Healthcare Regulations

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

Electronic data interchange in healthcare What is EDI in healthcare and why does it matter

Industries nowadays are more into minimizing manual tasks and inclined towards handling them electronically which eventually saves time and resources. For this, EDI systems have been introduced. But often the question arises what is EDI in healthcare? The healthcare industry is now moving with the Electronic Data Interchange (EDI) in managing piles of documents, data, and tons of paperwork.

EDI helps medical organizations in managing and securing data in order to provide a quick and accurate turnaround of information which often resulted in claiming process delays. Through EDI, all information and data that is needed in multiple departments for multiple purposes are now available without interruptions. With this being said, providers are more focused on the provision of quality care within their capacity.

No matter what reason attracts you to read this article, if you are struggling with your data management or having trouble managing EDI software, this article will help you eliminate your challenges.

What is EDI in healthcare?

What is EDI in healthcare

EDI –Electronic Data interchange in healthcare describes the transmission of data between the healthcare providers, insurance companies, and healthcare institutions, in preferred electronic standards and formats.

EDI was introduced back in the 1960s, before it, only 400 standards were there to be used by healthcare professionals in the healthcare industry. At that time, errors in coding, poor interoperability, conversion mistakes, security gaps, and high cost of services were common. With EDI implementation, many kinds of issues were resolved to ensure smooth and accurate data transmission and quick interpretation became possible.

Currently, all healthcare entities like clearing houses, healthcare providers, and health plan companies that exchange data and other information electronically are obliged to utilize the standard EDI healthcare transactions through HIPAA-designed EDI rules. Compliance with the EDI HIPAA rule means that healthcare organizations must use ASC X12 protocol when they send the HIPAA documents (the documents that contain sensitive information).

ASC X12 is the only acceptable format for EDI HIPAA transactions that medical organizations should use to secure the accuracy of sensitive information and medical data. To cater to the information, it requires everyone to transmit data by adhering to specific guidelines and specifications. It requires it to be converted into the language that the software would understand. Therefore, before sending the sensitive information, the data should be converted into the computer (non-human) language (particularly in codes) so that the software evaluates them easily.

To standardize the EDI documents and then translate the required information into the business language, healthcare organizations consider HIPAA EDI software.

Types of EDI Transactions in healthcare

Generally, healthcare organizations use ten types of HIPAA EDI transactions.

  • Retail pharmacy claim transaction: With these transactions, regulatory agencies and healthcare professionals become able to submit claims. It also helps in transmitting billing information and pharmacy service claims to payers.
  • Healthcare claim transaction set (837): It enables patients and healthcare professionals to be submissive of healthcare claims and encounter information associated with these claims.
  • Healthcare claim payment/advice transaction set (835): Insurers use these standards to make transactions and send EOB (Explanation of benefits) remittances to healthcare professionals.
  • Payroll deducted and other group premium payments for insurance products (820): These transactions are made for the purchase of premium insurance products and are used by the healthcare providers to send the information to financial institutions.
  • Benefits enrollment and maintenance set (834): These standards are used by the unions, government agencies, employers, associations, healthcare organizations, and insurance companies for paying claims. The main purpose of the organization is to enroll every entity in the healthcare benefit plans.
  • Healthcare eligibility/benefit inquiry (270): This transaction standard is used by the government agencies and financial institutions for transmitting inquiries relating to subscriber eligibility and healthcare benefits.
  • Healthcare claim status request (276): This standard is used to verify the status of the previously submitted healthcare information by the healthcare providers to the payers i.e. insurance company.
  • Healthcare service review Information (278): The transaction is used to authorize and confirm the status of a patient from the payer (insurance company).
  • Healthcare claim status notification (277): The transaction standards are used by the health insurance organizations and payers for reporting and confirming the status of the claim.
  • Healthcare eligibility/benefit response (271): The main purpose of this type of transaction is to inquire about the healthcare benefits and eligibility requirements of the dependent. It’s more similar to transaction number 270 and used by government agencies and financial institutions.
Types of EDI Transactions in healthcare

These standard EDI transactions also involve the EDI Functional Acknowledgement Transaction Set (997).

What does EDI do in medical billing?

EDI in medical billing is a complex process because of the coding and billing complexity and the involvement of the different parties. EDI standardization is the process that involves the ease of getting lost in the high numbers of diagnoses and procedures.

Healthcare professionals use the standardized healthcare claims X12, HIPAA 837 to request claim payments from health institutions and insurance providers. A medical billing process begins with the provider’s service provision inquiry and ends with the biller’s response.

Step # 1:  Inquiry: In an inquiry, it includes members’ identification number, date of birth, and Payer’s ID. Oftentimes, the inquiry documents go to the clearinghouse. It is an intermediary which helps organizations to contour their claims according to the HIPAA standards. The clearinghouse also has the access to reach the payer directly; they also help payers in facilitating inquiries about claims.

Step # 2: Response:  When a payer receives the inquiries from the clearinghouse sends the data to them which in turn is responsible to provide the data to the payer’s provider system. In case of any correction, the payer’s provider’s system makes them and resends them to the clearing house.

This translates the importance of EDI in the healthcare system. This is because different departments involved in the inquiry and claim process use different formats to verify the data provided. Without electronic data interchange, it would be much more difficult to provide accurate information. Plus, the process will be time-consuming.

Initially, the process of healthcare remittances and payments took weeks and months to complete, especially in the occurrence of errors. Not only does EDI help in simplifying the medical billing and data collection but a myriad of other benefits are also there that organizations make the most from EDI integration when it is used under HIPAA standards.

Advantages of integrating EDI in the healthcare system

The EDI phenomenon in the healthcare industry has rooted deeply in the supply chain of the healthcare industry which enables insurance companies and healthcare providers to communicate and operate data efficiently and accurately. To bring the advantages to the table, let’s discuss the main pros of EDI implementation in the healthcare sector;


While EDI is based on the HIPAA standard formats. These standard formats allow transfers of patient health information (PHI) and data securely. With this, EDI has also minimized the format structures for healthcare providers that have to follow one standard instead of using multiple formats across the payment systems.

Decreases Administration cost

With electronic data interchange, the cost of supplies, postage, paperwork, documentation, and keeping paper history cost is mainly reduced as almost every piece of data is now digitized.

What does EDI do in medical billing

Pre-eminence security

With electronic data interchange, healthcare industries are able to securely transfer information to insurers, providers, suppliers, authorized parties, and of course patients. Since the data is transferred in the computer language which is hard to understand by humans, the leakage threats are much minimized.

In addition, HIPAA makes sure that only authorized personnel will access the information needed. Plus, all the information is shared using standard and secure protocols like SFTP, MLLP, and AS2 using B2B file transfers.

Enhanced Accuracy

Another advantage that EDI provides to healthcare is the solution to streamline the transactional process across medical needs. In addition to increasing efficiency and security, EDI reduces the number of incorrect entries, human errors, typo mistakes, and lost emails and fax ambiguities. Besides, all the EDI information also goes through a systematic testing and validating process. This process is referred to as Snip Levels, which validates every information on EDI files to certify that they contain the accurate and all the necessary information.

Productivity Enhancement

Through EDI, healthcare increases the efficiency in transmitting data and making immediate transactions in variable amounts to multiple parties. Also, it eliminates the request and reworking of denials and needs to affirm the accuracy of information provided to manage transactions. Eventually, providers get the required data, and physicians and healthcare centers receive their reimbursements quickly. With reduced burdens of validating information and making payments manually, authorities spend time more efficiently on the improvement of the system.

EDI compliance in your healthcare system easily

Although compliance with EDI in a healthcare facility requires high-level programming skills and hands-on experience with HIPAA standards and knowledge of different formats that the system caters to. Without teamwork and extensive understanding, it would be challenging to develop a standardized HIPAA EDI compliance. Hiring experts from Sybrid MD will not only help you invest in the right software but also protect you from violating HIPAA standards. Contact us today and check your eligibility to make improvements in your healthcare system.