Claims processing in healthcare is the administrative cycle that determines payment for medical services rendered to a patient. This process functions as the financial backbone of the healthcare system, enabling providers to receive reimbursement for their work. For the patient, claims processing clarifies which costs are covered by insurance and what remaining financial responsibility falls to the individual.
Defining the Key Stakeholders
The entire claims process involves a collaboration between distinct entities. The Healthcare Provider (physician, hospital, or clinic) delivers care and initiates the financial request by submitting the claim. The Payer is the entity responsible for covering the cost of the services, typically a health insurance company or a government program like Medicare.
The Patient or Subscriber is the recipient of the medical care whose insurance benefits are being utilized. Serving as a crucial intermediary is the Clearinghouse, a third-party organization that receives claims from the provider. A clearinghouse’s primary function is to “scrub” the claim for common errors and convert it into a standardized electronic format before routing it securely to the appropriate Payer.
The Claims Submission and Processing Flow
The journey of a claim begins with charge capture, which translates the clinical service into a billable financial record. During this initial step, every service, supply, and procedure provided to the patient is documented in the electronic health record. Accurate documentation is necessary because it forms the justification for the subsequent claim.
The documented services are then converted into standardized codes, which serve as the universal language for claims submission. Current Procedural Terminology (CPT) codes describe the specific procedure or service that was performed. International Classification of Diseases, 10th Revision (ICD-10) codes denote the patient’s diagnosis or condition, providing context for the medical service.
Correct coding involves pairing the CPT code with the appropriate ICD-10 code to establish medical necessity. This requirement demonstrates the procedure was reasonable and appropriate for the patient’s diagnosis. Once coded, the information is assembled into a formal claim document.
While the vast majority are transmitted electronically, some claims are still submitted on paper using the standardized CMS-1500 form. Electronic claims are converted into the ANSI X12 837P digital format for rapid transmission. A clearinghouse often facilitates this submission, performing an automated check to catch errors before the insurance company acknowledges receipt and begins its internal review.
Adjudication, Payment, and Explanation of Benefits
The internal review process performed by the Payer is called adjudication, where the claim is systematically evaluated against the patient’s policy rules and the provider’s contract. This determination phase is largely automated, checking for basic eligibility, policy coverage, and timely filing limits. Claims that are complex or flagged for coding discrepancies may be routed for manual review.
The adjudicator determines whether the services were medically necessary and whether the diagnosis codes support the procedures performed. A central factor in this stage is the “Allowed Amount,” the maximum pre-negotiated rate the Payer agrees to pay the provider for a specific service. For in-network providers, the difference between the billed amount and the Allowed Amount is a contractual write-off that cannot be billed to the patient.
The adjudication process concludes with one of three outcomes: the claim is paid in full, partially paid, or denied. Common reasons for denial include a lack of prior authorization or technical errors like incorrect CPT-ICD code linkage. Denials also occur if the Payer determines the service was not medically necessary.
Following the final determination, the Payer issues an Explanation of Benefits (EOB) to both the patient and the provider. The EOB is a detailed summary, not a bill, explaining how the Payer processed the claim. It lists the billed amount, the Allowed Amount, the amount the Payer paid, and the portion designated as the patient’s financial responsibility. This responsibility typically comprises the deductible, co-payment, or coinsurance. The provider uses the EOB to reconcile the payment and then bills the patient for the remaining balance.