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Home » Articles » Medical claims adjudication: Understanding how claims are processed

Medical claims adjudication: Understanding how claims are processed

Medical claims adjudication Understanding how claims are processed

Handling medical claims is one of the crucial aspects of running a healthcare institution. Not every patient has the ability to shoulder their needs.

However, filing for medical claims ensures that their healthcare providers are still getting paid while they get an optimal experience.

2021 report found that US insurers have an average of 17% claims denial across the country, with different locations ranging from 2% to 49%. Some of the reasons include a lack of streamlining and proper record management.

Through proper medical claims adjudication, claims can still be processed and their denial rates minimized due to minor and major issues.

In this article, learn about how claims are processed and approved through medical claims adjudication.

What is medical claims adjudication?

Medical claims adjudication, known simply as claims adjudication, refers to the decision-making process of an insurance company in a medical claim. Here, they determine their responsibility in paying a medical provider for rendered services.

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Compared to medical billing, filing medical claims is not as simple as charging patients for the services and getting paid instantly.

Medical claims adjudication could take time — normally up to two weeks — depending on the insurance company’s process. They could pay in full, partially, or deny medical claims according to their standards.

A medical claims examiner is tapped by insurance payers when examining medical claims. They are the ones to determine medical necessity in a procedure done to the patient.

What is medical claims adjudication?

Medical claims adjudication process

The medical claims adjudication process involves a set of workflows that qualify a certain claim. It usually starts when the form leaves the doctor’s office and ends with the insurer’s decision.

Initial processing

Claims adjudication starts with an initial processing review. Here, the patient’s healthcare provider sends their medical claims to their respective insurance company.

Upon receipt, the insurer then checks the information provided by the patient, including their name, status, and diagnosis.


After checking the patient’s information, the insurer further reviews their payment policies and coverage. This includes the patient’s coverage date, illnesses covered by their plan, and the timeliness of submitting the claim.

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Validation can be done by either a manual review or with claims adjudication software.


Upon finalizing review and validation, the insurance company decides whether the claim will be paid, reduced, or denied. They will either proceed with payment processing or issue an explanation on why the claim was denied.

Payment processing

Lastly, the insurance company processes payment using their client’s preferred method.

It includes a breakdown of the approved payment coverage, the patient’s financial responsibility, and the adjudication date.

The insurance company streamlines its claim adjudication process by implementing an efficient claims adjudication workflow, resulting in a more effective claims management process.

Medical claims adjudication process

Reasons for denying medical claims

Insurance companies have several reasons for denying medical claims, ranging from simple to complex ones.

Some of the reasons for claims denial include the following:

Billing and coding errors

Insurers may find misspellings, mistyped numbers, and other coding errors that could cause initial rejection. Billing and coding errors can be corrected and resubmitted to the insurance company once fixed.

Pre-authorization denial

At times, insurers will inform beforehand that they would not pay for a specific service, known as “prior authorization denial.”

Pre-authorization denials can be reversed by sending an appeal to the insurance company.

Medical necessity

Insurance companies only cover health services determined to maintain a patient’s health or treat an existing illness. This is referred to as a medical necessity

In this case, patients must justify that their medical procedure is necessary to restore their health and well-being.

Duplicate claims

Duplicate claims are one of the most common reasons medical claims get rejected. This is where medical claims are submitted twice due to human or system issues.

In most cases, insurers can either reject the latest submission or override the existing one with more updated information.

Other reasons for claims denial

Other reasons for denying medical claims are the following:

  • Inactive account. Patients with inactive accounts or terminated coverage are automatically rejected for medical claims.
  • Non-covered services. Instances occur when some medical services, even when necessary, are not covered by the insurance company.
  • Deadline lapse. Insurance companies usually have a 90- to 120-day deadline for submitting claims. Any claim submitted beyond the deadline will automatically be rejected.
  • Network issues. Medical providers outside a health insurer’s network are more likely to be rejected unless their payment policy indicates otherwise.
Reasons for denying medical claims

How to optimize the medical claims adjudication process

Medical providers and insurance companies have the responsibility to ensure that medical claims are properly processed for the sake of their patient’s welfare.

An optimized claims adjudication process helps save costs, time, and effort in medical institutions. It also improves patient satisfaction since paying for medical services is more convenient.

Below are some best practices to optimize your medical claims adjudication process:

Streamline your medical record management

Errors in processing medical claims can be avoided by simply streamlining your operations. This includes medical records management.

A robust medical records management process can help you maintain your patient records properly without needing to reformat data manually.

Standardize your approach

Insurers should take a standardized approach to claims adjudication.

To ensure smoother processing, ensure that your processes and medical claims requirements align with your insurance partner’s requirements and procedures.

Use medical claims adjudication software

The latest Council for Affordable Quality Healthcare (CAQH) index revealed that automating and streamlining processes, including claims adjudication, helped reduce healthcare costs by US$187 billion yearly.

Medical claims adjudication software can help you streamline and automate your claims processes. Aside from fixing basic errors, it can help you verify information more easily through integrated verification.

Delegate medical claims adjudication

Lastly, you can outsource some of your revenue cycle processes, including claims adjudication, to service providers that can best help you with these functions.

Outsourcing medical claims adjudication helps you maintain efficient claims processing for your patients.

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