A medical claim is the formal request for payment that a healthcare provider submits to an insurance company or a government program, such as Medicare, after a patient has received services. This document translates medical care into a financial transaction within the healthcare system. The claim details exactly what services were performed, why they were necessary, and who provided them. Its primary function is to secure reimbursement for the provider according to the patient’s insurance policy or a contracted rate.
Essential Components of a Medical Claim
Every claim must contain specific categories of information to be considered valid and processable by a payer. One category involves patient and guarantor identifiers, which include the patient’s demographic information, the unique insurance policy number, and the group number to confirm coverage eligibility. Accurate provider information is equally important, requiring the provider’s National Provider Identifier (NPI) number and the facility’s tax identification number.
The claim must document service details, specifying the Date of Service and the Place of Service (e.g., an office setting or an outpatient hospital). These details are paired with standardized medical codes that communicate the clinical story to the payer. The codes include the International Classification of Diseases, Tenth Revision (ICD-10) codes, which describe the patient’s diagnoses and establish medical necessity.
Procedure and service codes are also required, typically using Current Procedural Terminology (CPT) or Healthcare Common Procedure Coding System (HCPCS) codes. CPT codes describe the specific medical, surgical, and diagnostic services performed by the provider. These codes must logically correspond with the submitted diagnosis codes to be considered appropriate. This data set is compiled onto standardized documents, such as the CMS-1500 form for professional services or the UB-04 form for institutional services.
The Journey from Submission to Payment
After the patient encounter, the provider’s office generates the claim and transmits it to the payer, often through an intermediary called a clearinghouse. The majority of claims are submitted electronically, which is faster and more efficient than submitting paper forms. The clearinghouse acts as a scrubber, automatically checking the claim for formatting errors and missing data before forwarding it to the final insurance payer.
Once the payer receives the claim, it enters a structured process known as adjudication, where the claim is systematically reviewed against policy rules. The payer first verifies that the patient was eligible for coverage on the Date of Service and that the provider is authorized to bill under the specific plan. The system then evaluates the codes to confirm that the services performed are covered benefits under the patient’s plan and that they align with the documented medical necessity.
The payer applies the terms of the contract with the provider and the patient’s specific benefits, such as deductibles, copayments, and coinsurance amounts, to calculate the payment. Automated systems handle most claims, but complex or unusual claims may be flagged for manual review by a claims adjuster or medical professional. This process determines the final reimbursement amount.
The outcome is formally communicated to the provider via an Electronic Remittance Advice (ERA) or a paper Remittance Advice (RA). This document details the total amount billed, the amount the payer approved, adjustments made based on the contract, and the final payment amount. The patient simultaneously receives an Explanation of Benefits (EOB), which outlines the payment decisions and clarifies the patient’s remaining financial responsibility. Providers use the ERA to reconcile the payment in their billing system and then bill the patient for any remaining balance.
Understanding Claim Rejections and Denials
When the claim process does not result in a payment, the outcome is categorized as either a rejection or a denial, which are distinct failures. A claim rejection occurs early in the submission process, often at the clearinghouse or the payer’s initial electronic intake system, before the claim has been formally processed. Rejections are typically due to technical or clerical errors, such as a missing National Provider Identifier (NPI) or an incorrect patient insurance ID number.
Since a rejected claim never formally entered the payer’s adjudication system, it is not considered a final decision on payment. The provider is notified of the specific error, and the claim can usually be corrected and resubmitted, assuming the timely filing limit has not passed. Conversely, a claim denial happens after the payer has processed and fully adjudicated the claim. The denial is a formal decision that the services will not be paid for specific reasons related to coverage or policy.
Common reasons for a denial include a lack of prior authorization for the service, services being deemed not medically necessary under the policy guidelines, or the patient not being covered for the specific service type. Denials require a more involved follow-up process than rejections. The provider cannot simply correct and resubmit a denied claim; instead, they must often enter a formal appeals process with the payer to challenge the decision.