Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
- What is the Pharmacy Claims Adjudication Process?
- What Is the Purpose of Claims Adjudication in the Claims Process?
- The Pharmacy Claims Adjudication Process
- Claim Submission
- Claim Review/Verification
- Payment Processing
- EOB and EOP Generation
- Pharmacy Claims Adjudication Best Practices
- Common Challenges in the Pharmacy Claims Adjudication Process
What is the Pharmacy Claims Adjudication Process?
The pharmacy claims adjudication process is the method through which a pharmacy submits a prescription claim to a patient’s insurance provider or pharmacy benefit manager (PBM) for payment.
There are three primary determinations the payer will make during adjudication:
1. Paid
This is the most desirable outcome for healthcare providers and patients. Suppose the payer reviews the submitted claim and finds it is valid and fully covered by the member’s policy. In that case, the insurance company issues a payment to reimburse the provider for their services.
2. Denied
When a claim is denied, it isn’t necessarily the final stage of the process. Claims may be denied for clerical errors or more involved reasons. For instance, the payer may find the patient’s policy doesn’t cover the service.
3. Pending
When a claim is pending, it typically means further information is needed. Errors may need to be resolved, or the payer may require further documentation.
What Is the Purpose of Claims Adjudication in the Claims Process?
The purpose of claims adjudication is for the payer to accurately determine whether a claim submitted by a provider meets all of the necessary qualifications for the claim to be paid. The process ensures claims are accurate, valid, and necessary.
The Pharmacy Claims Adjudication Process
The claims adjudication process involves healthcare providers, health insurance companies, and, in more complex cases, experts in the healthcare industry who provide manual claim reviews. Manual review may involve internal medical reviewers with the insurance company and external third parties.
The process involves the following:
Claim Submission
The healthcare provider (hospital, physician, laboratory, etc.) submits a claim for payment for a treatment provided to a patient covered by the health insurance provider.
This requires essential details like the patient’s name, corresponding data, and the proper code for the service or procedure provided according to the Healthcare Common Procedure Coding System (HCPCS) and Current Procedural Terminology (CPT).
Claim Review/Verification
The insurance company reviews the claim to validate whether the data submitted is accurate or has any errors that need to be corrected. This includes verifying the code for services or procedures, the patient’s personal data, and the physician’s National Provider Identifier (NPI).
The claim may be rejected if this data is in error so it can be corrected and resubmitted.
When claims are rejected for a wrong code or clerical error, the process to fix errors and resubmit is relatively straightforward. However, claims may be denied for greater issues, such as treatments not covered by the member’s policy, no prior authorization, or inaccurate dosages.
Claims may be denied for three main reasons: administrative errors, clinical alignment (whether a service or procedure is necessary or unnecessary), or policy terms.
Providers may submit further documentation and evidence supporting the need for services, which will be reviewed manually by experts with the insurer and independent medical reviewers.
Payment Processing
At this stage, there are three possible outcomes:
- The insurer may agree that all data is accurate and pay the claim in full.
- The insurer may reduce the claim to a less expensive code that prescribes an alternative treatment it deems appropriate for the diagnosis, in which case the payer only reimburses the provider with a smaller amount. This is called downcoding.
- The insurer may outright deny the claim. A denied claim can be appealed and may undergo further steps, including manual review by a medical examiner and independent parties, to determine whether the treatment is excessive based on the diagnosis or if special circumstances warrant approving the costs.
EOB and EOP Generation
Once the result of the claim is finalized, the payer will send an Explanation of Benefits (EOB) to the patient and an explanation of payment (EOP) to providers, which includes:
- Explanation of benefits
- Payment or reduction
- Adjustments
- Denials
- Non-covered charges
Pharmacy Claims Adjudication Best Practices
While pharmacy claims adjudication is a complex process, each step is designed to prevent more costly errors before it’s too late to reverse them. The following best practices are steps all parties take to make things run as smoothly as possible:
- Engaging in open communication between payers, providers, and patients.
- Using software platforms designed for automating processes and data validation to minimize errors.
- Seeking prior authorization for reimbursement from payers for expensive or newer services and procedures.
- Studying changes in the regulatory landscape to remain aware of laws that can impact approvals.
Common Challenges in the Pharmacy Claims Adjudication Process
- Billing Errors: Often, a claim is rejected due to billing errors that contain incorrect patient data, inaccurate dosages or refill timelines, or other errors. This is rectified with a correction and resubmission but increases the time it takes to complete a claim.
- Coverage Disputes: Sometimes, the healthcare provider has to provide extra proof that a patient requires a higher level of care than what is normally billed. This is resolved when the insurance company and independent reviewers find validity to a claim, or it is denied and finalized.
- Regulatory Compliance: There are always changes taking place in healthcare industry regulations. Insurance companies and healthcare providers alike must keep up with laws that protect the patient and provide them coverage for treatment, among other regulations.
- Lack of Standardization: Different health insurance companies may have different terms for services and procedures, and even different policies from the same insurer may use different terms. Providers need to understand the differences in coverage from different insurance plans and companies.
