Claims adjudication systems: each step a claim goes through, and how payers automate it

Claims adjudication is how a payer decides whether to pay a claim, and how much. Health plans, TPAs and insurance carriers do it in a claims adjudication system. The system checks the claim's data, the member's coverage and the provider's contract. Then it pays the claim, pays part of it, or denies it. A claim that passes every rule is decided with no one touching it. Claims still wait for a person when they arrive on paper or need attachments.

What is claims adjudication?

A provider treats a patient and sends a claim. The payer that covers the patient adjudicates it. In the workflow the 2025 CAQH Index uses, the provider submits the claim and the health plan adjudicates it. Then the plan sends the payment and the remittance advice. Health plans and the TPAs that run claims for employer plans do this work, and Medicare's contractors do it for Medicare. In P&C and workers' comp insurance, the carrier's claims team does it. For a workers' comp medical bill, that work is called bill review.

This post is written for those teams, the ones that receive claims and decide them. If you send claims rather than decide them, our guide to medical billing automation is written for you.

Adjudication ends in one of four ways. Three of them are decisions. In the fourth, the payer returns the claim without deciding it, because required information is missing or invalid.

• Paid in full

  The claim passes every rule, and the plan pays what the provider's contract allows.

• Paid in part

  Some lines or amounts are paid and others aren't. In Texas, a PPO insurer must pay the part it doesn't dispute and explain the rest in writing.

• Denied

  The plan won't pay. Under the federal ERISA claims rule, an employer health plan's denial notice must give the specific reason and the plan terms behind it.

• Returned as unprocessable

  Required information is missing or invalid. Medicare returns these claims to the provider, and they aren't denials, so there's nothing to appeal.

The claims adjudication process, step by step

Every payer configures its own rules, but the order of the work is much the same.

1. Receive the claimIt arrives as an X12 837 file, or on paper. Paper claims come on the CMS-1500 for professional services, or on the UB-04 (also called the CMS-1450) for hospitals and other institutions. For a clean claim, the payment deadline counts from the day it arrives.
2. Run front-end editsThe system checks that required fields are filled in and valid, such as the member ID, dates of service, codes and the billing provider's NPI. A claim that fails can go back to the provider before anyone reviews it.
3. Check eligibility and coverageWas the member covered on the date of service? Is the service a covered benefit, and does it need a prior authorization? If the member has another plan, coordination of benefits decides which plan pays first.
4. Price the claimThe system applies the provider's contract or fee schedule. Then it takes out the member's deductible, copay or coinsurance.
5. Pend what a rule can't decideA claims examiner or a nurse reviewer picks the claim up. They may ask the provider for medical records before they decide.
6. Decide and payThe plan pays the claim, pays part of it, or denies it. The provider gets a remittance advice, often as an X12 835 file, with a reason for each amount not paid.

The system runs steps 2 to 4 on its own. A claim that passes all of them with nothing left to pend is auto-adjudicated. Payers track their auto-adjudication rate, the share of claims decided this way, because every pended claim waits for an examiner.

What makes a claim clean, and why the clock matters

Medicare's claims processing manual calls a claim clean when the contractor can decide it without contacting the provider, the patient or anyone else outside. Its examples include claims that pass all edits. They also include claims with all the information needed to adjudicate them, and all required supporting documents. Most payment deadlines count from the day the payer receives a clean claim.

Two details in Medicare's manual matter for paper. A claim that doesn't meet basic legibility, format or completion rules doesn't count as received, so its payment deadline doesn't start. A paper claim that the contractor reads with OCR still counts as a paper claim. It can't be paid before the 29th day, no matter how quickly it was read.

The claims that still arrive on paper

Most claims reach payers as data now. In the 2025 CAQH Index, 98% of claims sent to medical plans in 2024 were fully electronic. Claim attachments were the exception. Only 24% of them were fully electronic, down from 32% in the previous year's Index. Attachments are the records that support a claim, such as the visit notes a nurse reviewer asks for.

The paper that's left comes from a few places. Medicare lets some providers send paper claims under exceptions in a law called ASCA, and those arrive on the CMS-1500 or the UB-04. Texas requires workers' comp medical bills to be sent electronically unless the provider or the carrier is exempt. Paper bills from exempt providers come in on the same two forms. Pharmacies and dentists use other forms.

Secondary claims bring paper of their own. When Medicare pays second, a paper CMS-1500 must have the primary payer's EOB or remittance advice attached. That page has to show what the primary payer allowed, paid or denied.

Each of these needs someone, or something, to read the page before a rule can run on it. Property and auto claims have the same problem with loss notices, estimates and police reports, as our list of claims data extraction tools shows.

Checks to run before a claim reaches the system

These checks catch what would fail an edit or pend a claim. Run them on every paper claim and every attachment before the data goes in.

• Required fields are filled inMember ID, patient, dates of service, diagnosis and procedure codes, charges and the billing NPI. Medicare requires the billing provider's NPI in item 33a of the CMS-1500.
• Line charges add upOn a CMS-1500, item 28 is the total of the line charges in item 24F. A misread digit in either one shows up here.
• The member is on your fileThe member ID and name match a member on your file. Whether that member was covered on the date of service stays with your claims system.
• Other insurance is statedThe claim says whether another plan pays first. If one does, the primary payer's EOB is attached, and its patient, dates and amounts match the claim.
• Attachments reach the right claimRecords sent for a pended claim carry its claim number, or the patient and dates of service that identify it.
• Low-confidence values go to a personThe software scores how sure it is of each value. Any value scored below the threshold you set goes to an examiner before the claim moves on.

Here's how those checks play out on one paper CMS-1500. A clinic faxed it to a health plan for an office visit and a urine test. The software gives each value it reads a confidence score, which shows how sure it is of the reading.

Only one value needs a person. The examiner opens item 28 and sees the scan next to it. The total was handwritten. On the scan it says $235.00, so the examiner changes $285.00 to $235.00. The claim then goes on to the system with every required field filled in. Our guide to health insurance claim form extraction walks through the CMS-1500 and UB-04 box by box.

How payers automate claims adjudication

Payers automate adjudication with rules. The claims adjudication system holds the edits, the benefit rules and the pricing for each plan, and it applies them to every claim. A claim that passes them all is auto-adjudicated. A claim that fails one pends for an examiner, who works it by hand.

Some pends have nothing to do with coverage. A required field is missing or misread. A record the claim needs hasn't arrived, or it arrived but isn't linked to the claim. A secondary claim's primary EOB is a scan, so no rule can read the amounts on it. In each case, the information is still on a page that no rule can read.

Intake automation handles that part. It splits each fax or mail batch into its documents and reads the fields and service lines. It runs the checks above and sends only the failures to a person. The adjudication system then gets complete data, and its rules can do their job.

Our take. Judge claims intake by whether every document in a claim matches the others and your files, not by how well one page was read. A perfectly read CMS-1500 still pends if its member ID isn't on your file. It also pends if the primary EOB attached to it covers other dates of service. So these checks decide how many claims reach the system clean. On Docsumo, the member file check is master data lookup and the EOB check is cross-document validation. Both are on the Enterprise plan.

Where Docsumo fits, and what it doesn't do

Docsumo is an intelligent document processing (IDP) platform. It isn't an adjudication engine, a clearinghouse or a claims payment system. It makes no coverage or payment decisions, so your claims adjudication system and your examiners still decide every claim.

Docsumo works at intake, before the claims system. It reads CMS-1500 and UB-04 claim forms, itemized bills, EOBs and medical records, and it reads handwritten text too. Documents come in by email, upload or the API, with up to 500 pages in one file. AI Split takes a plain-English definition of each document type. It uses those definitions to split a faxed claim packet into its claim form, bill and records. You name the document types you want, and you don't need a training set of sample documents. Documents it can't classify wait as Unclassified for a person to assign. Document classification and splitting are on the Business plan.

You set up the checks as steps in the workflow. A step can be an AI step or a few lines of your own Python code. A check against your member or provider list uses master data lookup, and a check of one document against another is cross-document validation. Both are on the Enterprise plan. The healthcare page shows one claim file with every document checked against the others. Some records arrive later, such as the notes for a pended claim. When a document arrives later by email, Case Routing adds it to the open claim, using the claim number to find it. Case Routing is part of case management on the Enterprise plan. It's available on request.

Fields read below the confidence threshold you set go to your examiners. Clicking a field highlights the line it came from on the page, and each correction improves the model. Checked data goes to your claims system through the API and webhooks.

• 99%99%field-level accuracy across 250+ document types
• 95%+95%+of documents AI Approved, extracted and checked with no one touching them

Docsumo is HIPAA compliant and SOC 2 Type 2 audited. It signs a business associate agreement (BAA) with customers who process protected health information, and your documents aren't used to train shared or third-party models. The security page has the details. Docsumo supplies the software, not a review team, so your own examiners clear the exceptions. For P&C and workers' comp claims, the insurance page shows how Docsumo reads loss notices and ACORD forms. Our post on OCR for claims processing covers the reading step.

Which of your pended claims are waiting on a document?

Pull last month's pended claims and sort them by the reason they pended. Count the ones that waited for a missing field, a record or a primary payer's EOB. Those are document problems, and intake automation can take them off your examiners' desks. The rest are coverage and pricing questions, and they stay with your examiners and your rules.

Book a demo and bring a batch of paper claims your team keyed last week, or start a free trial. Docsumo can sign a BAA for a trial account, so ask for it before you send protected health information.

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