What is Adjudication?

Adjudication is the end-to-end process by which a submitted claim is examined by a health insurance payer to decide whether it will be paid, paid partially, or rejected. This is a multi-step examination that checks every bit of information against policy guidelines, coding guidelines, and medical necessity criteria.

Once the provider actually submits the claim, the insurer does a preliminary review to check for simple errors, including missing data, patient details mismatches, or bad coding. Claims that successfully pass this initial review then go through an automated review, wherein computer programs run sophisticated policy rules, review benefit coverage, and confirm key data points like patient eligibility, authorizations, and diagnosis-procedure consistency.

More complex or flagged claims can go into a manual review, in which a claims examiner, or occasionally a clinical expert, carefully reviews supporting documentation, cross-checks treatment information with medical standards, and may even ask for additional information from the provider. Only through the traversal of these verifications does the payer arrive at a conclusion, which leads to full payment, partial payment (downcoding or adjustments), or outright denial with feedback being given to the provider, frequently through Explanation of Benefits (EOB) reports. This multi-step systematic process is the foundation of equitable and compliant adjudication of claims in healthcare.

Purpose and Importance

The primary goals of adjudication are to ensure integrity, accuracy, and compliance in healthcare payments:

• Confirm that all claim information is accurate and complete.
• Validate that the services rendered are covered by the patient’s insurance policy and appropriately documented.
• Determine the appropriate, timely reimbursement or denial to foster provider transparency and patient trust.
• Safeguard against fraud, overbilling, or incorrect coding, and uphold strict adherence to state and federal regulations and payer-provider contracts.

Key Steps in the Adjudication Process

The journey of a claim through adjudication typically includes these detailed phases:

• Initial Processing/Review: 
  The payer checks for obvious errors, omissions, and duplicate claims, verifying the patient’s name, plan ID, service dates, and basic coding. Many claims are returned at this stage for correction if common mistakes are found.
• Automated Review: 
  The claim passes through software algorithms to check eligibility, validate service coverage, and match codes to policy and clinical guidelines. This stage rapidly processes large volumes of claims and flags any issues for further scrutiny, including missing authorizations, policy exclusions, or deadline violations.
• Manual Review: 
  If a claim is flagged or is complex, experienced reviewers or medical professionals examine documentation in detail, analyzing medical necessity, checking for unusual or high-value services, and confirming policy compliance. Additional records may be requested at this stage.
• Payment Determination: 
  The payer issues a decision:
  1. Approved: The claim meets all requirements and is paid in full.
  2. Partially Paid: Only certain components are reimbursed, often due to coding issues or policy limits.
  3. Denied: The claim is considered ineligible for reimbursement, with justification documented for the provider.
• Explanation and Payment Delivery: 
  After determination, the payer issues an EOB or Electronic Remittance Advice (ERA), explaining payment outcomes, adjustments, or reasons for denial, along with the actual payment for approved claims.

Adjudication vs. Claims Processing

Adjudication vs. Denial Management

Adjudication is the initial decision-making step for the payer. Denial management is what ensues successful claim submission if a claim is denied:

• Adjudication: Determines whether the claim is paid or denied.
• Denial Management: Processes provider appeals or settles denied claims to capture lost revenue, reviewing reasons and applying corrective measures.

Good denial management depends on knowing why claims were denied in adjudication and anticipating problems to reduce future losses.

Examples of Adjudication in Real Life

• Regular Approval: Provider presents a claim for a regular check-up. The payer checks eligibility and need, finally approving the claim for payment.
• Denial Due To Coverage Limits: Surgical claim needs pre-authorization, but the payer finds the procedure beyond policy parameters and rejects the claim.
• Partial Payment: Hospital stay claim identifies coding errors. Some treatments are paid, while others are rejected pending additional clarification or appeal.

These everyday situations illustrate adjudication's direct influence on whether or not claims are paid in full, partially, or denied.

Effects on Providers and RCM

• Determines revenue realization, affecting cash flow.
• Influences documentation and coding optimization for providers.
• Requires strong compliance and tracking systems to maximize reimbursement and reduce denials.
• Guides future claims submission practices and quality assurance for healthcare organizations.

In Summary

Adjudication is central to healthcare revenue cycle management, ensuring claims receive thorough review and proper reimbursement. Its distinction from claims processing and denial management highlights the importance of accurate claim submission and appeal strategies, ultimately supporting financial health and service quality in provider organizations.