Claims Adjudication

What Is Claims Adjudication?

Claims adjudication is the process a health plan follows to evaluate a submitted claim and determine how much it will pay, if anything, based on the member's eligibility, benefit coverage, provider contract terms, and coding accuracy. It is the core decision step within health plan claims processing, sitting after a claim is received and before payment, or a denial, is issued. 1

Adjudication can be handled automatically, known as auto-adjudication, for straightforward, clean claims that pass every check without exception, or routed to manual review when something does not match, such as a coding discrepancy, an eligibility question, or a missing prior authorization. The share of claims a plan can adjudicate automatically is one of the clearest indicators of its operational efficiency, since manual adjudication is both slower and more expensive per claim than an automated pass-through. 2

Why It Matters

Adjudication accuracy and speed directly affect provider satisfaction, member experience, and a plan's administrative cost. A claim that adjudicates incorrectly, whether overpaid, underpaid, or wrongly denied, creates rework for the plan, delayed payment for the provider, and financial exposure for the member. Correcting it after the fact typically costs far more than getting it right the first time. 3

The scale of the problem is substantial. The 2025 CAQH Index identified a remaining 21 billion dollar savings opportunity across the healthcare industry through fuller automation of claims and related administrative transactions. 4 Even small error rates translate into enormous dollar figures when applied across the volume of claims a national health plan processes every year, which is why marginal improvements in adjudication accuracy carry outsized financial weight.

How Claims Adjudication Works

• Claim receipt and validation: The plan receives the claim and performs an initial check for completeness, correct formatting, and required fields.
• Eligibility verification: The system confirms the member was eligible for coverage on the date of service and that the service falls under their specific benefit plan.
• Coding and medical necessity review: The claim's codes are checked against payer rules, and, when required, against medical necessity criteria for the service billed.
• Provider and pricing match: The plan confirms the provider's contract terms and network status, and calculates payment based on the applicable fee schedule.
• Determination and payment: The plan issues a payment, partial payment, or denial, along with an explanation the provider and member can review. 5

Key Metrics and Benchmarks

Auto-adjudication rate is the headline metric for most health plans, measuring the percentage of claims that pass through adjudication automatically without manual intervention. Leading plans push this rate well above 80 percent for standard claim types, since every claim requiring manual review carries higher processing cost and a longer turnaround for the provider awaiting payment. 6

First-pass resolution rate tracks how many claims adjudicate correctly on the first attempt, without requiring rework, resubmission, or an appeal. This metric is closely tied to upstream data quality: a claim built on inaccurate provider data or incomplete eligibility information is far more likely to fail adjudication, regardless of how efficient the adjudication engine itself is.

Claim fallout rate, sometimes called claims leakage, measures the share of claims that drop out of automated processing due to a data mismatch, most commonly between provider information on file and on the claim. One major national health plan identified nearly a million claims a year falling out for exactly this reason, a volume large enough to justify a dedicated data-matching initiative rather than routine manual correction.

Turnaround time, the days between claim receipt and final determination, rounds out the core metric set, affecting provider satisfaction and, in many state markets, compliance with prompt-payment laws. Plans track these four metrics together, since improving auto-adjudication rate without tracking first-pass resolution can shift errors from the manual queue into the automated one. The plans making the most progress target the specific root cause behind their fallout volume, such as provider data mismatches, rather than treating adjudication accuracy as a single problem. 7

Provider communication around adjudication outcomes is an underweighted lever for reducing the cost of an unclear determination. A denial or partial payment explanation that states the specific reason and the exact data point that triggered it lets a provider correct and resubmit accurately on the first attempt, while a vague denial code invites a guessing-game resubmission cycle that consumes staff time on both sides. Clearer determination language reduces duplicate resubmissions for the same issue.