Claims Adjudication vs Claims Processing: Fix Healthcare Claims Delays

If a simple claim takes weeks to resolve or gets denied without a clear explanation, the issue may lie in a common misunderstanding: the difference between claims processing and claims adjudication. Despite being different from each other, these two steps in the healthcare reimbursement process are often used interchangeably. This leads to errors, delays, confusion and inefficiencies in the multi-step healthcare reimbursement cycle impacting both revenue and care delivery.

To understand why this distinction matters, it’s important to look at what each process involves and how they are connected within the overall claims lifecycle.

Claims processing involves collecting patient and provider data, verifying it for accuracy, and ensuring compliance before the claim is submitted to the payer. Claims adjudication begins as soon as the collected data is submitted. The payer reviews the claim based on the member’s benefits, policy rules and medical necessity to determine whether the claim is approved, denied, or adjusted.

This blog post differentiates between the two terms and explains how they enable proper reimbursement, help healthcare organizations reduce errors, avoid payment delays and improve the company’s financial performance. To begin with, let’s first understand what claims processing is about.

What is Claims Processing in Healthcare? 

Claims processing is a systematic procedure that allows healthcare providers and organizations to receive payment from insurance companies for the medical services they deliver. In the U.S., this process must follow regulatory, compliance and formatting guidelines to receive timely reimbursements. 

Also, read Enhance Your Claims Processing with Mirra's Advanced Technology Solution

This claims process takes place as follows:

• Data Capture and Validation 

Claims data such as patient information, provider credentials, service codes and billing details are extracted and validated to ensure completion and accuracy.

• Submission of Claims 

Claims are submitted either electronically or through paper forms. While electronic claims use HIPAA-compliant X12 837 formats (Professional, Institutional, or Dental), paper claims for Medicare use Form CMS-1500 with exact field requirements (e.g., MBI in Item 1a, coverage dates aligned with verification).

• Initial Review and Routing 

These verified claims are routed to the payer system. For Medicare, this includes Common Working File (CWF) checks for coverage and eligibility.

• Compliance Checks 

Claims are screened for compliance with insurer rules, coding guidelines (like ICD, CPT, HCPCS) and timely filing limits to avoid rejection or delay.

Once a claim passes all checks in Claims Processing- it is submitted. It then enters the next critical phase, Claims Adjudication where the payer evaluates it for reimbursement decisions. 

Also, read Why Custom Claims Adjudication Software Works Better

What is Claims Adjudication in Healthcare? 

Claims adjudication is the process by which payers assess medical claims to determine if they should be approved, adjusted, or denied based on accuracy, eligibility, and compliance as per their necessary requirements.

To understand how payers reach a reimbursement decision, let’s break down the key steps involved in the claims adjudication process.

Breaking down each step in the adjudication process clarifies how payers evaluate claims, offering providers insight into the logic behind approvals, denials, and payment adjustments. This transparency allows providers to act proactively, improving the rate of first pass claim acceptance. 

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The Detailed Claims Adjudication Process

Step 1: Initial Processing/Review

• The claims adjudication process begins when healthcare providers submit a claim to the insurance company for reimbursement.
• The insurer verifies basic patient information such as name, date of birth, insurance ID and provider credentials.
• The claim is reviewed to ensure it is complete, correctly formatted and free of errors or missing data.
• Inaccuracies in demographic information or coding may cause the claim to be rejected or returned for correction.

Step 2: Validation/Automatic Review

• Once the initial review is complete, the claims undergo an automated validation process.
• The insurance system applies payment policies and coverage rules to determine benefit eligibility.
• The system checks whether prior authorization was obtained for services that require it.
• Details like coverage dates, procedure codes and benefit limits are validated to ensure alignment with the patient’s health plan.
• Medicare requires claims to be submitted within 12 months of the service date.
• Claims that fail these checks are flagged for manual review or returned for correction.

Step 3: Medical Necessity Review

• Claims involving certain services or higher-cost treatments are forwarded for a medical necessity review.
• Medical professionals use automated pre-payment to assess whether the procedures were appropriate and necessary based on the patient's diagnosis.
• Diagnosis and procedure codes are evaluated to ensure they are relevant and aligned with accepted clinical guidelines.
• Additional documentation, such as clinical notes or lab results, may be required to support the medical necessity.
• This review flags and prevents unnecessary or inappropriate healthcare utilization.

Step 4: Final Reimbursement Decision

• After all reviews are completed, the insurer makes a final decision on the claim.
• The claim is either approved for full or partial payment, denied, or adjusted based on the evaluation.
• Patients receive a Medicare Summary Notice (MSN), and a Remittance Advice is sent to the provider.
• These documents include payment details, denial reasons (if applicable) and any patient responsibility amounts.
• Providers have the right to appeal denied claims by submitting additional information within the insurer’s specified timeframe.

Step 5: Appeals Process 

If a claim is denied or only partially paid, providers and beneficiaries have the right to appeal the decision. The appeals process for Medicare claims follows a strict five-level hierarchy* as outlined by CMS:

• Redetermination: The first level, where the claim is reviewed by a different person within the same Medicare Administrative Contractor (MAC) that made the initial decision.
• Reconsideration: If dissatisfied with the redetermination, the provider or beneficiary can request a reconsideration by a Qualified Independent Contractor (QIC).
• Administrative Law Judge (ALJ) Hearing: If the amount in controversy meets the minimum threshold, the next step is a hearing before an Administrative Law Judge.
• Medicare Appeals Council Review: If still unsatisfied, the case may be reviewed by the Medicare Appeals Council.
• Judicial Review in Federal District Court: The final level, if the amount in controversy is high enough, is a judicial review in federal court.

Each level of appeal must be requested within specific timeframes and may require submission of additional documentation. Providers and members are notified of their appeal rights and instructions in the Medicare Summary Notice (MSN) or Remittance Advice.

We have clearly defined the steps that take place in the claims processing and in the claims adjudication. Now let us try and understand the differences between the two.

What are the Key Differences between Claims Processing vs. Claims Adjudication?

• Purpose 

The core purpose of claims processing is to gather, clean and route claims data so that it meets the standards required for submission. This step ensures that the claims are free from errors and includes all necessary information.

On the other hand, the purpose of claims adjudication is to thoroughly analyze the claims and determine how the requested payment should be approved. While processing is more administrative and preparatory in nature, adjudication is decision-oriented and analytical process.

For Medicare claims specifically, adjudication also requires Coordination of Benefits (COB) forwarding to the appropriate Medicare contractor after the claims are processed, to ensure that Medicare only pays its share when other insurance is involved (as outlined by CMS).

• Chronological Order 

Claims processing generally refers to the pre-submission phase, where provider-side teams gather, verify, and submit claims data accurately. It lays a roadmap for successful adjudication by ensuring the data is accurate and compliant.

Claims adjudication takes place after claims processing, but before any payment is made. It happens after processing and before payment. It’s the step where each claim is reviewed for accuracy, eligibility, and coverage and where the final payment decision is made.

• This is where the final decision about payment is made, making it one of the most critical parts of the claims cycle.

For Medicare, there are additional post-adjudication steps: these include trust fund tracking and mandatory reporting to Medicaid or other insurers, as required by federal regulations.

• Primary Tools used in the Process 

The systems used in claims processing are designed to handle large volumes of administrative data efficiently. These include clearinghouses, automated billing systems and claim scrubbers that identify and correct errors in real-time.

For Claims Adjudication, more specialized tools are involved, such as rules engines that enforce policy guidelines, benefit verification tools that check eligibility and medical review software that supports clinical assessments. These tools work together to ensure that payment decisions are accurate and justified.

• Key Stakeholders

Claims processing is typically handled by billing staff, healthcare providers, and third-party intermediaries. These stakeholders are responsible for preparing and submitting claims that meet payer requirements.

In contrast, the responsibility for claims adjudication lies with insurance carriers. Insurers rely on adjudication platforms, internal claims processors and medical examiners to evaluate claims against policy terms and clinical appropriateness before issuing payment decisions.

In the Medicare program, adjudication is handled by Medicare Administrative Contractors (MACs)-not by generic insurance carriers. MACs are private organizations contracted by CMS to process Medicare claims, perform payment determinations, and carry out post-adjudication responsibilities. 

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• Final Decision

The outcome of claims processing is a clean, correctly formatted claim that is ready for adjudication. Its success is measured by how well the claim is prepared for payer evaluation.

Meanwhile, the outcome of claims adjudication is a definitive financial decision. The outcome is accompanied by documentation, detailing how and why the decision was made.

Now that we’ve examined the key differences between claims processing and claims adjudication, it’s clear that breakdowns can occur at any stage, from data capture to final reimbursement decisions. These inefficiencies not only delay payments but also increase operational tasks, raise claims denial rates, and affect the overall reimbursement cycle.

Mirra’s Claims Adjudication Solution addresses these challenges by providing end-to-end visibility, built-in CMS logic, and performance analytics, all while simplifying the claims adjudication process. By ensuring clinical and financial data are aligned before a claim reaches the payer, Mirra helps both providers and payers reduce errors and faster decisions. This is achieved with intelligent automation, document digitization and integrated pricers that support compliance.

How does Mirra’s Claims Adjudication Solution Enhance Efficiency in the Revenue Cycle? 

For Healthcare Providers:

• Standardized data entry reduces input errors.
• Pre-adjudication reviews spots issues before claims go out.
• Real-time dashboards help track claims status.
• Regular training supports better documentation and coding accuracy.
• ClaimsLite® digitizes paper claims for faster processing.

For Payers:

• Automates repetitive tasks like eligibility checks.
• Runs complex rules to catch policy violations or duplicates.
• Monitors trends and metrics (e.g., high-dollar claims, denial reasons).
• Mirra’s built-in editor applies 40M+ edits, including CMS NCCI logic.
• Integrated pricers (PDPM, Outpatient, Inpatient) ensure accurate payments.

The Future of Claims Management

As healthcare systems become more tech-enabled and data-focused, claims management is rapidly evolving. New technologies and regulations are shaping how claims are processed and adjudicated, making them faster, more accurate and less prone to error.

• Machine Learning & AI

Machine learning automates complex reviews by identifying patterns in coding, documentation, or billing to reduce manual workload and errors. AI enhances claims handling by predicting potential claims denial, flagging high-risk claims before they’re submitted.

• Blockchain

Blockchain technology offers a secure and transparent way to manage claims data. Each transaction is time-stamped and traceable, reducing the risk of fraud. It also ensures auditability, which means every step in the claims process can be tracked and all parties see the same version of the data in real time.

• Interoperability

Improved interoperability allows for seamless data sharing between EHRs, insurance payers and billing platforms. This reduces duplication, speeds up claims movement and ensures everyone has access to the right information when it’s needed.

• Regulatory Changes

Ongoing updates from CMS (Centers for Medicare & Medicaid Services) and newly introduced interoperability rules are driving the healthcare industry toward more integrated and transparent operations. These regulations will continue to influence how quickly claims are processed, particularly for Medicare Advantage and other federally regulated plans.

Conclusion

Healthcare reimbursement is complex and demands accuracy at every step. By clearly distinguishing where claims processing ends and adjudication begins, healthcare organizations can focus their improvement more effectively. Instead of treating claims management as a single function, high-performing healthcare organizations build specialized capabilities for each phase.

To stay competitive in the claims reimbursement space, providers and payers must invest in modern technology, continuous training, and cross-functional collaboration. The long-term financial health of their business and member satisfaction will depend on their ability to adapt to the evolving technologies that support payment processing, while maintaining precision across the claims lifecycle.

Ultimately, excellence in claims management isn't just about recovering revenue, it's about creating operational efficiency that allows healthcare providers to focus their resources where they matter most, delivering exceptional patient care. 

Mirra Health Care’s Claims Adjudication Solution helps healthcare organizations to reduce errors, accelerate decisions, and ensure payment accuracy. With automated checks, real-time validation, and built-in rules, it simplifies the adjudication process and removes uncertainty from claims review.

Schedule a demo to cut turnaround time and improve your claims adjudication rate with Mirra.

Reference https://www.cgsmedicare.com/jb/redeterminations/appeals-process.html