How Claims Adjudication Impacts Healthcare Providers’ Bottom Line

Claims adjudication can create serious bottlenecks in healthcare providers’ revenue cycles. While the American Health Information Management Association estimates about two-thirds of denied claims are recoverable, fewer than half are ever resubmitted.

What Is Claims Adjudication in Healthcare?

Claims adjudication is a complex process insurers use to decide how much of a healthcare expense they will cover. Based on adjudication, the insurer may pay the entire claim, pay a partial amount, or deny the claim in full.

Health insurers are responsible for paying their members’ covered healthcare costs. However, insurers don’t want to pay invalid claims — such as paying for procedures that weren’t medically necessary or weren’t covered by the patient’s insurance plan.

In claims adjudication, healthcare claims are scrutinized to determine whether they meet the insurer’s criteria for coverage.

Why Adjudication Is Necessary

Claims adjudication ensures healthcare claims are accurate, valid, and necessary. Medical payments exist in a complex ecosystem. The cost of a medical appointment or procedure is affected by a number of factors.

The provider’s level of training, the reason one treatment was chosen over another, and the coverage detailed in the insurance contract are just a few of the things that can affect how much is billed and how much the insurance company is willing to pay.

Claims adjudication helps prevent insurance fraud and ensure healthcare providers are paid fairly for their work.

Technology Can Streamline Claims Adjudication

The healthcare industry could save hundreds of billions of dollars a year by applying technology to the revenue cycle — including claims adjudication.

Claims are often denied due to minor clerical errors like a typo, an incorrect billing code, or failing to attach a supporting report. Automating the billing process can dramatically reduce the risk of these human errors.

Nextech’s integrated EHR and practice management software can automatically start claims based on the EHR record of the patient appointment.

Submitting claims that are complete and free of typos can bring denial rates down to the single digits. This creates a significant cost savings, as appealing and reworking rejected claims costs private practices an average of $25 per claim.

At the same time, automation lightens the administrative burden on billing staff, allowing a practice to get claims completed, corrected, and submitted faster.

A Step-By-Step Guide to Healthcare Claims Adjudication in 2024

Errors and delays can happen at any step in the claims adjudication process, dragging out the time between providing healthcare services and being paid for them.

Smooth adjudication processes lead to shorter revenue cycles and stronger bottom lines.

Step 1: Documentation

The claims adjudication process actually begins while the patient is still in the exam room. Documentation of the patient visit ensures the healthcare claim accurately represents what happened.

During adjudication, insurers will examine the record of the visit, assessing factors like the services provided, coverage details, and deductibles.

Step 2: Rejection Or Settlement

After examining the claim and its supporting documentation, the insurer will either reject the claim or settle it. Any errors in the documentation, from a missing lab report to a coding error, are likely to lead to rejection.

The industry standard in healthcare is a claims denial rate of 5% or less. Nonetheless, somewhere around 15% of claims are typically denied on their first submission.

If the claim passes this step without being rejected, the insurer will decide whether to pay the full amount or settle for a partial payment. If the insurer covers less than the full amount, the patient is responsible for the remaining balance.

Step 3: Resubmission

Many rejected claims are denied because of human error. If a claim failed adjudication because of a clerical error like attributing the wrong code to a procedure, billing staff can correct the mistake and resubmit.

Automation is a valuable ally in the correction and resubmission of denied healthcare claims. First, automated billing can prevent most of these errors from slipping through in the first place. Second, it can help staff identify and correct errors quickly, so failed claims can be resubmitted.

The longer a claim sits in the queue waiting to be reviewed and corrected, the longer it takes for the practice to be paid for the services it provided.

Step 4: Appeals

When a healthcare claim is complete and factually accurate, it may still be rejected on its merits. In that case, the practice can appeal.

Nearly 20% of all claims are denied, but as many as two-thirds of those are recoverable. The appeals process is time intensive, so practices must decide on a case-by-case basis whether it’s worth appealing a specific claim, or if it would be more cost-effective to recover payment from the patient.

The claims adjudication appeals process has three tiers:

• First-level appeal: A provider from the practice explains to a medical reviewer at the insurer why the treatment was appropriate and necessary.

• Second-level appeal: If the medical reviewer is not convinced, the practice can elevate its appeal. At the second level, a medical director at the insurer reviews the claim.

• External review: If the medical director finds the treatment was medically unnecessary, the practice can request an external review. At this level, the claim is reviewed by a neutral medical professional who works for neither the practice nor the insurer.

10 Common Claims Challenges in Healthcare

One of the most effective ways to shorten your revenue cycle is to lower your practice’s rate of claim denial. Here are 10 common reasons healthcare claims are rejected in adjudication (and what you can do about them):

• The procedure required prior authorization. Keep up-to-date records of each patient’s insurance coverage. An integrated patient portal makes it easy for patients to update their own records when their insurance plan changes.

• The claim has missing or incorrect information. Invest in automated billing tools to prepopulate the basic fields of a claims form and alert humans to missing information before the claim is filed.

• The payer deems the service medically unnecessary. Sometimes, the payer and the physician disagree on what a patient needs. Healthcare providers can bolster their claim by keeping detailed records in the patient’s EHR and submitting supporting documentation with their claim.

• The procedure was not covered by the payer. If your patient’s insurance information is correct in your system, automated tools can compare proposed treatments against the insurance plan. This prevents the practice from submitting claims that aren’t covered.

• The provider is out of network. Let patients know prior to treatment if your practice is not in their insurance network.

• There are duplicate claims for the same procedure. This is often a coding error. There are specific codes to be used when multiple procedures occur in the same visit or within a short time period. Automated tools can help avoid these errors.

• Benefits were not coordinated. When a patient is covered by more than one insurance plan, it can cause delays until the coordination of benefits is brought up to date.

• The insurer bundles claims. Sometimes, rather than paying for two separate related treatments, insurers will choose to bundle them and pay a single, smaller fee.

• Payment was adjusted for a previous service. This happens when the insurer judges the benefit of the treatment was already paid for in a previous claim that has been adjudicated.

•  The claim exceeded the timely filing limit. Medical billers are working against the clock. Automating your billing process can help them get claims submitted before the deadline.

It’s impossible to have a claims denial rate of 0%. However, many Nextech customers have lowered their denial rate to 5% or less.

How To Improve Healthcare Claims Adjudication

Clinics can improve the claims adjudication of their medical billing by 

1. Automating medical billing
2. Optimizing medical coding
3. Keeping accurate data
4. Empowering patients
5. Identifying trends in claim denials
6. Establishing a rapid denial response

1. Automate Medical Billing

Healthcare claims are often denied in the adjudication process because of human error.

Automated medical billing validates and cleanses data as it enters the system. This reduces the risk of errors like incorrect codes, incomplete prior authorization, or unverified eligibility.

2. Optimize Medical Coding

Reworking and appealing rejected claims costs around $25 per claim, according to AHIMA. It’s more efficient to submit clean, error-free claims in the first place.

To reduce coding errors, make sure coding staff are certified and receive ongoing professional training. Healthcare billing codes are complex and change frequently; it’s important to keep your staff up to date.

Support those coders with a specialty-specific EHR. By prioritizing the codes most relevant to your clinic’s specialty, Nextech’s EHR makes it faster and easier to find the right codes.

3. Keep Accurate Data

Your claims are only as good as the data within them. Keep that data up to date with a robust EHR.

Your EHR creates a clear, transparent record of your patient’s complete health history. When integrated with your billing system, it can prepopulate relevant fields, reducing the risk of errors.

The comprehensive data in your EHR can generate the documentation you need to justify treatment decisions to insurers.

4. Empower Patients

Empower your patients to keep the data in their patient record accurate.

With controlled access to their record through a patient portal, your patients can update their own insurance information and other relevant details.

The patient portal is also a convenient way for patients and providers to communicate outside of an appointment. They can share information like insurance pre-approval and treatment alternatives, reducing the risk of being surprised by a claim denial.

5. Identify Trends in Claim Denials

The first step in reducing your claim denials is understanding why claims are being denied. Studying your practice data can uncover hidden issues in your processes or workflow.

Using the data analytics in Nextech’s practice management software, track rates of initial denials, reasons for denial, and whether the rejections were resolved on resubmission and appeal.

6. Establish a Rapid Denial Response

When a claim is denied, you may have as little as 90 days to correct and resubmit. Many practices miss this window because their billing department is working through a never-ending backlog of new and denied claims.

Create and validate a claims process that tracks claims as they enter, leave, and re-enter the system. Use the automation tools in your billing software to help.

With this system in place, aim to get pending claims corrected and resubmitted within a week of being denied. Measure how long each step of resubmission takes so you can track your progress.

Improving Your Claims Adjudication Rates With Nextech’s Healthcare Tools

Nextech’s specialty-specific tools help healthcare providers improve their bottom line without sacrificing quality care.

Our revenue cycle management services can increase a clinic’s collections by an average of 10%. And practices using our automated billing and payments tools boast impressively low claims denial rates – like Salvay Vision, which brought its rate of claims rejection as low as 2%.

Nextech offers integrated EHR and patient management software for plastic surgery, med spa, ophthalmology, dermatology, and orthopedic practices. 

Schedule a demo to see what Nextech could do for your practice.