How US Healthcare Works, Part 13: Claim Adjudication

Part 12 ended with a claim arriving at the payer. Adjudication is everything the payer does to decide whether and how much to pay it. Most of the earlier parts of this series exist so that this one process can run: eligibility, networks, benefits, coverage policy, authorizations and cost sharing all meet here, applied line by line. This part walks through the pipeline in the order most claim systems run it.

1. Intake

When a claim file arrives from the clearinghouse, the payer:

translates the X12 837 into its own internal format,
runs front-end edits for things like a valid member ID and required fields, and rejects claims that fail (the rejections from part 12),
assigns each accepted claim an internal claim number, and
records the receipt date, which starts the clock for prompt payment rules and settles timely filing.

2. The pipeline

Each accepted claim then goes through a series of steps. The names vary by system, but the logic is close to universal:

Step	Question	Covered in
1. Member and eligibility	Was this person covered by this plan on each date of service?	Part 6
2. Provider	Who is the provider, and were they in network for this plan on that date?	Part 7
3. Duplicate check	Has this same service already been billed?
4. Benefits	Which service category does each line fall into, and is it covered?	Part 8
5. Authorization	If the service needs prior authorization, is there a matching one?	Part 10
6. Coverage policy	Do the diagnoses support medical necessity under the policy?	Part 5
7. Coding edits	Are the codes valid together, in these units, for this patient?	Part 4
8. Pricing	What's the allowed amount under the contract?	Parts 7, 16
9. Coordination of benefits	Is another plan primary? What did it pay?	Part 6
10. Cost sharing	How much is deductible, copay, coinsurance? Update the accumulators	Part 3
11. Payment	Produce the payment, the remittance and the member's EOB	Part 12

Each step can pay, deny or pend a line. A pend stops the claim and sends it to a person, which part 14 covers.

3. Duplicates

Providers sometimes send the same claim twice, for example when they haven't heard back. An exact duplicate, same member, provider, date, code and charge, is denied automatically. A suspect duplicate, close but not identical, is harder: two office visits on the same day by the same doctor might be a duplicate or might be two separate visits. Suspect duplicates usually pend for review, or are paid and checked later.

4. Coding edits

Coding edits check that the codes make sense together. The most widely used are Medicare's National Correct Coding Initiative (NCCI) edits, which many commercial payers also apply:

Procedure-to-procedure (PTP) edits: pairs of codes that shouldn't be billed together for the same patient on the same day, usually because one is part of the other. A surgery code includes the routine incision and closure, so billing them separately is unbundling. Some pairs can be overridden with a modifier such as 59 when the services really were separate.
Medically unlikely edits (MUEs): the maximum units of a service that make sense for one patient on one day. Two appendectomies on the same day fail.

Payers add their own edits on top: age and sex edits (a prostate exam for a female patient), place-of-service edits, frequency limits (one screening colonoscopy every ten years), and edits licensed from commercial claim-editing vendors.

5. Pricing

Pricing works out the allowed amount from the provider's contract:

Professional claims: look up each code in the provider's fee schedule, adjust for modifiers (an assistant surgeon or a bilateral procedure is paid differently) and multiply by units.
Inpatient hospital claims: run the DRG grouper (part 4) to get the DRG, then multiply its weight by the hospital's contracted base rate, plus any outlier payment for an exceptionally expensive stay and any carve-outs.
Outpatient hospital claims: price by APC, fee schedule or percentage of charges, depending on the contract.
Out of network: price by the plan's out-of-network method. Some payers send these claims to repricing networks, companies that negotiate a discount with the provider claim by claim.

For Maria's husband's stay, the hospital billed $38,000 in charges. The grouper assigned MS-DRG 343, appendectomy without complications. If the contract pays a base rate of $9,500 and DRG 343's weight were 1.0, the allowed amount would be about $9,500, regardless of the charges. (The numbers here are illustrative; actual weights are set by CMS each year and contract rates are private.)

6. Denials and their reason codes

When a line is denied, the payer attaches CARC and RARC codes so the provider knows why. Some of the most common:

CARC	Meaning	Usually means
CO-16	Claim lacks information needed for adjudication	Fix the missing data and resubmit
CO-18	Exact duplicate claim or service	Already billed
CO-22	Care may be covered by another payer per coordination of benefits	Bill the primary plan first
CO-27	Expenses incurred after coverage terminated	Eligibility ended
CO-29	The time limit for filing has expired	Timely filing missed
CO-50	Not deemed a medical necessity by the payer	Coverage policy failed; may be appealed
CO-97	Payment is included in the allowance for another service	Bundled by a coding edit
CO-197	Precertification or authorization absent	No matching prior authorization

Denials are common. In plans on HealthCare.gov, insurers denied 19% of in-network claims in 2024, ranging from 3% to 36% by insurer. Only 5% of those denials cited medical necessity. A quarter were for administrative reasons, 13% were for excluded services and 9% for a missing prior authorization or referral. Fewer than 1% of denied claims were appealed.

So most denials aren't about clinical judgement at all. They're about data: eligibility, coding, authorizations and paperwork. That's why denial prevention, on both sides, is mostly a data-quality problem.

7. Auto-adjudication and pends

A claim that goes through every step without stopping is auto-adjudicated, with no person involved. Payers aim for as high a rate as possible, because each manual touch costs money and time.

A claim pends when a step can't decide on its own. Typical pend reasons:

the member or provider couldn't be matched confidently,
a suspect duplicate,
the authorization almost matches: right code, but the units or dates differ,
a high-dollar claim above a threshold that always gets a second look,
an unlisted procedure code, which has no fixed price,
COB information is missing,
the configuration has no rule for this situation.

Pended claims go into work queues, sorted by reason, where claim examiners resolve them. That work is the subject of part 14.

8. Payment timing

Payers pay in payment cycles, often once or twice a week. Timing rules apply:

Medicare can't pay an electronic clean claim before the 14th day after receipt, and must pay it within 30 days or owe interest.
States set prompt pay deadlines for fully insured commercial plans, often 30 to 45 days for clean claims, with interest when late.
Medicare Advantage plans must pay clean claims from out-of-network providers within 30 days. In-network timelines are set by the contract.

9. When a claim changes after payment

A claim isn't final when it's paid:

The provider can send a corrected claim, which replaces the original (claim frequency code 7) or voids it (code 8).
The payer can adjust a claim, for example after a retroactive eligibility change (part 6), a COB discovery or an audit (part 15).
The member or provider can appeal a denial.

Each change reverses the original claim and reprocesses it, including the accumulators. If the reversed claim had taken the member's deductible, every later claim that year may need to be reprocessed too. That ripple is one of the hardest parts of claim systems to get right.

10. Limits

Every step depends on earlier data. Most wrong denials trace back to eligibility, provider or configuration errors, not to the adjudication logic itself.
Edits are blunt. A coding edit can't see the record, so it denies some legitimate claims and passes some wrong ones.
Speed and accuracy pull against each other. Auto-adjudicating more claims saves money but lets more errors through, which then need recovery later.

Remember

Term	Meaning
Adjudication	Deciding whether and how much to pay a claim
Front-end edit	A check at intake; failures are rejections, not denials
Exact / suspect duplicate	Identical / possibly the same service billed twice
NCCI PTP edit	Two codes that shouldn't be billed together
MUE	Maximum units of a service per patient per day
Pricing	Calculating the allowed amount from the contract
Auto-adjudication	A claim processed with no human touch
Pend	A claim stopped for a person to resolve
Corrected claim	A replacement (7) or void (8) of an earlier claim

Next, in part 14: the claim SOP, the checks an examiner works through on a pended claim, step by step, to a final decision.

Sources

KFF, Claims denials and appeals in ACA marketplace plans in 2024, March 2026
CMS, National Correct Coding Initiative edits
X12, Claim Adjustment Reason Codes
CMS, Medicare Claims Processing Manual, chapter 1 (payment floor and interest)