Medical claims adjudication: Understanding how claims are processed

How are medical claims processed through adjudication?

Medical claims adjudication is the process an insurer uses to review a medical claim and decide whether to pay it in full, pay part of it, or deny it.

• The insurer checks the patient’s details, coverage, and the services billed.
• A claims examiner then decides if the care was medically necessary.
• The result is a full payment, a partial payment, or a denial with a reason.

Handling medical claims is a key part of running a healthcare institution. Not every patient can pay for their own care. However, filing medical claims helps providers still get paid while patients get good care.

A KFF 2021 report first drew attention to how often claims get denied. Since then, rates have climbed. By 2024, insurers denied about 19% of in-network Marketplace claims, and rates at the largest insurers ranged from 13% to 35%. Some reasons include weak record management and a lack of streamlining.

Good medical claims adjudication helps. So claims still get processed, and denials fall for both minor and major issues. In this article, learn how claims are processed and approved through medical claims adjudication.

What is medical claims adjudication?

Medical claims adjudication, often just called claims adjudication, is how an insurer decides on a medical claim. Here, the insurer sets how much it must pay a provider for the care given.

Compared with medical billing, filing claims is not as simple as charging a patient and getting paid at once. In fact, medical claims adjudication can take time, normally up to two weeks, based on the insurer’s process. So the insurer may pay in full, pay part, or deny the claim by its own standards.

A medical claims examiner reviews the claim for the insurer. As a result, this person decides if a procedure was medically necessary for the patient.

Medical claims adjudication process

The process follows a set of steps that qualify a claim. It usually starts when the form leaves the doctor’s office. Then it ends with the insurer’s decision.

Initial processing

First, the process starts with an initial review. Here, the patient’s provider sends the claim to the insurer. Upon receipt, the insurer checks the details, such as the patient’s name, status, and diagnosis.

Validation

Next, the insurer reviews payment policies and coverage. This includes the coverage date, the illnesses the plan covers, and whether the claim was filed on time. Validation can happen by manual review or with claims adjudication software.

Decision

After the review, the insurer decides if the claim will be paid, reduced, or denied. So it either starts payment or explains why the claim was denied.

Payment processing

Finally, the insurer processes payment using the client’s chosen method. It also gives a breakdown of the approved coverage, the patient’s share, and the adjudication date. Because of a smooth workflow, the whole claims process becomes more effective. This is a core part of a healthy revenue cycle management process.

Reasons for denying medical claims

Insurers deny medical claims for many reasons, from simple to complex. Here are some of the most common ones.

Billing and coding errors

Insurers may spot misspellings, wrong numbers, and other coding errors. So these can cause an early rejection. Still, the good news is simple. Once fixed, the claim can be corrected and resubmitted. Clean coding is easier with strong medical billing management.

Pre-authorization denial

At times, insurers say in advance that they will not pay for a service. This is known as a prior authorization denial. However, you can often reverse it. So send an appeal to the insurer.

Medical necessity

Insurers only cover services that keep a patient healthy or treat an illness. This is called a medical necessity. So in these cases, patients must show that the care was needed to restore their health.

Duplicate claims

Duplicate claims are one of the most common reasons for rejection. For example, this happens when a claim is sent twice, often due to human or system errors. As a result, insurers either reject the newest one or replace the older one with updated details.

Other reasons for claims denial

Other reasons for denial include the following:

• Inactive account. First, patients with inactive accounts or ended coverage are rejected right away.
• Non-covered services. Also, some services are not covered, even when they are needed.
• Deadline lapse. Insurers usually set a 90 to 120 day window to file. So any claim past that date is rejected.
• Network issues. Finally, providers outside the insurer’s network are more likely to be rejected, unless the policy says otherwise.

How to optimize the medical claims adjudication process

Providers and insurers both share a duty to process claims well, for the sake of patients. Because an optimized process saves cost, time, and effort, it pays off fast. It also lifts patient satisfaction, since paying for care becomes easier. Below are some best practices to improve your medical claims adjudication process. For a deeper look, see this guide to medical claim processing.

Streamline your medical record management

You can avoid many errors by streamlining your operations. This includes records management. So a strong records process helps you keep patient data clean, without manual reformatting.

Standardize your approach

Insurers should take a standard approach to adjudication. To keep things smooth, make sure your process and requirements match your insurance partner’s rules. As a result, fewer claims get held up.

Use medical claims adjudication software

The latest Council for Affordable Quality Healthcare (CAQH) Index shows the impact of automation. In fact, streamlining processes, including claims adjudication, helped the US healthcare system avoid an estimated US$258 billion in administrative costs in a single year. So this software can help you automate claims and fix basic errors. In addition, it verifies information more easily through built-in checks.

Delegate medical claims adjudication

Finally, you can outsource some revenue cycle tasks, including claims adjudication. So you hand this work to providers who do it best. As a result, you keep claims moving for your patients. Many healthcare firms explore claims processing outsourcing or a wider healthcare BPO partner for this.

Frequently asked questions about medical claims adjudication

What does claims adjudication mean?

It is how an insurer reviews a claim and decides to pay it in full, pay part, or deny it. The insurer checks the patient’s details, coverage, and the care billed.

How long does medical claims adjudication take?

It can take time, normally up to two weeks. Still, the exact time depends on the insurer and the claim.

Why do insurers deny medical claims?

Common reasons include coding errors, missing pre-authorization, and lack of medical necessity. In addition, duplicate claims and missed deadlines also lead to denials.

Can a denied claim be appealed?

Yes. Many denials can be fixed or appealed. For example, you can correct coding errors or send an appeal for a pre-authorization denial.

Should healthcare providers outsource claims adjudication?

Often, yes. Outsourcing can cut errors and speed up claims. So many providers hand this task to specialist partners.

Key takeaways

• Medical claims adjudication is how insurers decide to pay, reduce, or deny a claim.
• The process runs through initial review, validation, decision, and payment.
• Coding errors, missing pre-authorization, and duplicate claims drive most denials.
• Clean records, standard steps, and good software cut denial rates.
• Outsourcing claims and revenue cycle work can keep claims moving and reduce cost.