What is Claim Adjudication? The Complete Healthcare Provider Playbook

Healthcare providers across the country deal with this frustration daily. The culprit behind all these headaches? The claims adjudication process. Understanding how claims adjudication actually works can change your entire billing experience. You'll know why claims get denied, how to prevent it, and what to do when things go wrong.

Let's dive into everything you need to know about claims adjudication so you can get paid faster and stop losing sleep over denied claims.

What Is Claims Adjudication?

Claims adjudication is the process insurance companies use to review your claim and decide whether to pay it, deny it, or ask for more information. It's how payers determine if a claim is valid, accurate, and covered under the patient's insurance policy. 

Why It's Important for Your Practice

Every claim you submit goes through adjudication. The outcome directly affects:

• Your revenue: Approved claims mean money in the bank

• Your cash flow: Faster adjudication means faster payment

• Your staff's time: Denied claims require rework and resubmission

• Your patient relationships: Payment delays can lead to billing confusion

According to industry data, the average claim denial rate in healthcare ranges from 5% to 25%, depending on the specialty and payer. Each denied claim costs practices an average of $25 to $117 to rework and resubmit.

Getting claims through adjudication cleanly the first time isn't just convenient—it's essential for your practice's financial health.

How the Claims Adjudication Process Works

Let's walk through what actually happens after you hit "submit" on a claim. You might think it's simple, but a lot is going on behind the scenes.

Step 1: You Submit the Claim

The process begins when the provider’s billing system sends the claim (typically as an electronic 837P or 837I file) to the payer, often routed through a clearinghouse for initial scrubbing and formatting compliance.

Step 2: Initial Review

This stage kicks off when the insurance payer receives a submitted claim. Their system runs a quick verification to confirm that all essential details are present:

• Patient name and insurance identification number

• Diagnosis codes and place of service

• Correct CPT or procedure codes

If any of these fields are missing or don’t align with what's on file, the claim is flagged and rejected early. Rejected claims don’t move forward but can usually be corrected and resubmitted. Clean claims advance to the next layer.

Step 3: Automated System Review

Most claims go through a fully automated system that applies payer rules and logic. This software-driven check verifies whether:

• The procedure required includes prior authorization

• The diagnosis supports the medical necessity for the treatment

• The claim was submitted within the allowable timeframe (often 90 or 120 days)

• Procedure codes align with pre-authorized services

This step filters out the bulk of errors and handles the majority of routine claims. If the codes or authorizations don’t match up, the system flags the claim for deeper review or denies it outright.

Step 4: Manual or Clinical Review

Some claims, especially for high-cost or unusual services, bypass automation and go to human review. This task may be assigned to a trained examiner, nurse, or physician, depending on the complexity.

Manual reviewers evaluate:

• Services that don’t match existing code sets

• Uncommon procedures without clear pre-authorization

• Claims that raise fraud or medical necessity concerns

Additional documentation, such as patient records or treatment notes, may be requested before a decision is made. This human touch ensures fairness and accuracy where automation may fall short.

Step 5: Payment Decision

Following all applicable reviews, the payer arrives at one of three decisions:

• Approved in Full: Reimbursement matches billed charges

• Approved with Adjustments: A lower reimbursement is allowed, often due to payer policies or alternate coding interpretations

• Denied: No payment issued, often due to out-of-network status, lack of coverage, or disagreement on medical necessity

It’s essential to distinguish between denials and rejections. Rejections usually happen up front due to data entry mistakes and can be fixed. Denials are more complex and may require appeals.

Step 6: Appeals Process

If a claim is denied, your team can appeal the decision to recover the payment. The process varies, but typically includes three levels:

First Level: The provider submits supporting documentation and may engage in a peer-to-peer discussion with a payer’s medical reviewer to defend the medical necessity of the service.

Second Level: If the first appeal fails, the case is escalated to a new reviewer—often a medical director uninvolved in the original denial—for a fresh assessment.

In some cases, a third level (external review) may be available, depending on the insurer and plan. Success depends on having clear, comprehensive documentation and alignment with payer guidelines.

Read more here to explore a deeper guide on managing insurance claims and billing for ABA therapy.

Why Your Claims Get Denied

Most denied claims don’t come from complicated problems. They come from the tiny mistakes we overlook on busy days. A patient’s name spelled a little differently, a wrong diagnosis code, or an old insurance ID can stop a claim before it even gets reviewed. Duplicate submissions are another silent culprit. If the payer sees the same service twice, they’ll deny one or both without a second thought. And when a service simply isn’t covered, no amount of back-and-forth fixes it.

Clean claims start with slow, steady accuracy. A clearinghouse helps more people than they realize. It spots mistakes before they hit the payer and keeps everything in one place, so your team isn’t jumping between systems. When your claims are scrubbed upfront, you’re looking at approval rates above ninety-five percent—less stress, fewer delays, and a smoother revenue flow. 

For a deeper look at improving your claim success rate, check out this detailed guide here.

Example

One clinic repeatedly encountered the same denial for a single patient, month after month. On the surface, everything looked right. The CPT codes matched. The units were correct. Even the provider information lined up perfectly. Nothing suggested a problem.

After a lot of back-and-forth, the biller finally called the insurance company to see what was really going on. That’s when the issue came out. The patient had a new insurance ID for the year, but the family was still handing the clinic the old card. Because of that one outdated number, every claim was stopped before it even reached the real review stage.

Once the clinic updated the insurance details and sent the claims again, they went through without any trouble and were paid in the next cycle.

This is a good reminder that even a tiny detail—like an old member ID—can hold up weeks of payments if it slips through.

FAQ

1. What is the purpose of claim adjudication?

The point of claim adjudication is to make sure a claim is correct, medically appropriate, and covered under a patient’s insurance plan before any payment goes out. It protects both the payer and the provider by confirming that the service was necessary, billed accurately, and meets the plan’s rules.

2. What is the difference between claim adjudication and processing?

Claim processing covers the entire journey of a claim—from the moment it’s received until payment is issued. Claim adjudication is one specific part of that journey. It’s the detailed review step where the insurer checks eligibility, codes, documentation, and policy rules to decide what will actually be paid.

3. How long does the adjudication process take?

Most clean claims are finished in about one to two weeks, but complex cases that need manual or clinical review can take longer, depending on the payer.

Conclusion

In the end, claims move smoothly when details are right from the start. When you understand how adjudication works, you catch problems early, keep payments steady, and avoid unnecessary rework. Slow down at the front end, submit clean claims, and you’ll see fewer denials and a healthier revenue flow.

If you want to dig deeper into practical insurance rules and everyday tips that actually help, you can check out our dedicated section for more guidance.