The process of receiving medical care involves a complex financial review that determines how much of the cost is covered. This review is called claims adjudication, and it is the administrative step where a health insurance company decides whether to pay for a submitted medical service. Every claim sent by a provider enters this pipeline to be evaluated against the patient’s policy rules. Adjudication translates a medical service into a financial outcome, establishing who pays what for the care provided.
The Core Definition of Adjudication
Claims adjudication is the formal process a health plan uses to evaluate a medical claim to confirm its legitimacy and determine the appropriate payment amount. It is the insurer’s internal mechanism for verifying the necessity and coverage of a service before issuing reimbursement. The central purpose is to ensure that the billed services align with the terms of the patient’s insurance contract and comply with regulatory standards.
Adjudication acts as a detailed audit of the medical service, moving far beyond simply receiving a bill. Insurance companies use this process to protect against improper billing, fraud, and the payment of services not covered under the patient’s specific plan. By methodically reviewing each claim, the payer decides if the request for payment is valid, accurate, and covered by the policy.
Steps in the Claims Adjudication Process
The adjudication process begins the moment a healthcare provider electronically submits a claim to the payer using a standardized format. The claim first undergoes an initial review to check for basic administrative details, such as the patient’s name, policy identification number, and correct formatting. Claims with simple data errors, like missing information, may be rejected immediately for correction and resubmission.
If the claim passes the initial screen, it moves into an automated review phase where computer systems scan against preset rules. Eligibility is confirmed, verifying that the patient was actively covered by the plan on the date the service was received. The system also checks if the service required prior authorization and if the Current Procedural Terminology (CPT) and International Classification of Diseases (ICD-10) codes match the covered procedures for the diagnosis.
Claims that are complex, high-cost, or flagged for coding discrepancies are escalated to a manual review by a human claims examiner. This step involves a detailed assessment of medical necessity to ensure the treatment was appropriate for the patient’s condition. Finally, the allowed amount is calculated, which is the maximum dollar amount the insurance company will pay for the service based on contracted rates with the provider.
Understanding Claim Determinations
After the internal review, the adjudication process results in one of three primary determinations for the claim. An Approved/Paid determination means the insurer agrees to cover the service and will issue payment to the provider, minus any patient financial responsibility. A Denied claim means the insurer refuses to pay, usually because the service is not covered, lacks medical necessity, or due to a lapse in the patient’s coverage.
The third outcome is a Partially Paid or Adjusted claim, where the insurer covers a portion of the billed amount but not the full cost. This often happens if the billed amount exceeds the contracted rate or if only certain parts of a complex procedure are covered under the policy. Once the determination is finalized, the insurer generates an Explanation of Benefits (EOB), which officially communicates the decision to the patient.
The Explanation of Benefits (EOB) is a detailed statement that itemizes the services billed, the amount the provider charged, the amount the insurer agreed to pay, and the portion that becomes the patient’s responsibility. The EOB is the authoritative record of how the insurance company processed the claim and determined the financial outcome. Every EOB clearly lists the specific reason or code for any reduction in payment or denial.
Patient Impact and Recourse
The financial impact of adjudication is communicated directly to the patient through the Explanation of Benefits (EOB), which clarifies out-of-pocket costs like deductibles, copayments, and coinsurance. The EOB is a summary of the insurer’s decision, while the healthcare provider sends a separate bill for the patient’s remaining balance. Comparing the EOB with the provider’s bill ensures there are no billing errors before making a payment.
If adjudication results in a denied claim, patients have a formal right to seek a reversal through an appeals process. The first step involves an internal appeal, where the patient asks the insurance company to conduct a review of its initial denial. Patients typically have a set period, often up to 180 days, to file this request and should include supporting documentation, such as a letter from the physician explaining medical necessity.
If the internal appeal is unsuccessful, a patient may pursue an external review, which involves an independent third party reviewing the claim. This external review process ensures that the insurance company does not have the final say on all benefit decisions. The external reviewer, who is not affiliated with the health plan, will make an impartial determination, and their decision is typically binding.