Section 3: How Claims Are Routed and Processed

4.3.1 The “Why”: Understanding the Journey to Predict the Outcome

A prior authorization is fundamentally a request to a payer to approve a future claim. To win that approval, you must understand the journey that future claim will take. The process of routing and adjudicating a claim is not a black box; it is a logical, highly structured, and predictable sequence of digital handshakes and data-driven checkpoints. Each piece of information on a claim form—from the patient’s ID number to the prescriber’s NPI to the billing code—serves as a specific key designed to unlock a specific gate in the reimbursement pathway.

As a PA specialist, your role is that of a master navigator. You must visualize this entire journey before it begins. You need to know which highway the claim will travel on (pharmacy vs. medical), what tollbooths it will pass through (the switch or clearinghouse), and what inspections it will face at its destination (the PBM or medical payer’s adjudication engine). By understanding this process with forensic detail, you gain a powerful advantage. You can anticipate the points of failure. You can ensure the “paperwork” is perfect before submission. You can spot a fatal data entry error—like a mistyped BIN or an incorrect J-code unit—and recognize it as the source of a denial that might otherwise be misinterpreted as a clinical issue.

This section will pull back the curtain on the claims adjudication process. We will trace the complete, end-to-end journey of two parallel claims: one submitted to the pharmacy benefit and one submitted to the medical benefit. We will deconstruct each step, from the moment of data entry to the final response from the payer. You will learn the purpose of every critical data element, the function of the intermediary routing systems, and the precise sequence of logical checks that a claim must pass to be approved. This “under the hood” knowledge will empower you to troubleshoot denials with precision, speak the language of billers and payers, and ultimately, design PA requests that are not just clinically sound, but technically flawless.

4.3.2 Path A: The Pharmacy Claim Journey – A Millisecond Marathon

The pharmacy claim lifecycle is a marvel of modern data processing. A complex series of checks and validations that once took days of manual paperwork now occurs in the time it takes to blink. This speed is made possible by a highly standardized data format and a series of specialized intermediaries. Let’s trace the journey step-by-step.

Step 1: The Point of Origin – The Pharmacy’s Computer

The journey begins with a pharmacy technician or pharmacist entering prescription data into the pharmacy management system. This initial data entry is the most critical step; an error here will cause a failure downstream. The system assembles this data into a standardized electronic package called the NCPDP Telecommunication Standard Format, which is the universal language for pharmacy claims.

Masterclass Table: Anatomy of a Pharmacy Claim Transaction

The following are the non-negotiable data fields required for a successful claim. Understanding the purpose of each is crucial for troubleshooting rejections.

Data Field	Example	Purpose & Role in Adjudication
Bank Identification Number (BIN)	610014	A 6-digit number that acts like the routing number on a check. It tells the transaction switch which PBM or payer the claim should be sent to. This is the primary address for the claim. An incorrect BIN is the #1 reason a claim cannot be processed.
Processor Control Number (PCN)	01234567	An alphanumeric code that acts as a secondary routing number. It tells the PBM which specific health plan or group to apply the rules for. A single PBM (one BIN) can manage thousands of different plans (many PCNs).
Group Number	ABCXYZ	Identifies the specific employer or insurance plan group the patient belongs to. This is used by the PBM to apply the correct formulary and benefit design for that group’s contract.
Cardholder ID	123456789	The unique number identifying the patient within their specific plan. This, combined with the Group Number, is how the PBM finds the exact patient’s file.
Patient Information	John Doe, 01/15/1975	Name, Date of Birth, Gender. This is used as a secondary verification to ensure the Cardholder ID matches the correct person in the system, preventing privacy breaches or claims processed on the wrong family member.
Prescriber NPI	1234567890	The 10-digit National Provider Identifier. The PBM verifies that the NPI belongs to a valid, licensed prescriber and checks if that provider is in-network or has any restrictions.
NDC Number	00002-8244-02	The 11-digit billing code for the exact drug product being dispensed. This is the key to the formulary check. The PBM’s engine checks this specific NDC against the patient’s formulary.
Quantity Dispensed	0.5 (mL) x 4 = 2	The amount of drug being dispensed. This is checked against any quantity limits on the plan (e.g., “limit 30 tablets per month”). For injectables, this is often metric quantity (mL).
Days Supply	28	The number of days the dispensed quantity is expected to last. This is used to calculate refill-too-soon dates and enforce limits (e.g., “90-day supply required from mail order”).

Step 2: The Digital Post Office – The Transaction Switch

Once the “submit” button is pressed, the pharmacy system does not connect directly to the PBM. Instead, it sends the NCPDP data packet to a central routing hub called a transaction switch. Companies like Surescripts and RelayHealth operate these switches. The switch’s job is simple but essential: it reads the BIN number on the incoming claim, looks up that BIN in its master directory to identify the corresponding PBM, and instantly routes the claim to that PBM’s electronic front door. This entire process takes a few milliseconds. If the BIN is invalid or belongs to a PBM the switch doesn’t connect to, the claim is immediately rejected and sent back to the pharmacy with an error message like “Invalid BIN” or “Host Not Found.”

Step 3: The PBM’s Adjudication Engine – The Gauntlet of Checks

After receiving the claim from the switch, the PBM’s powerful computer systems—the adjudication engine—take over. In less than two seconds, the claim is subjected to a rigorous, sequential series of checks. A failure at any step will stop the process and generate a rejection code.

Step 4: The Final Verdict – The NCPDP Response

Finally, the PBM’s engine sends a response packet back to the pharmacy through the switch. This response contains the final verdict. If paid, it includes the ingredient cost reimbursement, dispensing fee, and the patient’s copay. If rejected, it includes a specific rejection code and a short text field explaining the reason. Your ability to interpret these rejection codes is what allows you to take immediate, effective action.

4.3.3 Path B: The Medical Claim Journey – A Deliberate Review

The medical claim journey is fundamentally different from its pharmacy counterpart. It is slower, more complex, and involves more human review. It handles a much wider variety of services and is built on a foundation of provider documentation and medical necessity, rather than automated formulary checks.

Step 1: The Encounter and the Claim Form

The process begins after a patient has received a service, such as a drug infusion in a physician’s office. A professional medical coder reviews the provider’s documentation of the visit and translates the services into the appropriate codes. This data is then compiled onto a standardized claim form.

• CMS-1500 Form: This is the standard form used by individual physicians and non-institutional providers to bill for their professional services. It includes fields for CPT codes (the work), HCPCS codes (the drug/supply), and ICD-10 codes (the diagnosis).
• UB-04 (CMS-1450) Form: This form is used by institutional facilities, such as hospitals (for outpatient infusion services), skilled nursing facilities, and home infusion agencies. It is more complex and captures facility-specific charges.

Unlike a pharmacy claim, this form is a complete narrative of the patient encounter, linking what was done (CPT) with what was used (HCPCS) and why it was done (ICD-10).

Step 2: The Digital Mailroom – The Clearinghouse

The provider’s office or hospital does not typically send the claim form directly to the payer. They send a batch of electronic claims to a medical clearinghouse. The clearinghouse acts as an intermediary, similar to the pharmacy switch, but with a more complex role. Its primary functions are:

• Scrubbing: The clearinghouse software automatically “scrubs” each claim, checking for common errors like missing data, invalid codes, or mismatches between procedure and diagnosis codes. This pre-screening reduces the number of initial technical denials from the payer.
• Formatting: It converts the provider’s claim data into the standardized format required by the specific payer (the HIPAA 837P for professional claims or 837I for institutional claims).
• Routing: It routes the scrubbed and formatted claim to the correct medical payer based on the insurance information provided.

Step 3: The Payer’s Review – The Logic of Medical Necessity

Once the medical payer receives the claim, it undergoes a multi-stage adjudication process that is partly automated and partly manual.

1. Initial Automated Review (Front-End Edits): The payer’s system performs an initial automated check similar to the PBM’s. It verifies patient eligibility, checks for valid codes, and identifies any obvious errors or duplications.
2. Medical Policy Check: This is the core of the medical review. The system’s logic compares the codes on the claim to the payer’s published medical policies. It specifically looks at the J-code (the drug) and checks if the ICD-10 diagnosis code on the claim is listed as an approved indication in the medical policy for that drug. If the diagnosis is not on the approved list, the claim is flagged.
3. Authorization Check: The system checks if a prior authorization was required for the submitted J-code and CPT code. If so, it looks for an approved PA number on file. If the PA is missing or doesn’t match the services billed, the claim will be denied. This is the moment your PA work pays off.
4. Pricing and Bundling: If the claim passes the policy and PA checks, the system prices the services. It applies the provider’s contracted fee schedule to the CPT and HCPCS codes. It also applies complex “bundling” edits, where payment for a minor service is bundled into a more significant procedure performed at the same time.
5. Manual Review (Pended Claims): Claims that fail the automated policy checks or have high dollar amounts are often “pended” and sent to a queue for review by a human claims analyst or medical reviewer. This individual will review the claim along with any attached medical records to make a final determination. This manual step is why medical claim processing can take weeks instead of seconds.

Step 4: The Explanation of Benefits (EOB/ERA)

The final output of the medical claims process is not a simple code. It’s a detailed document.

• Explanation of Benefits (EOB): A multi-page document sent to the patient that explains what was billed, what the plan paid, and what the patient’s responsibility (deductible, coinsurance) is. It includes reason codes explaining any denials or reductions in payment.
• Electronic Remittance Advice (ERA): The electronic version of the EOB, sent back to the provider through the clearinghouse. It contains the same detailed payment and denial information, which is then posted to the provider’s billing system.

As a PA specialist, you will often need to review EOBs to understand the precise reason for a post-service denial, which may require a retroactive authorization or an appeal.