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The AI Clinic · Issue 006Health policy

The billing code doesn't exist yet.

CMS is finally trying to figure out how to pay for AI

By Mark Kargela, PT, DPTJuly 27, 20265 min read

It's Monday, July 27. New day of the week for this newsletter. I've been sending The AI Clinic on Fridays, and Friday is a rough day to ask a clinician to read anything, you're either running out the door or already gone. I'm moving this to Monday mornings from here on, so it lands right when you're mapping out the week instead of squeezing in one more read on your way out the door.

This week: CMS finally tries to figure out how to pay for AI, a deep-learning model grades your patients' knee X-rays better at some stages than others, and I've got something new to show you at the bottom.

In 30 seconds
  • CMS's proposed 2027 fee rules are the first real attempt to build payment codes made for AI diagnostic and decision-support tools.
  • A new meta-analysis found AI's accuracy grading knee osteoarthritis on X-ray swings by severity instead of staying uniformly high.
  • I'm introducing Work, Understood, and a free five-minute check for where the friction in your practice actually lives.

The Big Story

CMS is finally trying to figure out how to pay for AI

CMS has been pricing AI tools the same way it prices a CT scanner: bolt a code onto a piece of hardware and call it done. That has never made sense for software that updates every month and has no physical footprint. Its proposed 2027 outpatient and physician fee rules are the first real attempt to build payment mechanisms made specifically for AI-based diagnostic and clinical support tools, instead of forcing them into a category built for machines you can touch.

If your clinic uses or is weighing an AI diagnostic or decision-support tool, this is the rule to watch. New codes or payment categories could change what you can actually bill for the AI you're already running, or make a tool you've been holding off on suddenly worth adding. The proposal isn't final. Comment periods and vendor lobbying will still shape what lands.

Mark's read: Whoever gets the first CMS code written for a category holds an advantage that lasts years. Ask anyone who watched telehealth billing get built. If AI diagnostics touch your clinic at all, this is worth ten minutes with your billing person now, not after the rule locks in.

Read more

From Work, Understood

Introducing Work, Understood.

I started a consulting practice this year for fixing the workflow friction that quietly eats a business's time: the same information typed into three systems, the handoff that drops a detail, the AI tool that gives a generic answer because it never had your actual context. Clinics carry this load as much as any other small business.

Take the Workflow Friction Checklist: ten plain questions, no email required, and it scores where the friction in your practice actually lives instead of you guessing at it. Takes about five minutes. See where you land, and if it points at something real, that's exactly the conversation a workflow audit is built to solve.

Take the Friction Checklist

In the Clinic

AI grading your knee X-rays isn't equally reliable at every stage

A new meta-analysis pooled the studies on deep-learning models that grade knee osteoarthritis severity on the Kellgren-Lawrence scale from a plain X-ray. The finding worth remembering: accuracy isn't uniformly high. It swings by grade, doing better at some severities than others instead of nailing every reading the same way.

In the clinic: Set that expectation with referring physicians and patients before an AI-generated grade comes back. A borderline reading deserves the same scrutiny you'd give a borderline read from a resident, not a pass because a model produced it.

Read the study

The Business of Care

Hospitals can't hire billers fast enough. AI vendors are filling the gap.

Hospitals short on revenue-cycle staff are turning to AI vendors to keep the billing backlog from growing. Akasa, which uses generative AI and large language models to automate claims and billing work, has raised $205 million and now works with major health systems that can't fill the roles fast enough on their own.

For owners: Smaller practices are facing the same staffing crunch, just at a smaller scale. AI-based revenue-cycle tools are becoming a real alternative to hiring, not something reserved for hospital systems with enterprise budgets. Worth a look if denials or slow collections are eating your week.

Read more

The Big Picture

The biggest open-source model yet just landed, and it isn't American

Moonshot AI released Kimi K3, a 2.8-trillion-parameter open-source model the company says performs competitively with the top proprietary systems from Anthropic and OpenAI. The release was timed ahead of the World AI Conference in Shanghai.

Mark's read: This is the backdrop for everything else on this list. Open-source models closing the gap with proprietary ones tends to push AI tool costs down over time. If you're weighing whether to pay for an AI feature now or wait, that closing gap is exactly why waiting sometimes wins.

Read more

Research Worth Reading

A stick-on sensor that tries to read your patient's low back pain

Researchers tested whether a self-adhesive, skin-conforming strain sensor called Motion Tape, paired with movement data, can objectively classify low back pain during functional tasks. That's a place where standard sensing technology has struggled, subtle movement impairments don't show up cleanly on the tools most clinics have access to.

For clinicians: Early-stage, and not something to adopt yet. But worth tracking. An objective, wearable movement biomarker for low back pain could eventually support outcome tracking in PT practice in a way self-report alone can't.

Read the study

Try This

Find out which of your AI tools might need a CMS code next year

Open a blank page. List every AI tool in your practice that touches a diagnosis, a triage decision, or a treatment recommendation, not scheduling, not scribing, just the clinical-decision layer. Next to each one, note whether it's billed today, and how. That list is exactly what CMS's 2027 rule will touch, and you want to know your own exposure before a payer rep tells you about it.

What else is happening

The last word

New day, same job: dig through what AI in healthcare actually means for your patients, your clinic, and your time, and skip the noise.

If Monday works better or worse for you, hit reply and tell me. I read every one.

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