Claims Adjudication Lifecycle

Claims Adjudication Lifecycle

Claims adjudication is the process by which a health insurance payer evaluates a submitted claim and determines the amount to be paid. This is the core operational function of any payer organization.

Adjudication Steps

1. Intake / Receipt

• Claim received (EDI 837 via clearinghouse, paper, or direct submission)
• Claim logged in the payer's claims processing system
• 277CA acknowledgment sent to confirm receipt

2. Front-End Validation

• Format validation — Is the claim structurally valid? Required segments present?
• Duplicate check — Has this exact claim already been submitted?
• Timely filing — Was the claim submitted within the allowed timeframe? (typically 90-365 days from date of service)
• Provider verification — Is the provider enrolled and contracted with the plan?

3. Eligibility Verification

• Was the member actively enrolled on the date(s) of service?
• What plan/product was in effect?
• Were the services within the member's benefit period?

4. Benefit Determination

• Are the billed services covered benefits under the member's plan?
• Are there any exclusions or limitations (e.g., annual visit limits, age restrictions)?
• Does the service require prior authorization? If so, was it obtained?
• Is the provider in-network or out-of-network?

5. Medical Policy / Clinical Edits

• Medical necessity — Does the diagnosis support the procedure? (NCCI edits, LCD/NCD policies)
• Code auditing — Are code pairs valid? (unbundling detection, modifier validation)
• Gender/age appropriateness — Is the procedure appropriate for the patient's demographics?

6. Pricing

• Apply contracted rates — Fee schedule amounts, per diem rates, DRG payments, capitation offsets
• Calculate allowed amount based on the lesser of billed charges vs. contracted rate
• Apply multiple procedure reductions if applicable
• Apply assistant surgeon, bilateral procedure, or other pricing rules

7. Coordination of Benefits (COB)

• Is this the primary, secondary, or tertiary payer?
• If secondary, how much did the primary payer already pay?
• Apply COB rules to calculate this payer's responsibility

8. Member Cost-Sharing

• Calculate deductible applied (how much of the member's annual deductible remains?)
• Apply copay (fixed dollar amount per service type)
• Calculate coinsurance (member's percentage of allowed amount after deductible)
• Check against out-of-pocket maximum (if met, plan pays 100%)

9. Payment Decision

• Pay — Claim approved, payment generated
• Deny — Claim denied with specific denial reason codes
• Pend — Claim suspended for manual review, additional information needed, or clinical review

10. Payment & EOB Generation

• Generate EDI 835 (ERA) for provider
• Generate EOB for member
• Process EFT payment to provider's bank account

Adjudication Timing

• Clean claims — Federal and state prompt-pay laws require timely adjudication (typically 30 calendar days for electronic claims, 45 for paper)
• Pended claims — May take additional time depending on medical review
• Auto-adjudication rate — Top payers achieve 85-90% auto-adjudication (no human touch)

Common Denial Reasons

1. Member not eligible on date of service
2. Prior authorization not obtained
3. Service not a covered benefit
4. Duplicate claim submission
5. Timely filing limit exceeded
6. Medical necessity not met
7. Provider not in network / not enrolled
8. Incorrect coding (unbundling, invalid modifier)
9. Coordination of benefits issue
10. Missing or invalid information