Claims Adjudication

Key facts

Remittance standard

ASC X12 835 electronic remittance advice, adopted under HIPAA

Adjustment codes

Claim Adjustment Reason Codes (CARCs) and Remittance Advice Remark Codes (RARCs)

Medicare coding edits

National Correct Coding Initiative (NCCI) PTP, MUE and add-on code edits

Original Medicare appeals

Five levels, from MAC redetermination to federal district court

What is claims adjudication?

After a provider submits a claim, the payer runs it through automated checks and, for some claims, manual review. The result is a determination for each line: paid at the allowed amount, reduced, or denied, with standard codes explaining any adjustment.

In Original Medicare, Medicare Administrative Contractors (MACs) adjudicate Part A and Part B claims. Medicare Advantage plans, Part D plans, state Medicaid programs and commercial insurers run their own systems, often with a clearinghouse between provider and payer.

How claims adjudication works

Most payers follow similar steps:

• Front-end edits: format checks, required fields and valid identifiers such as the NPI. Claims that fail are rejected and returned without a payment decision.
• Eligibility and coverage: confirming the patient was enrolled on the date of service and the service is a covered benefit.
• Coding and policy edits: code pairs that should not be billed together, units above medically likely limits, prior authorization and medical necessity rules such as Medicare coverage determinations.
• Pricing: applying the fee schedule or contract rate to set the allowed amount, then subtracting patient cost sharing.
• Remittance: sending the provider an electronic remittance advice (835) and the patient an explanation of benefits, or a Medicare Summary Notice in Original Medicare.

Why claims adjudication matters

Adjudication decides whether a product or service is actually paid for. A drug or device can have a billing code and a coverage policy and still face frequent denials because of coding edits, missing prior authorization or documentation gaps, so market access teams track denial rates and reason codes alongside coverage decisions.

Adjudication status also changes what a claim means in data. Paid, denied, pending and adjusted claims can all appear in datasets, and paid amounts can change after appeals or reprocessing. Utilization and price analyses should use final adjudicated claims and state how denials and reversals were handled.

How claim denials are appealed

Original Medicare has five appeal levels: redetermination by the MAC, reconsideration by a Qualified Independent Contractor, a decision by the Office of Medicare Hearings and Appeals, review by the Medicare Appeals Council, and judicial review in federal district court. Medicare Advantage, Medicaid and commercial plans follow their own appeal rules.