The Five Common Steps in the Claims Adjudication Process

The adjudication process involves several steps, ensuring that claims comply with the terms of the policy and applicable regulations. While each insurance provider (or payer) may have slight differences in their adjudication process, this guide will explain what claims adjudication is as well as explain five common steps within the process in simple terms. By the end, you'll understand how claims are reviewed and why some get paid while others don't. 

What Is Claim Adjudication?

Claim adjudication is the process insurance companies use to evaluate medical claims to determine whether they are valid and eligible for reimbursement based on the patient's insurance policy. The insurance provider will look at the patient information, medical codes, and the type of care provided to determine if the treatment was necessary and how much they're willing to pay for the patient's care. In order for a claim to be paid, it must contain all the necessary accurate information and follow the insurance company's rules. 

Why Is Claims Adjudication So Important to an Insurance Company?

The insurance company sees the claims adjudication process as crucial for several reasons:

1. Claims Adjudication ensures accuracy. Carefully reviewing each claim allows insurance companies to catch errors. This helps prevent overpayments or underpayments for medical services.
2. Claims Adjudication validates treatments. The process checks whether the care provided was necessary and appropriate. This validation helps control healthcare costs by preventing payment for unnecessary treatments.
3. Claims Adjudication protects against fraud. Insurance companies thoroughly examine claims. By doing so, they are trying to spot and prevent fraudulent activities in the healthcare system.
4. Claims Adjudication determines payment. The adjudication process decides how much the insurance company will pay. It also determines how much the patient might owe. This clarity helps both healthcare providers and patients understand their financial responsibilities.
5. It provides valuable data. The information gathered during claims adjudication can be very valuable. It can help healthcare organizations understand patterns in care and improve their services.

Understanding the claims adjudication process can make it easier for healthcare providers to submit more accurate claims that are more likely to be paid and less likely to be rejected or denied. For patients, it can provide insight into why treatments are covered by insurance or not. Now, let's dive into the 5 common steps and explore the world of claim adjudication together.

Step 1: Initial Review by Payer

The first step in the claims adjudication process is the payer’s initial review. This is where the insurance company does a quick check of the claim.

During this step, the payer looks for basic errors or missing information. They check the details to ensure claims accuracy. These include:

• The patient's name and ID number
• The provider's information
• The date of service
• Procedure and diagnosis codes

Many claims get rejected at this stage due to simple mistakes. They may contain incorrect patient information or outdated insurance information. They could also include missing diagnosis codes. Using a clearinghouse can help the provider catch and fix errors before submission, which can result in fewer rejected claims. 

Step 2: Mass Adjudication (Automated Review)

If a claim passes the initial review, it moves on to mass adjudication, also known as automated review.

This step involves a more thorough check of the claim using the payer's computer system. The system looks at factors like:

• Whether the service is covered under the patient's plan
• If the treatment matches the diagnosis
• Whether the claim was submitted within the required timeframe

The automated review process helps insurance companies handle large volumes of claims efficiently and flag more complex issues that might need further review.

By using eligibility verification software prior to submission, you can oftentimes identify any lapse in coverage that may result in the claim being denied. In this way, a clearinghouse solution can further result in faster payments.

Step 3: Manual Review

If a claim raises a flag during the automated review, it moves to manual review. Here, a trained professional examines the claim more closely. This expert might be a claims adjuster or even a medical professional, depending on the complexity of the claim.

During a manual review, the reviewer might:

• Check if the treatment matches standard medical practices
• Verify if the service was medically necessary
• Request more information from the healthcare provider

A claim must successfully pass through these three review stages. Then, it can move on to the next two step in the claims adjudication process.

Step 4: Determination of Payment

Once a claim has been thoroughly reviewed, the payer makes a decision about payment resulting in three possible outcomes:

• Paid: The claim is approved, and the full amount will be paid
• Reduced: The payer agrees to cover part of the claim but not the full amount
• Denied: The payer decides not to cover the claim

Each of these determinations can significantly impact the medical claims process. The insurance company then sends an Electronic Remittance Advice (ERA) back to the provider. With the help of clearinghouse software, this document outlines the adjudication results, including approvals, denials, or adjustments.

Understanding the ERA is important for effective claim denial management. It can help providers identify patterns in claim denials. It can also help them adjust medical billing practices to improve future claims accuracy.

Step 5: Payment Delivery

The final step in the claims adjudication process is payment delivery. This occurs once the claim is approved (either fully or partially). The payer sends the payment to the healthcare provider.

Along with the payment, the payer usually provides an Explanation of Benefits (EOB). This document is typically sent to the patient, though providers might also receive copies, and explains how their insurance company processed their claim, including what was paid, what the patient owes, and any remaining deductible or copay.. If any part of the claim wasn't covered, the EOB will provide justification for this decision.

How Does a Clearinghouse Software Help with Claims Adjudication?

A clearinghouse software can help ensure the CPT (Current Procedural Terminology) codes are included, which is essential for proper claims adjudication. Additionally, a clearinghouse can make the claims adjudication process much easier by helping in these ways:

1. Fewer mistakes: Clearinghouse software checks your claims for missing information before they are sent to the insurance company. This can result in fewer rejections and more claims getting paid the first time.
2. Faster processing: When claims contain all of the necessary information, they typically move through the system faster. This means you get paid sooner.
3. Better tracking: Clearinghouse software allows you see where each claim is in the process. This makes claims management simpler and more organized.
4. Easy fixes: If a claim is rejected, the software can help you find out why. It also can also help you fix the problem quickly.
5. Time-saving: With software doing much of the work, your staff can work on other essential tasks.

The right tools can save you time and money in the long run. Service Center, Office Ally’s all-payer clearinghouse portal can help you better prepare your  claims for a smoother adjudication process.

Want to see how Office Ally can help your practice? Try Office Ally today and take the stress out of claims adjudication!