How Claims Adjudication Works

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Claims adjudication refers to the determination of the insurer's payment or financial responsibility after the member's insurance benefits are applied to a medical claim.

How Health Insurance Companies Process and Adjudicate Claims

The health insurance company receives the claim and begins with the initial processing review to look for common errors and missing information. If a problem such as the misspelling of the patient's name or a missing diagnosis code is found, the claim may be rejected so it can be resubmitted with the correct information. If the claims are submitted electronically, the initial processing may be done by software and kick out those that are incomplete or appear to have errors.

Next, it goes for a review to check the claim against detailed items of the insurance payers payment policies. The procedural and diagnostic codes are examined, and the physician's NPI designation is checked. At this point, if the claim passes, it may be paid, and remittance advice may be issued to the physician and patient.

Some claims are sent for a manual review by medical claim examiners, which may include medical professionals and a check of the medical documentation. This is more likely to be required for unlisted procedures in order to confirm that they were medically necessary. This part of the process may take more time as it involves obtaining the medical records.

Payment Determinations

There are three possible outcomes of claims adjudication:

  • The claim may be paid if it is determined that it is reimbursable.
  • It can be denied if it's determined that it is not reimbursable.
  • It can be reduced, having determined that the billed service level isn't appropriate for the diagnosis and procedure codes. It is then paid at a lower level decided by the claims examiner.

Remittance Advice or Explanation of Benefits

When claims are processed, the payer notifies the provider of the details of the adjudication in the form of an explanation of benefits or remittance advice.

For claims that have secondary or tertiary insurances, the primary payer's adjudication information must be forwarded, with the electronic claim, for the coordination of benefits. This information should include:

  • Payer Paid Amount: The dollar amount paid by the payer
  • Approved Amount: The approved amount equals the amount for the total claim that was approved by the payer
  • Allowed Amount: The allowed amount equals the amount for the total claim that was allowed by the payer.
  • Patient Responsibility Amount: The amount of money that is the responsibility of the patient which represents the patient copay, coinsurance, and deductible amounts
  • Covered Amount: The covered amount equals the amount for the total claim that was covered by the payer
  • Discount Amount: The dollar value of the primary payer discount or contractual adjustment
  • Adjudication Date: The date the claim was adjudicated and/or paid

In instances in which a paper or hard copy claim is required, a copy of the primary insurance explanation of benefits must accompany the UB-04 or CMS 1500 form.

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