How do insurance companies process medical claims?


Have you ever wondered what happens to your claim once it has been sent, either electronically or by mail? An electronic claim is sent directly to the insurance company's computer system to begin a series of compatibility checks. A paper claim is always scanned first and may be manually entered into the insurance company’s computer system if the system cannot adjudicate claims from the scanner.

After the insurance company receives the claim, it begins a series of checks and cross-checks with the information already in their system. As a first step, patient and provider eligibility is checked against the enrollment identification numbers.

Next, the date of service is compared to eligibility; again, the patient and provider enrollment dates are considered. The system will reject any service line that does not fall within the patient’s insurance contract, and the claim determination is based on in-network or out-of-network provider status with the insurer.

The service code (CPT-4, HCPCS, etc.) and place of service are the next matching criteria. An inpatient visit that is inadvertently billed with an outpatient place of service is incompatible coding and will be rejected. Codes that are paid as stand-alone procedures may ‘bump’ against one another, causing a reduced payment or non-payment for certain codes if billed on the same service date. Additionally, insurance company systems are programmed to automatically stop or ‘suspend’ a service code that is considered by their standards to be experimental. These claims must be manually adjudicated by a claims processor. A claim also is compared against the patient history for duplication of services, and if a previous claim has been entered that matches, it may reject as a duplicate billing.

The diagnostic code is matched with patient contract benefits. A diagnosis of ‘Family Planning’ may not be a benefit covered by the patient’s plan, so a service line billed with this as the diagnosis would be rejected. The diagnosis must also match the patient’s age and sex type. For example, a prostate exam will not be reimbursed if the claim indicates that the exam was performed on a female.

Next, the billed amount is compared with the provider’s contract and may be adjusted to an allowed amount. For instance, if a provider’s contracted rate with an insurance company is 120% of Medicare’s allowed amount, then the service line would be paid at that rate.

A service line that has passed each of these criteria is then checked against the patient’s coordination of benefits information to determine if the insurer in question is the primary payer of benefits. If it is, then the claim passes through the patient history of all other claims of this type for application of deductible, co-pay, or coinsurance. Those patient responsibilities are subtracted from the allowed amount before the service line is paid. If a patient has not met his or her annual deductible, the allowed amount is applied to the patient’s deductible history and the charge becomes the patient’s responsibility. Additionally, if the insurance company is secondary to another insurance company, that primary insurance company’s EOB is sought. Any denials, payments, and benefits from that policy are applied to the claim before payment is considered. The absence of a primary EOB will cause the claim to reject.

If the claim was considered previously, it will be rejected as a duplicate claim. If the claim is being disputed or re-billed for additional units of service, a previous payment by the insurance company may result in an adjustment to the claim amount.

Finally, the claim is analyzed for age. If the claim has been unpaid, residing in an insurance company’s system for longer than allowed by regulatory guidelines (usually 30 days), interest may be due to the provider. On the flip side, if a provider did not bill the claim in a timely manner, the insurance company may charge a Late Filing Charge or may reject the claim outright due to timely filing issues.

Claim status is available on most insurance websites, and if an accounts receivable manager is paying attention, making the calls, and checking online, many claims processing mistakes can be corrected quickly. No system is perfect, and knowing how claims are processed by insurers is helpful in fighting for additional consideration. To keep your accounts receivable aging under control, it is a good idea to stay abreast of how each of your claims is progressing through the insurer’s claim processing system.  Top medical billing software like Iridium Suite provide valuable practice management tools to assist in all aspects of you accounts receivable processes.