Claims Adjudication Process - How Health Insurance Companies Process Claims

What happens after medical billers send a claim? This article describes how insurance companies determine payment to healthcare providers: the claims adjudication process.

Most healthcare services are paid by third party payers in the United States. This includes Medicare, Medicaid other government services and private insurance companies.

Medicare and Medicaid (CMS) have very specific rules regarding the submission of claims for payment of services provided. The rules and benefits are published for all patients types. The software Medicare and Medicaid use is extremely precise when verifying submitted claims.

Private insurance companies have a variety of plans with many different rules. These rules mean that each claim has to be examined very closely. Software edits have been developed that performs all of these tasks except the medical review.

Receiving the claim

Because the claim form is received electronically by the insurance company, software begins the review of the information. The claims are placed in a "lineup" and start through the claims adjudication process.

The unique identification number assigned to the patient is the first piece of information that the software verifies. This number allows the software edits to recognize all the information associated with the insurance plan assigned to the patient.

The patient's name must be associated with the ID number. If this doesn't match, then the claim adjudication may end at this step. A rejection letter will be sent to the physician and to the patient with the explanation of denial. This may be sent by mail or electronic means.

The software edits continues to verify date of birth and gender. Each step may trigger a stop and rejection notification if information isn't attached to the ID number.

Date of service and place of service information is verified as allowed by the plan benefits associated with the unique identification number. Date of the claim submission is compared with the edit for days allowed to submit a claim for payment.

Many insurance plans require prior authorization or approval before an office visit or procedure is performed. The insurance company provides a referral number that must be added to the claim. If this number isn't supplied, the claim will be rejected.

The medical information in the form of the procedural codes (CPT) and diagnosis code (ICD-9) are vital information on the claim. The software matches the procedure with the diagnosis code or medical reason for the service provided.

The software then confirms that the procedure is included in the insurance plan. At this point the software can reject the claim or send for medical review.

The claim continues through the software to validate the physician's name and National Provider Identifier (NPI) designation that was submitted. The edits will verify if the physician has a contract with the insurance company or is an out-of-network physician. This will be used in determining the amount to reimburse.

The software reviews the patient's co-pay and any other payments to determine if the patient's portion of payment has been made and subtracted from the billed amount.

When the claim has made it through the software edits without any errors, the claim will be paid at the contractual rate. A check in the mail or electronic payment will be made with the issue of a remittance advice.

The remittance advice explains to the physician with a copy to the patient how the payment was determined.

Medical review

The software edits send the claim for medical review. The software has been developed to determine the procedural codes and/or the medical diagnosis codes that the insurance company needs to review.

This edit can be used for more expensive procedures and/or to verify the physician's credentials for billed procedures.

As this process takes place the claim is suspended, and is deemed in "development" as new information is obtained to continue with the claims adjudication process.

In the medical review process, the claim is sent electronically to the medical review desk. A nurse will review the information on the claim. The nurse will be able to review the policy and prior claims of the patient to determine the medical necessity and appropriate procedure.

The nurse might request additional information from the physician and/or the patient. A letter sent by electronic means or by mail may request copies of the patient's chart, lab tests, x-rays and other medical information that the nurse needs to determine the medical necessity of the claim.

The claim remains in suspension and in development while the information is received and reviewed.

After the nurse reviews this information he or she can approve or deny payment for the claim. The nurse has the option to involve the doctors on the insurance staff to review all documentation.

The doctors are the final authority in determining to pay or reject the claim based on criteria set by the medical staff and the insurance company. Letters are sent to the physician and the patient with the information of the medical review.

If approved payment is made. If payment is, denied there is an appeal process for the physician and patient.

See: how medical billers appeal a denied insurance claim.

Claims adjudication

Claims adjudication can be a quick process when a clean claim is received. "Clean" in this case means that all the information on the claim is correct and within the bounds of the patient's healthcare policy.

When medical review is involved there's a delay waiting on staff and documentation requested to be received and reviewed.

The claims adjudication process has improved recently because of the great advances in software and the edits created. This process collects a large amount of information, verifies it, and issues payment. This is a great improvement over the "hands and eyes" on every paper claim form in the past!

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