What Is Claim Adjudication? How Insurance Claims Are Processed

When you receive medical care and a claim is submitted, it doesn't simply go from your doctor's office to payment. It goes through a detailed review process called claim adjudication — the series of steps an insurer uses to determine whether to pay a claim, and how much.

Understanding how adjudication works gives you a significant advantage when a claim is denied or underpaid.

The Claim Adjudication Process

Step 1: Claim Submission

Your healthcare provider (or you, for self-submitted claims) sends the claim to your insurer. Claims are typically submitted electronically using standardized formats (CMS-1500 for professional claims, UB-04 for facility claims). The claim includes:

• Patient and member information
• Provider information (NPI number, tax ID)
• Date(s) of service
• Diagnosis codes (ICD-10)
• Procedure codes (CPT or HCPCS)
• Billed charges

Step 2: Initial Validation (Eligibility and Coverage Check)

The insurer first confirms basic eligibility: were you covered on the date of service? Is the claim within the timely filing window? Is the provider enrolled with the plan?

Claims that fail this step are rejected (returned to the biller) — not denied. A rejection means the claim was never formally processed. Most rejections are fixable with corrected information.

Step 3: Benefit Verification

The system checks whether the billed service is a covered benefit under your plan and whether any exclusions apply. It also checks for required Prior Authorization Denied: How to Appeal" class="auto-link">prior authorization — if authorization was required and not obtained, the claim will typically deny at this stage.

Step 4: Medical Review (If Required)

Complex or high-cost claims — or those flagged by clinical criteria — are routed to medical review. A clinical reviewer (nurse or physician) evaluates whether the service meets medical necessity criteria. This is where "not medically necessary" denials originate.

Insurers typically use evidence-based clinical guidelines such as InterQual or Milliman MCG to make these determinations, though critics argue these criteria are sometimes applied too rigidly.

Step 5: Coordination of Benefits (COB)

If you have more than one insurance plan, the insurer determines which plan is primary and which is secondary, and how the claim should be split between them.

Step 6: Payment Calculation

If the claim is approved, the insurer calculates:

• The allowed amount (negotiated rate for in-network providers)
• How much applies to your deductible
• Your coinsurance or copay
• The plan payment (what the insurer pays)
• Your patient responsibility

eob-generation">Step 7: Explanation of Benefits (EOB) Generation

The insurer sends an EOB to you and a remittance advice to your provider detailing what was paid, what was adjusted, and what (if anything) was denied — including the reason codes.

What Can Go Wrong During Adjudication

Errors are common. Frequently encountered problems include:

• Coding errors: Wrong CPT or ICD-10 code causes an incorrect benefit determination
• Provider credentialing errors: Provider incorrectly classified as out-of-network
• Authorization lookup failures: Authorization was obtained but not linked to the claim
• COB errors: Wrong plan designated as primary
• Timely filing miscalculations: The claim was filed on time but the system recorded it incorrectly
• Incorrect member information: Wrong member ID or date of birth causes an eligibility failure

How to Spot Adjudication Errors

Always compare your EOB to your provider's bill. If the amounts don't match, or if the denial reason doesn't match your understanding of your coverage, request the insurer's claim file and the complete adjudication record. Under ERISA and the ACA, you are entitled to all documents used in the claim decision.

Fight Back With ClaimBack

Adjudication errors are common — and correctable. ClaimBack helps you decode your EOB, identify what went wrong, and build a targeted appeal.

Start your appeal at ClaimBack

Related Reading

• Common Reasons Insurance Claims Are Denied
• What Is Medical Necessity?
• How to Write an Insurance Appeal Letter