Medicare's new add-on payments for AI devices may spur hospital adoption and risk overuse

Medicare has begun paying hospitals extra fees for using newly authorized AI-based medical devices, known as technology add-on payments, for a limited period after market entry.

The payments are intended to help hospitals cover the cost of adopting the tools and to encourage uptake, especially when the devices promise clinical alerts that could improve outcomes.

Researchers caution that the financial incentive may also drive hospitals to use the AI tools more frequently than clinically necessary, raising concerns about overuse and added costs.

For AI startups, the temporary Medicare add-on payments provide a short-term boost that can make it easier to sell to health systems, but the long-term sustainability will depend on demonstrated cost savings and patient benefit.