It's become a cliche' that most action occurs in the Executive Branch, with a fairly sleepy agenda on the Hill.
But one topic of interest is the Health Technology Investment Act, S.1399, introduced in April 2025 by Senators Mike Rounds (R SD) and Martin Heinrich (D NM).
- Sidebar: A new article in Healthcare Dive writes that, "Digital health funding outpacing last year as huge rounds increase. Investment in 2025 has reached $9.9 billion."
- Sidebar: This past summer, CMS sought public advice on pricing SAAS-SAMD; entry point here.
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Report: Analysis of the Proposed Health Tech Investment Act (S. 1399) and Implications for Health AI & MedTech Stakeholders
Executive Summary
On April 9, 2025, Senators Mike Rounds (R-SD) and Martin Heinrich (D-NM) introduced the bipartisan bill S. 1399, titled the “Health Tech Investment Act,” aiming to amend Title XVIII of the Social Security Act to create a clearer, predictable reimbursement pathway under the Centers for Medicare & Medicaid Services (CMS) for algorithm-based healthcare services (ABHS) delivered via FDA-cleared or -approved devices that use artificial intelligence (AI) or machine learning (ML). (Congress.gov)
Industry association AdvaMed has publicly endorsed the bill, emphasising the need for a stable reimbursement regime for AI-enabled medical devices. (AdvaMed®)
For health-tech and medtech strategists, this bill signals a potentially material shift in how AI/ML-enabled diagnostics and therapeutic adjuncts may be reimbursed, with implications for investment, device development, commercialization strategy, and adoption by provider organisations.
Key Provisions of the Bill
Below is a breakdown of the principal features as drafted in the bill text, along with their strategic implications:
1. Definition of “Algorithm-Based Healthcare Service” (ABHS)
Under the bill, an ABHS is defined as:
“a service delivered through a device cleared or approved by the Food & Drug Administration that uses artificial intelligence, machine learning, or other similarly designed software to yield clinical outputs or generate clinical conclusions for use by a physician or practitioner in the screening, detection, diagnosis, or treatment of an individual’s condition or disease…” (Congress.gov)
Implications:
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The definition explicitly ties the service to an FDA-cleared or -approved device, thus excluding non-regulated software or tools that do not meet FDA device criteria.
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The emphasis on “clinical outputs or … clinical conclusions” signals that the service must deliver actionable results to clinicians.
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For medtech firms and investors, this presents a clear threshold: device regulation + clinical interpretation output + AI/ML, rather than simply being an analytics tool.
2. Creation of a “New Technology” Ambulatory Payment Classification (APC) for ABHS
The bill amends Section 1833(t) of the Social Security Act to insert, within the Hospital Outpatient Prospective Payment System (OPPS), a special rule under paragraph (16)(H) for ABHS. (Congress.gov)
Under this rule:
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For covered outpatient department (OPD) services furnished on or after January 1, 2026, that qualify as ABHS and are assigned into a new technology APC, CMS must ensure that the service be assigned to a new technology APC based on the cost of the service (manufacturer-submitted costs, subscription fees, overhead, staff, etc.). (Congress.gov)
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CMS shall adjust the APC as necessary, and may not remove the service from the new technology APC until the Secretary determines adequate claims data exist OR until at least five years of payment under that classification have elapsed. (Sidley Austin)
Implications: -
This provision represents a “transitional” reimbursement path: a safe harbour of 5 years (minimum) during which the service enjoys a dedicated payment classification before being reassigned. (Data Matters Privacy Blog)
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The cost-based data requirement (including invoice, subscription, overhead, clinical staff) signals that manufacturers must prepare transparent and detailed cost submissions. For start-ups or smaller vendors, this may introduce resource demands.
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For hospitals and provider groups, the prospect of a distinct payment code (rather than being folded into a broader bundle) enhances the business case for adoption of AI-based services.
3. Adjustment of Application Process and Eligibility
The bill mandates the Secretary adjust the application process and criteria for the “new technology” APC so that ABHS that are “distinct from but performed concurrently with, adjunctive to, or provided in any other modality or form as part of an underlying service and require additional resources” meet eligibility. (Congress.gov)
Implications:
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This signals recognition that many AI tools are adjunctive (e.g., image-analysis adjunct to a radiology exam) rather than standalone procedures.
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It opens the door for reimbursement of AI services that are “embedded” within care workflows, provided they require additional resource and are distinct. This is strategically critical for many modern AI medtech firms whose tools augment existing workflows rather than replace procedures.
4. Retroactive Codification of Software-as-a-Service (SaaS) Payment Policy
The bill also stipulates that effective for services provided on or after January 1, 2023, CMS shall apply the OPPS payment policy for software-as-a-service (SaaS) as described in the final rule from November 23, 2022. (Congress.gov)
Implications:
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This codifies a policy direction already set by CMS rule-making, giving more confidence to SaaS-based AI medical device firms that subscription or cloud-based models may be accommodated.
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It may reduce reimbursement risk for AI companies that operate on a recurring revenue model rather than a one-time device sale.
Strategic Considerations for MedTech & Health AI Stakeholders
Given your role in medtech / genomics strategy, investor due diligence and reimbursement/regulatory strategy, here are how key stakeholder groups should interpret S. 1399:
For AI/ML medical device firms (especially early-stage):
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This bill, if enacted, would reduce one of the major commercialization risks — lack of a predictable reimbursement pathway. Investment and development decision-making can incorporate the potential for Medicare OPPS reimbursement under a new technology APC. (Mittal Consulting)
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Cost-submission planning should begin early: Manufacturers will need to compile detailed cost materials (invoice, subscriptions, clinical staff, overhead) to support the new technology APC assignment.
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Given the 5-year minimum transitional period, firms should build the evidence generation (real-world utilization, outcomes, cost savings) early because after the transitional period CMS will re-evaluate.
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However, the bill is limited to FDA-cleared/approved devices; AI tools that reside outside FDA device regulation (for example, certain clinical decision-support software) may not benefit directly — this remains a gap. (Morgan Lewis)
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The transitional category is for outpatient hospital setting services (OPD) under OPPS. Companies must assess whether their intended care setting and billing pathway align.
For investors, venture capital and medtech strategy leads:
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The legislative prospect raises the attractiveness of health-AI investments, as reimbursement risk is often a significant barrier. The bill’s existence may signal a more favourable environment for exits, roll-ups, or partnerships. (www.hoganlovells.com)
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Due diligence should include: What is the regulatory status (FDA cleared/approved) of the AI device? Does the business model align with OPPS outpatient services? Is the cost-structure eligible? Does the firm have a plan for real-world data on utilization during the 5-year period?
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Scenario planning should include both: (a) Bill passage and ensuing strategic advantage; (b) Bill does not pass (or is substantially amended) and status quo (ad hoc reimbursement) remains.
For provider organisations (hospitals, health systems, radiology groups):
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If S. 1399 passes, providers may have greater confidence in investing in AI-enabled tools — knowing that Medicare reimbursement under OPPS may be available for ABHS. This could accelerate adoption.
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Providers should track the “new technology APC” assignment process — which services/devices are awarded codes, at what payment level, and how the cost-based submission translates into practice.
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The 5-year transitional period signals that early adopters may benefit, but also that the technology will be evaluated for sustainability; therefore providers should include utilisation tracking and outcome metrics.
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Given the outpatient OPD service focus, provider strategy should consider deployment in hospital outpatient departments rather than strictly inpatient or physician practices.
For payers and policy strategists:
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This legislation represents a shift in Medicare payment policy to more explicitly recognise AI/ML-enabled services as eligible for reimbursement under dedicated pathways rather than being folded into legacy categories.
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The cost-based submission requirement offers CMS visibility into the cost structure of AI services (subscription, overhead, clinical staff) — this may lead to more granular data on how such services deliver value (outcomes, efficiency).
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Over time, the 5-year data accumulation requirement may allow for policy generation around when and how these technologies should move into standard APCs, or when bundled into broader payments.
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Monitoring impact: Will this approach accelerate uptake, improve outcomes, or increase cost? Will smaller providers/hospitals benefit, or will reimbursement inherently favour large systems?
Risks, Limitations & Outstanding Issues
While S. 1399 addresses many of the reimbursement challenges for AI-enabled medical devices, key caveats remain:
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Legislative Uncertainty: As of now the bill is introduced and referred to the Senate Finance Committee. It has not yet been enacted. (Congress.gov)
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Scope of Device Regulation: Only services delivered via FDA-cleared/approved devices qualify under the definition of ABHS. AI tools that fall outside FDA device regulation (e.g., many clinical decision support software solutions) may not qualify. (Morgan Lewis)
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Setting Limitation: The focus is on OPD services under the outpatient hospital prospective payment system. Other settings (inpatient, physician office, ambulatory surgical centres) may not be covered by this mechanism.
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Cost Submission Burden: The requirement that the manufacturer submit cost data (invoice, subscription, overhead, staff) could create a barrier for smaller firms lacking sophisticated cost-accounting.
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Five-Year Transition Period: While the minimum 5-year assignment to the new technology APC is stability for manufacturers/providers, it also means that full transition to standard classification may take years, and uncertainties post-5-years remain.
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Dynamic AI/ML Field: Regulatory, clinical adoption, value evidence, and coding practices are evolving rapidly. The bill provides a pathway, but the details (e.g., payment levels, eligibility criteria, evidence requirements) will still require rule-making and CMS guidance.
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Investment vs Value Outcomes: Adoption of AI-enabled devices must still demonstrate value (improved outcomes, cost savings, workflow efficiency) in order to justify payment and provider uptake; the bill does not remove the need for evidence generation.
Implications for Genomics & Connected MedTech Strategy
Given your background in genomics, medtech and reimbursement strategy, here are some tip-points to consider:
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While the bill is focused on “algorithm-based healthcare services” delivered via AI/ML-enabled devices primarily in diagnostics/imaging, the structural logic may extend to genomics translation: If a genomics platform uses AI/ML to generate diagnostic or prognostic outputs, and is cleared by FDA, then a similar reimbursement pathway might become available (or adapted) in future legislation.
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For companies like the ones you consult for (e.g., ctDNA MRD testing platforms, plasma CGP assays), this bill signals an environment in which payers and policymakers are recognising the value of algorithm-driven diagnostics. While MRD/CGP are not explicitly covered by this bill (they may fall under a diagnostic test benefit rather than device benefit), the momentum is favourable.
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From a due-diligence/investor perspective: Monitor whether companies plan for FDA clearance, cost-based reimbursement modelling, and evidence generation; the ability to articulate a Medicare reimbursement pathway will enhance investment attractiveness.
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For service line adoption (within health systems) of AI-enabled diagnostics/therapeutics: The stability signalled by this bill may make hospital executives more willing to invest in AI-enabled workflows, which can benefit genomics/medtech firms through partnership opportunities (e.g., combined imaging + liquid biopsy workflows).
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From a strategic positioning standpoint: Firms should consider how to align with OPPS outpatient service pathways, and whether their service sits adjacent or adjunctive to existing procedures (which S. 1399 contemplates). For example, if a genomics test is adjunctive to imaging or interventional procedure, framing it accordingly may align with policy intent of the bill.
Action Items & Next Steps
To translate this analysis into actionable steps for medtech/AI firms, investors and strategy consultants:
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Monitor Legislative Progress
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Track S. 1399’s movement through the Senate Finance Committee and any amendments or revisions.
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Watch for possible companion bills in the House or related legislation (e.g., H.R. 238 referenced in press discussion). (Mobi Health News)
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Stay alert to regulatory rule-making by CMS following passage — key will be the criteria for “new technology APC” assignments, cost data submissions, and transitional payment rules.
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Prepare Cost Modelling and Submission Templates
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For AI/ML device firms: Develop cost accounting frameworks that can support manufacturer cost submissions (invoice, subscription, overhead, clinical staffing).
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Consider scenario modelling for transitional payment years (2026 onward) and estimate reimbursement impact under OPPS.
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Evidence Generation Planning
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Align device development plans and post-market surveillance with utilisation and claims data capture over the 5-year transitional period to support reassignment to standard APC.
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For potential genomics/adjunctive diagnostic service firms: Consider designing integration studies (e.g., workflow, adjunctive use) to reflect eligibility criteria (distinct new procedure, beginning-middle-end, requires additional resources).
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Provider Engagement Strategy
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Engage hospital outpatient departments and health systems early: Position the AI/ML service as eligible for the “new technology APC” pathway, highlighting potential reimbursement stability.
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Develop adoption business cases: ROI modelling, workflow impact, value proposition for provider and payor stakeholders.
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Investor-Communications & Risk Mitigation
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For investors and firms: Incorporate reimbursement legislative risk into due diligence — but also highlight the upside of a favourable path if S. 1399 is enacted.
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For firms outside the immediate domain (e.g., genomics rather than imaging AI) consider how the regulatory/reimbursement precedent may influence future legislative or CMS pathways.
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Conclusion
S. 1399 (Health Tech Investment Act) represents a significant and proactive attempt to modernise Medicare’s payment architecture to accommodate algorithm-based healthcare services delivered through AI/ML-enabled, FDA-cleared medical devices. For medtech and health-AI companies, this is an important development because it addresses one of the key commercialization bottlenecks: reimbursement uncertainty. While the bill is not yet law and important details remain to be defined, from a strategy, investment and commercialization standpoint it creates a favorable tailwind.
Given your consultancy role in genomics and medtech strategy, this is a timely moment to incorporate the reimbursement implications of AI-enabled services into your client and investment analysis frameworks. The interplay between regulatory clearance (FDA), reimbursement (CMS/OPPS), provider adoption, and investor interest will be increasingly important in the coming 18-24 months.
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No new money??
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Correct — S. 1399 (the Health Tech Investment Act) does not include any appropriations or direct funding provisions.
Here’s a breakdown of what that means and how to interpret it:
🔹 No New Spending Authority
The bill is entirely directive rather than appropriative.
It amends Section 1833(t) of the Social Security Act — the section governing the Hospital Outpatient Prospective Payment System (OPPS) — to instruct CMS to:
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create and maintain a “clear, predictable payment pathway” for certain FDA-cleared AI/ML devices (defined as “algorithm-based healthcare services”), and
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retain such services in a “new technology” ambulatory payment classification (APC) for at least five years until enough claims data exist to establish a permanent rate.
But the bill does not authorize new funds for CMS operations, grant programs, or subsidies to manufacturers or hospitals.
CMS would implement the policy within its existing administrative and OPPS payment authority — essentially by reallocating staff time and using normal rule-making resources.
🔹 How CMS Would Operationalize It
Implementation would likely involve:
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issuing rule-making or sub-regulatory guidance (likely via the annual OPPS proposed rule),
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updating APC assignment criteria and cost-submission forms, and
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processing manufacturer cost data within existing OPPS infrastructure.
Because all of this fits inside CMS’s standing statutory framework, no additional budget appropriation is necessary.
🔹 Implication for Industry
For manufacturers and investors, the bill’s value lies in regulatory predictability, not financial support.
It would give AI-enabled device developers and hospital purchasers a stable reimbursement classification — a policy win that can de-risk adoption — but it doesn’t add funding or bonus payments beyond whatever OPPS rates are calculated from cost data.
Hospitals would still be reimbursed through standard Medicare claims flow, and CMS’s outlays would come from the existing Medicare Trust Fund, not new spending.
In short:
S. 1399 creates a policy mechanism (a clearer and more durable payment pathway) but not a funding mechanism.
It directs CMS to implement coverage and payment rules using its existing budget and OPPS rate-setting authority.
