Healthcare claims adjudication is a complex administrative function at the center of the financial relationship between a patient, a healthcare provider, and an insurance company. This process is the formal mechanism by which an insurance payer reviews a bill for medical services to determine if, and how much, they are obligated to pay under a patient’s policy. It is the definitive step that translates a medical service into a financial transaction, establishing the final responsibility for the cost of care.
Defining Healthcare Claim Adjudication
Claim adjudication is the systematic, formal review conducted by a health plan (the payer) to establish its contractual financial responsibility for a submitted service. The process begins after a healthcare provider submits a claim detailing the services rendered to a patient, which is essentially a bill requesting reimbursement for the care delivered.
The payer acts as the adjudicator, comparing the submitted services against the terms of the patient’s health plan contract. This comparison ensures the claim aligns with coverage rules, medical policy guidelines, and predetermined reimbursement rates. The review validates that the treatment was appropriate, accurately billed, and covered by the policy before any payment is issued, determining the final financial outcome for all parties.
The Standard Claims Review Process
The moment a claim is received by the payer, often electronically through a clearinghouse, it enters an initial verification stage. Automated systems check the claim for basic administrative data, confirming the patient’s eligibility on the date of service and ensuring the claim is not a duplicate submission. Simple errors, such as a mismatch in the patient’s name or policy number, lead to an immediate rejection requiring the provider to correct and resubmit the bill.
If the basic information is accurate, the claim proceeds to systematic code scrubbing and automated review, often called auto-adjudication. Sophisticated software cross-references procedure codes (CPT) with diagnosis codes (ICD). This step verifies that the combination of services provided is consistent with the documented medical condition, checking for inconsistencies and unbundling of services. A large percentage of claims are processed entirely by these automated systems, often below a set dollar threshold.
Claims flagged for complexity, high dollar amounts, or unusual coding patterns are diverted for a manual review by a claims examiner or clinical professional. This deeper inspection includes a medical necessity review, determining if the service meets established clinical guidelines for the patient’s condition. If the patient has multiple insurers, a Coordination of Benefits check determines which plan is primary and secondary. This comprehensive review culminates in calculating the allowed amount, the maximum payment the payer will consider according to their contract with the provider.
Understanding the Possible Outcomes
The detailed adjudication process results in one of three primary determinations for the submitted claim. The most favorable outcome is a claim being paid or approved in full, meaning the service was covered, medically appropriate, and accurately billed according to all policy terms. In this scenario, the payer issues the agreed-upon reimbursement to the provider, minus any patient cost-sharing responsibilities.
The second outcome is a claim being adjusted or reduced, which results in a partial payment. This determination occurs when the service is covered, but the final payment amount is altered due to the application of the patient’s benefits, such as deductibles, co-payments, or co-insurance. A reduction can also happen if the payer determines that a less expensive, but equally effective, procedure should have been performed, or if the billed amount exceeds the contracted rate.
The final determination is a denied claim, where the payer rejects the request for payment entirely, providing a specific reason for the decision. Common reasons for denial include the service not being covered by the patient’s policy, a lack of necessary pre-authorization, or a finding that the service was not medically necessary.
What Happens After Adjudication
Once the final decision on payment has been made, the insurance company formally communicates the outcome to both the patient and the provider. For the patient, this communication arrives as an Explanation of Benefits (EOB), a document detailing how the claim was processed. The EOB is not a bill, but it outlines the total charges, the amount the insurer paid, any amount adjusted due to contract rates, and the remaining patient responsibility.
The healthcare provider receives a similar document called an Explanation of Payment (EOP) or an Electronic Remittance Advice (ERA). This document details the payment made or the reason for a denial or adjustment. This documentation is crucial for the provider’s accounting and billing department to reconcile payments and bill the patient for any remaining balance.
If a claim is denied, both the patient and the provider have the right to challenge the insurer’s decision through a formal appeals process. This recourse allows for a re-evaluation of the claim, often requiring the submission of additional clinical documentation to support the medical necessity of the service. Pursuing an appeal initiates a structured review, giving the involved parties the opportunity to overturn the initial adverse payment determination.