Payer Adjudication and Reimbursement Methodologies
How payers decide what to pay
Adjudication is the payer's process of applying contract terms, benefits, edits, and medical policy to determine payment. Candidates must understand the main reimbursement methodologies: fee-for-service, discounted fee-for-service, per diem, case rates, DRG-based prospective payment, and capitation. Each shifts risk differently between payer and provider.
Concepts to master
- DRG and APC prospective payment systems and their grouping logic.
- Contractual adjustments and allowed amounts.
- Coinsurance, copay, and deductible application order.
- Bundling and NCCI edits applied during adjudication.
- Coordination of benefits and secondary payer calculation.
- Explanation of benefits (EOB) and remittance advice (835) interpretation.
Traps in questions
Questions often ask who bears financial risk under capitation (the provider) versus fee-for-service (the payer). Another trap is confusing the allowed amount with the paid amount; the allowed amount includes patient responsibility. Watch for questions where a payer denies for medical necessity, which is different from a contractual bundling denial and requires a different response.
Rule of thumb
Allowed amount = payer payment + patient responsibility. Any variance from the allowed amount is either a contractual adjustment or a denial to be worked.
Worked example
A claim has a billed charge of $1,000, an allowed amount of $600, a contractual adjustment of $400, and a patient coinsurance of $120. The payer pays $480. If the remittance shows a $600 payment, the coinsurance was misapplied and should be corrected before posting.