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Understanding the Life Cycle of Medical Claims: A Comprehensive Guide

Reimbursement is a vital aspect of a medical claim's life cycle, but it is not the only important component. It is crucial to recognize and distinguish each stage within the total life cycle of a medical claim to decrease errors and costs. A claim goes through a multi-fold process before becoming eligible for payment, and an ineligible claim will either be denied or corrected to become eligible. In this educational blog post, we will explore the various stages of a medical claim's life cycle and how they contribute to accurate and efficient medical billing processes.


Stages of a Medical Claim's Life Cycle

  1. Entry Phase: A claim begins in either paper form or electronic form via Electronic Data Interchange (EDI) or Web Portal. Claims are classified as Encounter Claims or fee-for-service claims. Medicaid Information Technology (MITS) performs validation using provider contracts, recipient benefit plans, and reference code set information, ensuring proper codes are recorded. Data is collected and accessed for insurance information and demographic accuracy.

  2. Validation Phase: MITS validates the following information: recipient eligibility, provider eligibility, procedure codes, diagnosis codes, provider contract eligibility, reference data, and Business Process Automation (BPA) rules. MITS also validates Prior Authorization (PA) rules if needed. Once the Validation phase concludes, the claim moves forward to the Edit phase or the Suspended Claims phase.

  3. Edit Phase: MITS performs claim edits against business rules and may deny or suspend a claim. A suspended claim moves to the Suspended Claims phase, while a passing claim moves to the Cost Avoidance phase to begin the reimbursement process.

  4. Cost Avoidance Phase: MITS determines if a claim will go unpaid, denying claims if a third party is responsible. MITS has Third Party Liability (TPL) functionality that ensures cost avoidance and cost recovery, guaranteeing Medicaid is only utilized as a last resort. If a third party is not responsible, the claim continues to the Pricing phase.

  5. Pricing Phase: MITS finalizes price indicators and rate types to determine a payment amount and checks for prior authorization rates. Claims requiring manual pricing are suspended and enter the Suspended Claims phase.

  6. Audit Phase: MITS verifies claims for duplicate services, service limitations, and service conflicts. Disputes in these areas result in the claim being denied or suspended. Cleared claims continue to the Disposition phase.

  7. Disposition Phase: The disposition of edits and audits determines a claim’s status as paid, denied, or suspended. Suspended claims are reviewed further by data correction staff, who determine if a claim is denied. After data corrections are finalized, a claim reprocesses through the claim life cycle.

  8. Denied Claims Stage: Upon entering the Denied Claims stage, a claim's status is finalized before being moved to denied history.

  9. Reimbursement Phase: Payments are received and distributed to patients. If a claim has entered the Paid stage, it has been successfully processed by MITS without hindrance. The payment is then made by the provider, and the status is noted as paid. Encounter Claims also have a paid status when the Managed Care Plan pays the Provider.

  10. Adjustments and Voids Stage: MITS handles paper-based and scanned claims adjustments, modifying dates of service and negating voided claims. A denied adjustment claim is created if a void is processed.

  11. Payment Posting Stage: In the final stage, insurance payments are posted to the medical practice account.

Conclusion

Understanding each stage within the life cycle of a medical claim is crucial for reducing errors and costs. By being aware of these stages, providers can better grasp the complexities of medical billing processes and contribute to improved accuracy and efficiency in their practice.


Sources:

  • https://www.mpowermed.com/life-cycle-of-a-medical-claim/

  • https://networkhealth.com/grow-in-the-know/2017/07/insurance-101-life-cycle-of-a-claim

  • https://www.waystar




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