What Is Claims Adjudication? The Process Explained

Claims adjudication is a fundamental process in financial systems, particularly within the insurance industry, encompassing health, property, and other claim types. It involves the systematic evaluation of a request for payment to determine its validity and the appropriate amount of reimbursement. This process ensures fairness, accuracy, and proper financial management in transactions related to claims.

Understanding Claims Adjudication

A “claim” in this context refers to a formal request for payment or compensation submitted under an existing policy or agreement. The purpose of claims adjudication is to assess these requests, verifying their legitimacy and calculating any payment due based on the specific terms and relevant criteria of the policy. This ensures that only valid requests are honored, protecting the financial integrity of the payer.

The process involves several key parties. The claimant is the individual or entity submitting the request for payment, such as a patient seeking reimbursement for medical services or a policyholder after property damage. The payer, often an insurance company or a third-party administrator, is the organization responsible for processing and disbursing the payment. Sometimes, a healthcare provider or other service provider acts as an intermediary, submitting claims on behalf of the claimant. This adjudication process helps prevent fraudulent claims, ensures compliance with regulatory standards, and manages financial risk for the payer.

The Claims Adjudication Process

The journey of a claim through adjudication begins with its submission and receipt by the adjudicating entity. Claims are typically received electronically. Upon receipt, the adjudicator performs an initial review, checking for completeness and basic accuracy of information like patient name, service codes, and dates. Missing or incorrect details can lead to immediate rejection, requiring correction and resubmission.

Following this initial check, the claim undergoes verification of eligibility and policy coverage. This step confirms that the claimant was covered by the policy at the time of service and that the requested services fall within the policy’s benefits and limits. Claims then proceed to an automated review, where computer systems check against predefined rules for eligibility, policy terms, and coding accuracy. If prior authorization is required, the system verifies that the necessary approval was obtained.

Claims that cannot be fully processed through automated systems are flagged for manual review. During this phase, a human examiner evaluates supporting documentation, medical records, and coding information. They assess factors like medical necessity and treatment appropriateness. After information is gathered and reviewed, a decision is made based on the collected data and policy rules. The final step involves processing the decision, which includes preparing payment for approved claims and generating an Explanation of Benefits (EOB) or a denial letter.

Factors Guiding Claim Decisions

Decisions regarding claims are guided by a specific set of criteria and rules applied by adjudicators. A primary factor is the policy’s terms and conditions, which outline covered services, exclusions, deductibles, co-pays, and benefit limits. These terms directly influence whether a claim is approved, partially paid, or denied, ensuring adherence to the agreed-upon coverage.

For health claims, medical necessity is a significant criterion, determining if a service or treatment was reasonably required for diagnosis or treatment. Insurers assess whether the provided care aligns with established medical standards. Coding accuracy and compliance are paramount; claims must use correct industry-standard codes, such as Current Procedural Terminology (CPT) or International Classification of Diseases, Tenth Revision (ICD-10) for healthcare.

The presence or absence of prior authorization also impacts a claim’s outcome. For certain services, insurers require pre-approval, and claims submitted without this authorization may be denied. Claims are also reviewed for suspicious patterns or indicators of fraudulent activity.

Adjudication Outcomes

Upon completion of the claims adjudication process, there are several possible outcomes. An approved claim means the payer will issue payment for the requested services or compensation. This often includes the issuance of an Explanation of Benefits (EOB) to the claimant and, for healthcare, a remittance advice to the provider, detailing the payment amount and how it was calculated.

In some situations, a claim may receive partial approval or payment. This occurs when only a portion of the requested amount is covered, perhaps due to the application of a deductible, co-insurance, policy limits, or if some services were not covered. The EOB will clarify why only a partial payment was made and what remains the claimant’s responsibility.

Conversely, a claim may be denied, meaning no payment will be issued. Denials include a specific reason, such as lack of coverage for the service, services not deemed medically necessary, or issues with documentation. If a claim is denied or partially paid, claimants have the right to appeal the decision. This option allows for a re-evaluation of the claim, often with additional information provided by the claimant or provider to support the request.