The CY 2027 Physician Fee Schedule Proposed Rule: What Medical Device, AI, and Digital Health Companies Need to Know

On July 16, 2026, CMS published the CY 2027 Physician Fee Schedule proposed rule (CMS-1848-P) in the Federal Register. At 716 pages, it is one of the most consequential PFS rules in years for companies commercializing medical devices, AI-enabled software, and remote monitoring technologies. Comments are due September 14, 2026, and the final rule is expected around November 1, with policies effective January 1, 2027.

Below are the provisions our clients should be watching, and why.

Payment rates are going down

Start with the arithmetic. The one-year 2.50 percent conversion factor increase that Congress provided for CY 2026 expires, and the statutory updates for 2027 only partially backfill it. CMS proposes a qualifying APM conversion factor of $33.17 (a decrease of 1.19 percent) and a non-qualifying APM conversion factor of $32.84 (a decrease of 1.68 percent).

For manufacturers, this means every professional fee, technical component, and global payment in your value proposition materials needs to be refreshed when the final rule publishes. If your sales teams are quoting 2026 rates built on the $33.40 conversion factor, those figures will be wrong in January. It also means physician customers will begin 2027 with a pay cut, which shapes the receptivity of every economic conversation you have this fall.

CMS renames SaaS to "Software as a Medical Service," and starts deciding how to pay for algorithms

For AI and software-as-a-medical-device companies, this is the most strategically important section of the rule. CMS proposes to retire the term "Software as a Service" in Medicare payment policy and replace it with Software as a Medical Service (SaMS), defined as software-based technologies that support clinical decision-making through algorithmic analysis, including those with clinical or diagnostic functionality. The same terminology change appears in the CY 2027 OPPS proposed rule, which signals a coordinated, cross-setting effort to build a durable payment framework for clinical AI.

The PFS rule goes further than vocabulary. CMS proposes that standalone algorithmic analyses performed on previously generated laboratory data, for example proprietary secondary analyses of a genomic sequence, should not be treated as clinical diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule. Because these analyses can be performed by entities that are not CLIA-certified laboratories, CMS's position is that they are "other diagnostic tests" under the statute, which places them in PFS territory. If your product performs downstream algorithmic analysis of lab-generated data, your benefit category, your coding pathway, and your rate-setting mechanism may all be in motion. This is a comment opportunity that should not be missed.

The remote monitoring model many companies built on is being restructured

If your commercial strategy relies on remote physiologic monitoring (RPM) or remote therapeutic monitoring (RTM) reimbursement, read this section twice. Responding to two OIG reports on remote monitoring billing, CMS proposes four changes for CY 2027:

• Established patients only. RTM services would be limited to established patients, matching the existing RPM requirement. Patient acquisition models that begin with remote enrollment would no longer support billing.
• A required initiating visit. Practitioners billing RPM or RTM would need to furnish a separately reportable face-to-face visit (in person or via telehealth) at the onset of services, during which remote monitoring is actually discussed with the patient.
• No more outsourced monitoring staff. This is the headline. CMS proposes to allow payment only when RPM or RTM services are furnished by clinical staff directly employed by the billing practitioner or the practice. Beginning January 1, 2027, time spent by clinical staff contracted through third-party companies could not be counted toward billing. Staff can still work remotely, but they must be employees. Turnkey vendor models in which the technology company supplies the monitoring workforce would not survive this proposal in their current form. CMS is explicitly seeking comment on how often third-party staffing occurs and how the policy would affect access, which is an invitation for affected companies to bring data.
• Downward revaluation. CMS believes the setup and education codes (99453 and 98975) are overvalued because device costs appear lower than the data used in the original valuations, and proposes a practice expense crosswalk that would reduce payment.

CMS is also seeking comment on collapsing the entire remote monitoring code family, currently 17 codes, into four new HCPCS G-codes (GRPM1, GRPM2, GRTM1, and GRTM2) that bundle device supply and treatment management into a single monthly service. If that structure is finalized in future rulemaking, every RPM and RTM billing guide in circulation would need to be rebuilt.

Practice expense methodology is being rebuilt, and imaging economics will move

CMS is continuing its multi-year transition away from AMA survey data toward objective, auditable cost data for setting practice expense RVUs. For CY 2027, it proposes to phase out the step that anchors specialty-level PE RVUs to practice expense per hour data from 2007 or earlier, replacing it with a stabilizer designed to limit short-term volatility. CMS is also seeking comment on whether the facility versus non-facility site of service differential remains appropriate at all, particularly for physicians employed by hospitals and health systems.

For imaging and diagnostics companies, this is the slow-moving structural story of the next several rule cycles. Technical component payment in freestanding and office settings is exactly where these reallocations land. Any pro forma or site-of-service comparison your team maintains should be treated as a living document through this transition.

Surgical global periods are under the microscope

CMS proposes that when a separately identifiable E/M visit is furnished by the same physician (or same practice) on the same day as a 0-, 10-, or 90-day global procedure, only the most expensive service would be paid at 100 percent, with the others paid at 50 percent. CMS is also pausing the MACRA post-operative visit data collection while publishing a public use file showing the imputed RVUs of post-operative visits, noting that its data show many of these visits are not occurring even though they are being paid for. Together these moves telegraph a broader revaluation of global surgical packages. Device companies whose procedure economics depend on global-period valuations should be following this closely and considering comment.

Telehealth and virtual presence continue to normalize

No services were requested for addition to or removal from the Medicare Telehealth Services List this year, but CMS proposes to add its newly created advance care planning and shared medical appointment G-codes to the list. More interesting for technology-enabled care models: CMS proposes to relax the teaching physician virtual presence policy so that billing is permitted when either the teaching physician or the resident is physically with the patient, rather than requiring all three parties to be in separate locations. It is a narrow policy, but the direction matters. CMS keeps expanding the circumstances in which a supervising physician's presence can be virtual, which is a favorable trajectory for any company building distributed or remote care delivery models.

An interoperability RFI worth answering

The rule includes a request for information on duplicate laboratory testing and imaging, focused on results that sit siloed in the acquiring EHR and are invisible across care settings, driving repeat studies, avoidable cost, and unnecessary radiation exposure. If your technology enables cross-site image or data sharing, this RFI is a low-cost opportunity to put your evidence and your framing in front of CMS while it is actively shaping policy.

Also in the rule

The rule proposes converting the G2211 E/M complexity add-on to a percentage-based modifier (16 percent, or 32 percent for ACO participants), establishes new coding for shared medical appointments, creates clinical-staff advance care planning codes, continues the skin substitute payment restructuring begun in CY 2026, implements CLFS reporting changes from the CAA 2026, and includes a sweeping comment solicitation on redesigning primary care payment, including the payment implications of technology in primary care. And 2027 is year one of the Ambulatory Specialty Model, making this the last rulemaking pass before the first mandatory specialist-level accountability model in traditional Medicare goes live.

What to do between now and September 14

The comment window closes September 14, 2026. If any of the provisions above touch your reimbursement pathway, the time to act is now: a well-built comment letter with real-world data, especially on the remote monitoring staffing proposal and the SaMS payment framework, can genuinely move final policy. At minimum, every company selling into physician practices should be stress-testing its economic models against the proposed conversion factors and flagging materials that will need a January refresh.

Prevara Consulting is preparing comment letters, impact analyses, and updated customer-facing reimbursement materials for clients across the device, AI, and digital health space. If you want to understand what this rule means for your product specifically, we should talk before the comment deadline, not after the final rule.

This post summarizes selected provisions of CMS-1848-P, published July 16, 2026 (91 FR 43790). It is provided for general information and does not constitute legal, coding, or billing advice. Proposed policies are subject to change in the final rule.