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Claims Adjudication in Medical Billing: What 'Adjudicated' Really Means and Why It Matters

  • Writer: DM Monticello
    DM Monticello
  • Sep 23
  • 9 min read
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In the intricate and highly regulated world of healthcare finance, the goal of every provider is to submit a "clean claim" that is paid on the first attempt. However, the reality of the healthcare reimbursement process is far more complex, with a significant number of claims being rejected or denied. A critical step in this process that determines the fate of a claim is adjudication. For medical billers and administrators, understanding the nuances of this stage is crucial for maintaining a healthy revenue cycle. But what is the adjudicated meaning in medical billing? While the term may sound intimidating, it simply refers to the process by which an insurance company reviews a claim and decides how much to pay the provider. This comprehensive guide will demystify the core issues, unpacking the claim adjudication process explained in detail, and exploring the common outcomes and reasons for denials. By understanding this process and implementing strategic solutions, healthcare organizations can transform a major source of revenue leakage into a model of efficiency and profitability.



The Adjudicated Meaning in Medical Billing: A Core Definition

At its most fundamental level, the adjudicated meaning in medical billing is the formal process by which a health insurance payer reviews and evaluates a submitted claim to determine its validity, accuracy, and the amount of reimbursement to be paid to the healthcare provider. Adjudication is not a simple "yes or no" decision; it is a multi-step evaluation that scrutinizes every detail of a claim against a patient's policy, contractual agreements, and payer-specific rules. It is the checkpoint for claims after they have been submitted, and the outcome of this process dictates whether the provider gets paid, and how much.

Key Aspects of the Adjudication Process

The adjudication process, whether performed by an automated system or a human reviewer, is a thorough assessment that involves a series of verifications and checks:

  • Eligibility Verification: The payer confirms that the patient was eligible for coverage on the date the service was provided.

  • Code Validation: The medical codes (e.g., ICD and CPT) on the claim are reviewed to ensure they are accurate, valid for the date of service, and appropriate for the documented diagnosis.

  • Medical Necessity Evaluation: The payer assesses whether the services provided were reasonable and necessary based on established clinical guidelines and coverage policies.

  • Coverage Determination: The payer compares the submitted claim against the terms and conditions of the patient's insurance policy to verify if the services are covered, if any limitations or exclusions apply, and if any pre-authorization or referral requirements were met.

  • Reimbursement Calculation: Based on this evaluation, the payer determines the amount of reimbursement that will be provided to the healthcare provider, taking into account contracted rates, fee schedules, co-pays, deductibles, and other payment rules.

Once this process is complete, the claim is considered "adjudicated." The final outcome is communicated to the provider and the patient through a remittance advice or an Explanation of Benefits (EOB).



The Claim Adjudication Process Explained: A Step-by-Step Breakdown

The claim adjudication process explained in detail is a sequence of actions that occur in the background after a claim has been successfully submitted by a provider. While the process can vary slightly between payers, it generally follows a predictable flow.

Step 1: Initial Review by Payer

The first step in the claims adjudication process is the payer's initial review. This is a quick check of the claim for basic errors or missing information. The system looks for details like:

  • The patient's name and ID number.

  • The provider's information, including the National Provider Identifier (NPI).

  • The date of service.

  • Procedure and diagnosis codes.

Many claims are rejected at this stage due to simple mistakes like an incorrect patient ID or outdated insurance information. Rejected claims are returned to the provider for correction and resubmission.

Step 2: Automated Review (Mass Adjudication)

If a claim passes the initial review, it moves on to mass adjudication, also known as automated review. This step involves a more thorough check of the claim using the payer's computer system. The system looks at factors like:

  • Whether the service is covered under the patient's plan.

  • If the treatment matches the diagnosis.

  • Whether the claim was submitted within the required timeframe.

  • Checks for duplicate claims.

Approximately 85% of claims are adjudicated by computer software without any human review, which is a testament to the efficiency of modern technology in the healthcare space.

Step 3: Manual Review

If a claim raises a flag during the automated review due to its complexity or an unusual circumstance, it moves to manual review. Here, a trained professional, such as a claims adjuster or a licensed medical professional, examines the claim more closely. During a manual review, the reviewer might:

  • Check if the treatment matches standard medical practices.

  • Verify if the service was medically necessary.

  • Request more information from the healthcare provider, such as additional medical records or documentation.

A claim must successfully pass through these review stages before a final determination is made.

Step 4: Final Determination and Communication

Once a claim has been thoroughly reviewed, the payer makes a decision about payment, resulting in three possible outcomes:

  • Approved (Paid): The claim is approved, and the full amount will be paid, based on the contracted fee schedule.

  • Reduced (Partially Paid): The payer agrees to cover part of the claim but not the full amount. This may be due to a lack of medical necessity for a portion of the service or a bundling issue.

  • Denied: The payer refuses to pay for the services provided for a specific reason, such as a lack of prior authorization or a coverage exclusion.

After making a decision, the insurer sends an Explanation of Benefits (EOB) to the patient and an Electronic Remittance Advice (ERA) to the provider. These documents explain what was paid, adjusted, or denied—and why. Understanding these documents is crucial for effective denial management and financial reconciliation.



The Critical Distinction: Rejection vs. Denial

Understanding the difference between a rejected claim and a denied claim is one of the most important aspects of mastering medical billing.

  • Rejection occurs before adjudication. The claim is essentially a "non-starter." The errors are administrative and can be corrected and resubmitted without a formal appeal process.

  • Denial occurs after adjudication. The claim was processed, but the payer has made a formal decision not to pay. Denials require a more complex process to appeal, and the provider must be prepared to provide additional documentation and a detailed explanation of why the claim should be paid.

This distinction is crucial for a billing team's workflow. A rejection requires a quick fix, while a denial requires a strategic appeal.



Common Claim Denial Reasons

Denied claims are a significant source of revenue leakage, and understanding the root causes is the key to recovery. The most common claim denial reasons can often be traced back to errors made at various stages of the revenue cycle.

1. Medical Necessity Denials

This is one of the most common and challenging types of denials. The payer has determined that the service or procedure provided was not medically necessary for the patient's condition.

  • Lack of Documentation: The clinical documentation does not sufficiently support the medical necessity of the services rendered.

  • Outdated Treatment: The service provided is considered outdated or is not in line with the payer's standard of care.

Strategic Solution: The best defense against these denials is robust and detailed clinical documentation. Physicians must ensure their notes accurately and comprehensively support every service provided. This highlights the importance of well-trained professionals and a meticulous approach to data entry and record-keeping, a core function of a high-performing back-office team.

2. Prior Authorization and Referral Denials

These denials are a direct result of a failure to get the necessary approval before a service was rendered.

  • No Prior Authorization: The service required a prior authorization, but one was not obtained.

  • Authorization Expired: An authorization was obtained, but the service was provided after the authorization had expired.

  • Referral Errors: The service required a referral from a primary care physician, but one was not obtained or was submitted to the wrong payer.

Strategic Solution: A rigorous and proactive pre-service process is the key to preventing these denials. A dedicated team must verify a patient’s insurance and get all necessary approvals before the patient is seen. This is a prime area for outsourcing, as specialized teams can handle these complex and time-consuming tasks more efficiently. This is a core benefit of Why Outsourcing is a Game-Changer for Your Business.

3. Coding and Billing Denials (Adjudication-Related)

These denials occur after the claim has been submitted and are often more complex than rejections.

  • Incorrect Modifier Use: The claim uses a modifier that is valid but is incorrect for the specific service provided, leading to a denial.

  • Bundling Issues: The payer has determined that a procedure was bundled with another and should not be billed separately.

  • Incorrect Patient/Provider Information: Despite passing the initial scrubbing process, the claim contains patient or provider information that the payer has determined is incorrect.

Strategic Solution: These denials require a comprehensive approach that includes a rigorous internal auditing process, continuous staff training, and a strong denial management strategy. Each denial must be investigated, and the root cause must be addressed to prevent future occurrences.

4. Non-Covered Services & Patient Responsibility Denials

These denials are less about errors and more about a mismatch between the services provided and the patient’s insurance plan.

  • Non-Covered Service: The service provided is not covered by the patient’s insurance plan.

  • Patient Responsibility: The service is covered, but the patient is responsible for the payment (e.g., deductible, co-pay).

  • Exclusions: The service is explicitly excluded from the patient's policy.

Strategic Solution: Transparent patient communication is the best defense here. The front-desk staff or patient access team should communicate with the patient about their financial responsibility before the service is rendered. This aligns with the overall goal of creating a transparent and positive patient experience.



Strategic Solutions for Adjudication and Revenue Cycle Management

Effectively managing the adjudication process and resolving rejections and denials is a strategic imperative for any healthcare organization. It requires a multi-pronged approach that leverages technology, expertise, and streamlined workflows.

1. A Proactive Front-End Process

The best defense is a good offense. By implementing a rigorous front-end process, a provider can prevent a significant number of rejections and denials before they occur.

  • Automated Eligibility Checks: Use automated tools to verify a patient’s insurance eligibility in real-time.

  • Prior Authorization Management: Have a dedicated team or a specialized service manage the complex and time-consuming process of prior authorizations.

  • Patient Communication: Communicate with the patient about their financial responsibility and any potential authorization issues before the service is rendered.

2. Investing in Expertise and Certification

The complexities of billing and coding require a highly skilled team.

  • Certified Professionals: Prioritize hiring certified medical coders and billers. Their expertise will lead to a higher clean claims rate and a more efficient revenue cycle.

  • Continuous Training: The regulations and payer rules are constantly changing. A commitment to continuous training and professional development is essential for a high-performing team.

  • Auditing: Regular internal or external audits of coding and billing practices can help identify and correct errors before they become a systemic issue.

3. Leveraging Technology and Automation

Modern technology is a key enabler for a clean and efficient revenue cycle.

  • Claims Scrubbing Software: Use software that can "scrub" claims for errors before they are submitted to the payer, catching most rejections before they ever leave the office.

  • Denial Management Tools: Utilize software that can track and manage denials, providing insights into the most common denial reasons and automating the appeals process.

  • Virtual Assistants: For many organizations, the administrative burden of managing rejections and denials is significant. A Healthcare Virtual Assistant can handle a wide range of administrative tasks, from data entry to claims follow-up, freeing up certified professionals for more complex issues. This is a core benefit of Outsourcing in healthcare services.

4. The Strategic Choice: Outsourcing

For many healthcare organizations, the most effective solution is a strategic outsourcing partnership. By delegating the complexities of the revenue cycle to a specialized BPO firm, a provider can:

  • Access Expertise: Partner with a team of certified professionals without the burden of hiring and training.

  • Reduce Costs: Lower operational overheads and convert fixed costs into variable ones.

  • Increase Efficiency: Leverage the provider's advanced technology and streamlined workflows.

  • Focus on Patient Care: Reallocate internal resources to their core mission of delivering exceptional care.

This is a core benefit of Why Outsourcing Company Operations Can Benefit Your Business and is a strategic move that is revolutionizing the healthcare industry.



Conclusion

Understanding the adjudicated meaning in medical billing is the first step toward building a resilient revenue cycle. By mastering the claim adjudication process explained in detail, healthcare organizations can effectively manage the journey of a claim from submission to payment. The key is to prioritize accuracy, efficiency, and compliance at every stage. By focusing on a clean and accurate front-end process, investing in certified talent, leveraging modern technology, and, where appropriate, embracing a strategic outsourcing partnership, healthcare organizations can transform a potential source of administrative burden into a model of efficiency, profitability, and compliance. Mastering the complexities of medical billing is not just about financial health; it is about ensuring that a provider can continue to deliver essential services to its community, strengthening its position in an ever-evolving healthcare landscape.



About OpsArmy OpsArmy is building AI-native back office operations as a service (OaaS). We help businesses run their day-to-day operations with AI-augmented teams, delivering outcomes across sales, admin, finance, and hiring. In a world where every team is expected to do more with less, OpsArmy provides fully managed “Ops Pods” that blend deep knowledge experts, structured playbooks, and AI copilots.

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