Adjudication in Medical Billing: Process, Types, and Common Claim Outcomes

Adjudication in Medical Billing is the process through which an insurance payer reviews a healthcare claim and determines whether it should be paid, partially paid, denied, pended, or rejected. For healthcare providers, understanding this process is important because medical billing services involve much more than simply submitting a claim.

Patient information, insurance eligibility, coding, medical necessity, authorization, paperwork – there are many aspects that can impact the ultimate payer decision.

Article explaining how claim adjudication is process, the types of adjudication, average rates, common results, reasons to deny, and ways providers can increase their payment.

What Is Adjudication in Medical Billing?

Adjudication in Medical Billing is the process insurance payers use to review healthcare claims and determine whether the reported services qualify for payment under the patient’s insurance plan.

CMS describes claims processing as including claim validation, claims development, and adjudication before determining the claim’s disposition.

During adjudication, the payer may evaluate:

• Patient eligibility
• Provider information
• Diagnosis codes
• Procedure codes
• Medical necessity
• Prior authorization
• Network status
• Benefit coverage
• Contracted reimbursement rates
• Patient financial responsibility

Once the review is complete, the payer decides how the claim should be handled.

Possible outcomes include:

• Full payment
• Partial payment
• Denial
• Pend status
• Request for more information
• Rejection before full adjudication

Adjudication typically takes place after claim submission and before final reimbursement.

What Information Does a Payer Review?

Insurance companies might be reviewing several elements before the determining payment.

Patient details: Patient detail i.e. Name, DOB, Insurance ID & others should tally with Payer information.

Eligibility: Payer may verify if the patient’s coverage was active on the date of service.

Provider information: Provider Name may check the provider’s NPI number, specialty, network status and billing information.

Diagnosis codes: These codes are descriptions of the patient’s illness or the reason that they are seeking treatment.

Procedure codes: CPT and HCPCS Codes represent the actual services, procedures, supply, or treatment that were rendered.

Modifiers: These provide additional information about how a service was performed.

Medical necessity: The payer may determine whether the service was clinically appropriate and supported by the diagnosis and documentation.

Prior authorization: Certain procedures require payer approval before the service takes place.

Contract terms: Providers are also often paid based on negotiated rates instead of the amount initially submitted to claims.

One of these areas, if errors or inconsistencies arise, could result in a denial of your request or increased processing time.

Why Is Claims Adjudication Important for Healthcare Providers?

Claims adjudication directly influences a provider’s revenue cycle.

A clean, accurate claim may move through payer processing efficiently. Any claim which is missing information or contains incorrect details may need to be corrected, resubmitted, supported by further documentation or an appeal might be required.

This affects several areas of practice performance.

Cash Flow

The ability of healthcare organizations to pay their staff, cover their operational costs (including supplies, equipment, rent, etc.) is highly reliant on receiving payments in a timely manner. Delays and denials may put the practice at risk for unpredictable cash flow.

Accounts Receivable

Claims that require attention or correction will take longer to resolve; therefore increase in accounts receivable management days.

Administrative Workload

Billing staff may spend additional time researching denial reasons, correcting claim data, contacting payers, obtaining records, or submitting appeals.

Patient Billing

Adjudication also determines what portion of the allowed amount becomes the patient’s responsibility through deductibles, copays, or coinsurance.

Because of this, successful adjudication depends on the entire billing workflow, not just the payer’s final review.

How Does the Adjudication in Medical Billing Process Work?

The actual adjudication is performed by the payer, but the quality of the claim depends on what happens before submission.

Step 1: Clinical Documentation

The process begins with accurate clinical documentation.

Providers should clearly document:

• Patient condition
• Diagnosis
• Services performed
• Treatment details
• Medical necessity
• Relevant findings

Coders and billing staff rely on this information to create an accurate claim.

Incomplete documentation can lead to coding problems, medical necessity questions, or denied claims.

Step 2: Eligibility and Benefits Verification

Before providing services, practices should perform insurance eligibility verification when possible.

This may include checking:

• Active coverage
• Effective dates
• Copay
• Deductible
• Coinsurance
• Service limitations
• Exclusions
• Network requirements
• Referral requirements

Eligibility verification does not guarantee payment, but it can help identify coverage issues before services are performed.

Step 3: Prior Authorization Review

Some treatments, procedures, imaging services, medications, and specialist visits may require prior authorization.

Staff should verify:

• Authorization number
• Approved service
• Date range
• Number of visits
• Rendering provider
• Location of service

Missing authorization can result in avoidable denials even when the service is medically appropriate.

Step 4: Medical Coding

Once documentation is complete, the encounter is translated into standardized codes.

These may include:

• ICD-10-CM diagnosis codes
• CPT procedure codes
• HCPCS codes
• Modifiers

The codes generated should properly report the services found in the medical record.

Payer may not process if there is coding error with modifier, code specificity, bundling and/or diagnosis to procedure interaction.

Step 5: Claim Creation and Submission

How you and your billers prepare your claims for submission to the patient and provider The billing team puts together claims using clinical, financial, provider, and patient data. Claims will either be mailed to you, sent electronically to a clearinghouse, or directly to the payer.

Professional claims commonly use the electronic 837P format, while institutional claims may use the 837I format.

Before the claim reaches full adjudication, it may pass through automated validation checks.

Step 6: Initial Claim Validation

The clearinghouse or payer may check the claim for:

• Missing required fields
• Invalid member IDs
• Incorrect provider information
• Formatting problems
• Duplicate submissions
• Missing codes
• Data mismatches

Claims that fail these basic checks may be returned or rejected before full adjudication.

Step 7: Payer Review

Once the claim passes initial validation, the payer applies its coverage and payment rules.

The payer may review:

• Eligibility
• Benefits
• Medical necessity
• Authorization
• Coding edits
• Provider contracts
• Fee schedules
• Network status
• Coordination of benefits

Some claims are processed automatically, while others require manual review.

Step 8: Payment Calculation

If the claim is payable, the insurer determines the allowed amount and divides responsibility between the payer and patient.

For example:

• Provider charges: $250
• Allowed amount: $180
• Contractual adjustment: $70
• Patient coinsurance: $36
• Payer responsibility: $144

This is only an example. Actual reimbursement depends on the payer, provider contract, insurance plan, and service.

Step 9: Final Adjudication Decision

After reviewing the claim, the payer may:

• Approve the claim
• Partially approve it
• Deny it
• Pend it
• Request more information
• Return or reject it

Billing staff should review the specific outcome before deciding what to do next.

Step 10: Remittance and Payment

After adjudication, the payer sends information showing how the claim was processed. For Medicare claims, CMS explains that the Electronic Remittance Advice (ERA) provides final claim adjudication and payment information, including adjustment reasons.

Providers may receive an Electronic Remittance Advice, or ERA, that explains:

• Paid amount
• Adjustments
• Denial reasons
• Patient responsibility
• Other claim processing details

Billing staff then post payments, review adjustments, and follow up on unresolved balances.

Types of Claims in Medical Billing Adjudication

Different claim types may be processed differently depending on the services involved.

Professional Claims

Professional claims generally cover services performed by physicians and other healthcare professionals, making physician billing services an important part of the revenue cycle.

Examples include:

• Office visits
• Physician procedures
• Professional diagnostic services
• Evaluation and management services

Electronic professional claims commonly use the 837P format.

Institutional Claims

Institutional claims are commonly associated with hospitals and healthcare facilities.

They may include:

• Hospital services
• Facility charges
• Inpatient care
• Outpatient facility services

Electronic institutional claims commonly use the 837I format.

Dental Claims

Dental claims follow their own coding and benefit requirements.

Adjudication may include coverage limits, frequency restrictions, procedure requirements, and supporting documentation.

Coordination of Benefits Claims

When a patient has more than one insurance plan, coordination of benefits determines which payer is primary and which is secondary.

Billing the wrong payer first can create delays and additional follow-up.

Automated vs. Manual Claims Adjudication

Claims may also be categorized according to how they are reviewed.

Automated Adjudication

Routine claims can often be processed through automated payer systems.

Automated rules may evaluate:

• Eligibility
• Benefits
• Coding
• Fee schedules
• Authorization
• Duplicate claims
• Patient responsibility

Automation can help process straightforward claims faster and more consistently.

Manual Adjudication

Some claims require a person to review the case.

Manual review may occur when the claim involves:

• Medical necessity questions
• High-cost services
• Unusual coding
• Missing documentation
• Complex clinical situations
• Special coverage rules

Automation improves efficiency, but human review remains necessary for exceptions and complex claims.

Common Claim Outcomes

Healthcare providers should understand the difference between the main adjudication outcomes.

Claim Outcome	Meaning	Provider Action
Approved	Claim meets applicable payer requirements	Post payment and patient responsibility
Partially Paid	Only part of the claim is reimbursed	Review adjustment reasons
Denied	Payer determines some or all charges are not payable	Correct, resubmit, or appeal when appropriate
Pended	More review or information is needed	Monitor status and respond
Rejected	Claim fails an initial processing requirement	Correct the error and resubmit
More Information Requested	Payer needs additional documentation	Submit requested information

Claim Rejection vs. Claim Denial

Rejected and denied claims are often confused, but they are not the same.

A rejected claim generally fails before full adjudication because of incorrect or incomplete information.

Examples include:

• Missing patient data
• Invalid member ID
• Incorrect formatting
• Missing provider information

These claims usually need to be corrected and resubmitted.

A denied claim, on the other hand, has typically gone through payer review but was determined non-payable.

Denials may involve:

• Medical necessity
• Lack of authorization
• Non-covered services
• Coding problems
• Eligibility issues
• Timely filing

Billing staff should always review the payer’s specific explanation before taking action.

Adjudication vs. Reimbursement

Adjudication and reimbursement are related but different.

In simple terms, adjudication determines whether and how much the payer will pay, while reimbursement represents the actual payment.

Factor	Adjudication	Reimbursement
Purpose	Review and determine claim status	Pay for covered services
Focus	Eligibility, coding, coverage, and payment rules	Amount payable
Result	Paid, reduced, denied, pended, or rejected	Provider payment and patient responsibility

Any reimbursement amount will be decided upon based on the adjudication outcome.

Common Reasons Claims Are Denied

Several reasons you may never get your claim paid accurately

Incorrect Patient Information

The request may be denied if the Name, DOB, or Insured ID information does not match.

Prevention: Check if details of gender, insurance status are correct and then submit the report.

Inactive Coverage

A patient may provide insurance information that is no longer active.

Prevention: Verify eligibility near the date of service.

Missing Prior Authorization

Some services require payer approval before treatment.

Prevention: Check authorization requirements during scheduling or pre-registration.

Coding Errors

You could get denials for using incorrect diagnosis codes, incorrect procedure codes, or incorrect modifier codes.

Prevention: Base coding on complete documentation and current coding guidelines.

Medical Necessity Issues

The payer may determine that the service does not meet its coverage criteria.

Prevention: Document the clinical reason for the service clearly.

Missing Documentation

The payer may require medical records or other supporting information.

Prevention: All requests are responded to in a timely and diligent manner. All requests remain in file.

Duplicate Claims

Submitting the same claim multiple times can trigger payer edits.

Prevention: Check claim status before resubmitting.

Coordination of Benefits Issues

When multiple insurance plans are involved, the claim may be sent to the wrong payer first.

Prevention: Verify primary and secondary coverage.

Non-Covered Services

A service may fall outside the patient’s benefits.

Prevention: Verify coverage limitations before the service whenever possible.

Timely Filing

Claims submitted after payer deadlines may be denied.

Prevention: Submit claims promptly and monitor unresolved accounts.

What Happens After a Claim Is Denied?

A denial should be investigated before the claim is resubmitted.

Identify the Reason

Review the EOB, ERA or payer explanation or adjustment code to determine how payment was denied.

Correct the Claim

If the denial resulted from an error, correct the relevant information according to payer instructions.

This may include:

• Patient details
• Provider information
• Coding
• Modifiers
• Claim data

Gather Documentation

Medical necessity or authorization-related denials may require supporting clinical records.

Submit an Appeal

An appeal may be appropriate when the provider believes the service should be covered and can provide supporting evidence.

Actions must conform to the payer specific requirements and limitations.

Analyze the Root Cause

Correcting one denied claim solves one problem. Identifying why the issue keeps happening can prevent future denials.

Practices should monitor denial patterns by:

• Payer
• Provider
• Procedure
• Location
• Denial reason
• Coding issue

How Technology Can Improve Claims Adjudication

Technology can help providers identify errors before claims reach the payer.

Eligibility Verification Tools

Electronic systems can check coverage and benefits before the service.

Claim Scrubbing

Claim Scrubbers can identify coding errors, incorrect or missing information, and data discrepancies prior to submission.

EHR and Billing Integration

Integrated systems cut down on repeated data entry and ensure documentation and billing consistency.

Claim Status Tracking

Electronic tools help billing staff identify claims that require follow-up.

Automated Payment Posting

ERA integration can reduce manual work and improve payment posting efficiency.

Denial Analytics

Reporting tools help practices identify recurring denial reasons and payer trends.

AI-Assisted Workflows

AI may play a role in claim review, claims prioritization, and pattern detection. However, human knowledge is still necessary to ensure correct coding, documentation, payer guidelines and compliance.

How Healthcare Providers Can Improve Adjudication Results

Providers cannot control every payer decision, but they can improve the quality of the claim being submitted.

Verify Eligibility Early

Confirm coverage, benefits, and network status before treatment when possible.

Check Authorization Requirements

Make authorization part of scheduling and pre-service workflows.

Improve Documentation

Ensure that medical records clearly document any treatment provided, diagnosis and necessity of each treatment for the medical condition.

Maintain Accurate Patient Data

Front Desk: Ensure that you obtain the latest updated demographics, and insurance information instead of using information from out of dated records.

Focus on Coding Accuracy

Use appropriate diagnosis, procedure, and modifier codes based on the medical record.

Scrub Claims Before Submission

Use automated edits and quality checks to identify errors before transmission.

Monitor Claims After Submission

Track claim acceptance, payer status, documentation requests, and unresolved balances.

Review Remittance Information

ERA and EOB data can reveal why payments were reduced or denied.

Build a Denial Management Workflow

Assign responsibility, track deadlines, prioritize high-value claims, and document follow-up activity.

Train the Revenue Cycle Team

Registration staff, clinicians, coders, billers, and authorization teams all influence claim quality.

Claims Adjudication KPIs to Track

Tracking billing performance can help providers identify recurring problems.

Important KPIs include:

Clean claim rate: Measures how many claims are submitted without errors requiring correction.

First-pass acceptance rate: Shows how many claims successfully pass initial payer processing.

Denial rate: Measures how frequently claims are denied.

Rejection Rate: useful in recognizing issues with Front End Submission.

Days in A/R: is the average days your outstanding AR remains unpaid.

Appeal success rate: gives us a benchmark on the success of turning a denial over upon appeal.

Appeal success rate: Shows how often appealed denials are overturned.

Resubmission rate: a high submission rate could represent billing issues that appear each time a claim is resubmitted.

Top reasons for Denial: allows us to isolate which denials represent our biggest sources of lost time and delayed income.

Benchmarking should not be measured against one single percent but should instead be measured and interpreted in terms of specialty, payer mix, type of claim, and size of practice.

Claims Adjudication Best Practices Checklist

Before the Visit

• Verify insurance eligibility
• Review benefits
• Check authorization requirements
• Update patient information

During the Visit

• Document diagnoses accurately
• Record services provided
• Support medical necessity

Before Claim Submission

• Validate demographics
• Review coding
• Check modifiers
• Confirm authorization
• Scrub the claim

After Submission

• Monitor claim status
• Correct rejected claims
• Respond to documentation requests

After Adjudication

• Post payment
• Review adjustments
• Work denials
• Appeal when appropriate
• Analyze recurring issues

Final Thoughts

Adjudication in Medical Billing is one of the most important stages between claim submission and reimbursement. The payer’s decision will involve considerations such as eligibility, documentation, coding, medical necessity, authorizations, and benefit coverage.

While providers may have no influence over all the payer’s rules, they do have influence over the quality of what they send to the payer. Accurate patient information, documentation completeness, appropriate coding, claim accuracy checks, and good claim follow-up as well as systematic denial management can help providers eliminate unnecessary claims errors and improve the revenue cycle performance.

Denials management will not focus solely on correcting denied claims, but rather on determining where the error happened and what controls to implement into that process so that future claims arriving to the payer with accurate data correctly captured and documented are present.

Providers looking to improve claim accuracy, reduce denials, and strengthen their revenue cycle can work with Rhode Island Medical Billing for comprehensive billing and RCM support.

Frequently Asked Questions

What does adjudication mean in medical billing?

Adjudication: An insurance payer’s analysis of a claim to determine how it should be processed, such as whether it should be paid, denied, reduced, or pended. Among other factors, the payer may consider eligibility, coding, medical necessity, benefits, authorization and payer agreements for that specific contract.

How long does medical claims adjudication take?

Turnaround time There is no one time frame that applies to all claims. It can vary by payer, how complicated the claim is, how it was submitted, its coverages, and if additional info or manual review is required to process it.

What happens after a claim is adjudicated?

This decision is conveyed by the payer, via remittance information. After receiving this, the provider would then be able to post payment, bill patient for their responsibilities, adjust claim, re-file more information, or challenge a denied claim.

What are the common outcomes of adjudication?

Common outcomes include full payment, partial payment, denial, rejection, pend status, or a request for additional information.

What is the difference between a rejected claim and a denied claim?

A rejected claim generally fails an initial validation requirement and must be corrected before full processing. A denied claim has usually undergone payer review but was determined non-payable.

Can a denied claim be resubmitted?

Some denied claims can be corrected and resubmitted, while others may require an appeal or supporting documentation. The correct action depends on the payer and denial reason.

How can providers reduce adjudication problems?

Healthcare providers can reduce avoidable problems by improving eligibility verification, authorization workflows, coding accuracy, documentation, claim scrubbing, payer follow-up, and denial management.