 of the proposed rule reportedly includes a deleted code (0208U) and improperly includes code 81416, which requires wet-laboratory work that doesn’t fit the “algorithm-only” framing CMS is using to justify the reclassification in the first place. That’s a meaningful detail for coding teams: if the underlying code list is inconsistent, mapping current billing workflows to the new O1 category becomes guesswork.
Beyond the code list itself, basic billing mechanics remain undefined — date-of-service rules, provider enrollment requirements, and referral rules for labs that don’t perform the analysis themselves but would now be billing through a hospital-outpatient framework.
Why This Matters Beyond Pathology
Medical coding and RCM teams outside of pathology should still be watching this. CMS’s underlying logic — that algorithmic interpretation should be coded the same way regardless of what kind of data feeds it — is a template that could extend to other AI-assisted diagnostic services well beyond lab medicine. A precedent set here for how software-driven analysis gets classified, billed, and audited has implications for any coding program that touches AI-generated or AI-assisted clinical outputs.
It’s also a reminder that payment classification frequently lags the technology it’s meant to govern. Coding teams that treat “the code exists, so the workflow is settled” as a safe assumption are the ones most likely to get caught flat-footed by a final rule that changes cost-sharing, billing entities, or documentation requirements with little transition runway.
What Coding and Compliance Teams Should Do Now
CMS is expected to respond to comments in the CY2027 OPPS final rule later this year. Until then, coding and compliance teams should identify which of their organization’s current billing codes fall on CMS’s proposed O1 list, model the cost-sharing impact of a CLFS-to-OPPS shift for any affected services, and track whether the final rule resolves the date-of-service and referring-lab billing questions the comment letters raised.
Coding teams that model this now, rather than waiting for the final rule, will have a head start if CMS finalizes even a narrowed version of the SaMS category. Read the full breakdown of the comment letters and CMS’s proposed rationale in this September 2, 2026 analysis.
Reclassification fights like this one are exactly where automated coding platforms earn their keep — flagging code-status changes before they become claim denials, rather than after. Medikode’s automated medical coding platform is built to keep coding teams current as CMS redraws these lines.