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What is Claims Processing? Definition & How it Works

552396 defines claims processing as “the fulfillment by an insurer of its obligation to receive, investigate and act on a claim filed by an insured. It involves multiple administrative and customer service layers that includes review, investigation, adjustment (if necessary), remittance or denial of the claim.”

Claims processing begins when a healthcare provider has submitted a claim request to the insurance company. Sometimes, claim requests are directly submitted by medical billers in the healthcare facility and sometimes, it is done through a clearing house.

In essence, claims processing refers to the insurance company’s procedure to check the claim requests for adequate information, validation, justification and authenticity. At the end of this process, the insurance company may reimburse the money to the healthcare provider in whole or in part. The company may also reject the claim request, if found invalid, forged, duplicated or outside of the policy terms.

Steps Involved in Claims Processing:

Primarily, claims processing involves three important steps:

  1. Claims Adjudication
  2. Explanation of Benefits (EOBs)
  3. Claims Settlement

Claims Adjudication

In this step, the insurance companies checks the following:

  • Has pre-authorisation been approved?
  • Does the claim match the details given in the pre-authorisation request?
  • Is the patient eligible for a claim?
  • Has there been any duplication in the claim?
  • Is the hospital in the approved network list?
  • Is the diagnosis valid?
  • Was the treatment medically necessary?
  • Has the treatment been coded correctly?
  • Is the claim request amount validated?


Insurance companies use a combination of automated and manual verification for the adjudication of claims. When this is done, payment determination is done, wherein the insurance company decides how much it is willing to pay for the claim.

Explanation of Benefits

When the adjudication process is complete, the insurance company sends a notification to the hospital, along with details of their findings and justification for settling (fully or partially) or rejecting the claim. This is known as an explanation of benefits or remittance advice. Based on the EOB, the healthcare provider may provide more information or request to represent the claim.

Usually, the explanation of benefits includes details such as: Amount paid, amount approved, allowed amount, patient responsibility amount (in cases of copay or coinsurance), covered amount, discount amount and so on.

Claims Settlement

This is the final step, where the insurance company settles the amount that it is due to pay the healthcare provider for the treatment rendered to the insured patient. This may be done, either individually for each claim made, or in bulk for all claims received from the same healthcare provider over a period of time.

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