EDI in Healthcare: What Is It and Why Does It Matter?

Before electronic data interchange (EDI), the healthcare business looked like this: massive records, heaps of paper, and hundreds of returned claims. Using EDI in healthcare helps medical businesses protect data exchanges, speed up information turnaround, and eliminate claim processing delays. All of this makes EDI implementation an integral part of providing high-quality care.

Whether you are developing a new healthcare solution or already have EDI software and wish to optimize its benefits, this article will help you understand the value of EDI, how to use it in practice, and how to integrate it into your system.

1. What is EDI in healthcare?

EDI stands for Electronic Data Interchange. It’s a system that allows computer systems to exchange and use information. In the context of healthcare, EDI provides a standard format for exchanging health care data between various health organizations like hospitals, insurance companies, government entities, and software development service providers. The standards typically used in healthcare EDI are HL7 (Health Level Seven International) and X12.

For decades, many sectors have relied on EDI for dependable, effective electronic document exchange, particularly for speedy document transmission with corporate partners, clients, or internally. Electronic data interchange in healthcare is a secure method of exchanging data between healthcare institutions, insurers, and patients. EDI allows for the electronic exchange of various healthcare documents, such as medical claims, invoices, patient data, and prescriptions, using defined formats and procedures.

Healthcare EDI transaction types

In general, healthcare organizations use 10 different types of HIPAA electronic data interchange transactions:

• Healthcare claim transaction set (837): It enables healthcare professionals and patients to submit healthcare claims and encounter data.
• Retail pharmacy claim transaction: Retail pharmacy claims can be submitted by healthcare providers and regulatory organizations. It also allows them to send retail pharmacy claims and billing payment information to payers.
• Healthcare claim payment/advice transaction set (835): It is used by insurers to make payments and send Explanation of Benefits (EOB) remittance guidance to healthcare providers.
• Benefits enrollment and maintenance set (834): Employers, unions, government agencies, insurance companies, associations, and healthcare organizations that pay claims use it. Its goal is to enroll people in a healthcare benefit plan.
• Payroll deducted and other group premium payment for insurance products (820): This transaction is used by healthcare organizations to transmit information to financial institutions and to make premium payments for insurance policies.
• Healthcare eligibility/benefit inquiry (270): Healthcare institutions apply this transaction set to send enquiries about healthcare benefits and subscriber eligibility to financial institutions and government agencies.
• Healthcare eligibility/benefit response (271): Its major objective is to answer inquiries regarding a subscriber’s or dependent’s healthcare benefits and eligibility.  to communicate data to financial institutions and government bodies.
• Healthcare claim status request (276): Healthcare providers use this transaction to request or verify the status of healthcare previously submitted to a payer, such as an insurance company.
• Healthcare claim status notification (277): It is used to report on the status of claims (EDI 837 transactions) previously filed by providers. EDI 277 is used by healthcare payers and insurance firms.
• Healthcare service review Information (278): Hospitals use it to obtain authorisation from a payer, such as an insurance company.

To choose the best healthcare EDI transaction type for your business, it’s important to analyze your organization’s needs, take industry standards into account, consult with trade partners, and comply with regulations. This will ensure an informed and wise decision for your healthcare business.

2. How EDI in healthcare works

EDI in healthcare works by facilitating the secure and effective transmission of electronic data among various institutions in the healthcare ecosystem.

1. Standardized formats: When exchanging data through EDI, specific formats such as ANSI X12 or HL7 are used. These formats ensure that the data is arranged in a consistent manner that is easy for both the sender and recipient to comprehend. This guarantees that everyone involved in the process understands the shared information clearly.
2. Data translation: Before being transmitted, healthcare data undergoes a transformation process to be converted into the appropriate EDI format. This involves converting data from internal systems like electronic health records (EHRs) or practice management systems into a standardized EDI-compliant format.
3. Data transmission: Once in EDI format, the data is electronically exchanged between the sender and the recipient via secure communication protocols such as FTP (File Transfer Protocol) or AS2 (Applicability Statement 2). This helps maintain the integrity and confidentiality of data while in transit.
4. Data validation: The recipient validates the EDI data after receiving it to guarantee its accuracy and compliance with preset rules and standards. Validating data items such as patient identities, procedure codes, or insurance information against relevant databases or reference systems is part of this process.
5. Data processing: The recipient’s systems process the EDI healthcare data after it has been validated. Depending on the exact purpose of the EDI transaction, this may include updating patient information, generating claims, processing payments, or performing other administrative and clinical duties.
6. Acknowledgment and response: After the recipient processes the EDI data, they will send an acknowledgment or response back to the sender. This acknowledgment will confirm that the data was received and may include additional information such as claim acceptance, payment details, or error notifications.

3. Uses and Benefits of EDI

The primary goal of EDI in healthcare is to improve accuracy and the overall quality of patient care by streamlining administrative processes. Healthcare organizations can eliminate errors, reduce paperwork, and accelerate the information flow by replacing manual and paper-based work with EDI.

1. Standardization: By utilizing standardized formats, the transfer of patient health information (PHI) is made more secure and efficient. Implementing EDI in healthcare has led to a significant improvement in data quality, as it requires all parties to follow universal standards instead of multiple formats.
2. Lower administrative expenses: Healthcare EDI reduces handling expenses for document processing (e.g., purchases of paper, forms, supplies, and mailing) since the majority of the data is digital. According to the Workgroup for Electronic Data Interchange (WEDI), implementing EDI can save healthcare providers $1 per claim, physicians $1.49, hospitals $0.86, and other parties $0.83.
3. Higher security: When it comes to healthcare, EDI transactions play an important role in facilitating secure data communication between authorized parties, including suppliers, insurers, and patients. This is because EDI mapping is used to convert business files into a format that is not easily readable by humans, which helps to reduce the risk of data breaches. Additionally, HIPAA regulations ensure that only authorized individuals have access to the data, further enhancing security. Finally, all files are shared through B2B file transfer using secure protocols such as AS2, MLLP, and SFTP.
4. Enhanced accuracy: EDI allows for faster, more efficient data exchange. Instead of manually sending paper documents and then waiting for the other party to enter data into their systems, data can be sent and processed digitally, dramatically reducing the time required for data exchange. HIPAA EDI software solutions help medical businesses streamline their key transactions. Aside from enhanced productivity, it results in fewer human mistakes, like typos, incorrect entries, or lost faxes/mail. Furthermore, all EDI files are subjected to extensive testing and validation. Snip Levels is a method that validates healthcare EDI files across seven levels to ensure they include the relevant information.
5. Improved productivity: Healthcare EDI improves efficiency by enabling real-time data interactions among various parties. It also reduces the incidence of denials and rework requests while eliminating the need to verify if the recipient has received the information. This results in the timely delivery of critical data without errors, reducing administrative burden and allowing healthcare workers to use their time more effectively.
6. Compliance: In many jurisdictions, healthcare organizations are required by law to protect patient data. EDI systems can incorporate data security features to help meet these requirements.

4. How to make your healthcare system EDI compliant

Follow these steps to implement EDI in your healthcare business.

Step 1. Consider your company’s needs

To successfully implement EDI in healthcare, you should first establish clear requirements and goals. Take the time to evaluate your internal systems and determine if they are ready for integration.

Additionally, identify any challenges or improvements you hope to achieve through EDI. If you need assistance in determining the feasibility and potential benefits of EDI for your company, consider consulting with a qualified IT provider.

Step 2. Select an experienced technical partner

Find a reputable and competent technology partner with experience with healthcare EDI. Together, develop a thorough plan and strategy for incorporating EDI into your current systems.

On websites like Clutch, which provide verifiable ratings and evaluations for software development vendors worldwide, you can start by doing research on reliable software development companies. Pay close attention to the vendors’ EDI implementation experience, familiarity with industry standards and laws, and capacity to comprehend your unique requirements. Consider their experience in data security and compliance as well to guarantee the privacy and safety of critical healthcare data.

Step 3. Development and integration of EDI software

Work with your IT partner to create or choose healthcare EDI software that suits the requirements of your firm. Integrate the EDI solution with your current systems, such as practice management systems, electronic health record (EHR) systems, or billing systems. Make sure all systems can communicate and interact with one another seamlessly.

Step 4. EDI transaction testing and validation 

To ensure your EDI transactions comply with the necessary regulations and are compatible with your trading partners’ systems, thoroughly test and validate them. During transmission and reception, check the data’s precision and integrity.

 Step 5. Internal training

Employees who will be utilizing the EDI system should receive training from your company. Inform them of the transaction sets, procedures, and policies that apply to the installation of medical EDI in your organization. Ensure they know how to use the EDI software well and appreciate its advantages to their everyday work.

Step 6. EDI support

Maintain consistent communication and cooperation with your IT partner to address any EDI system-related problems, upgrades, or improvements. Stay informed on EDI standards or law changes to ensure compliance and top performance. Evaluate the healthcare EDI implementation’s performance on a regular basis and make the required adjustments to optimize its advantages.