Electronic Data Interchange In Healthcare

The healthcare industry is forced to deal with enormous amounts of data. This data includes patient medical records, medication data, emergency services records and insurance claims. Data processing has always been a monumental challenge for healthcare systems since the data is sourced from multiple sources and in different formats. According to a HealthAffairs report, in the 1990s, there were “more than 400 electronic formats used to transmit claims and thousands of different claims processing systems”. Before the mid-1990s, there were no federal limits on healthcare information processing and established rights for patients to access their health care information. The national health privacy law did not exist either.

A paperless hospital office is a goal of the US healthcare system as it provides more efficient, and thus cheaper, data distribution, retrieval, search, and analysis. To address the problem of rising healthcare costs and to enhance the quality and efficiency of care, the Workgroup for Electronic Data Interchange (WEDI) was formed in 1991 by the Secretary of Health and Human Services (HHS). When the Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996 establishing national standards for healthcare EDI transactions, the WEDI was one of the instruments used to implement it.

Let’s dig a bit deeper and find out what exactly an EDI is and how it can benefit the entire healthcare system.

What is EDI in Healthcare?

EDI is an abbreviation for Electronic Data Interchange, an innovative electronic communication technology. It is a structured way to transmit data between computer systems using established message formats and standards. Healthcare EDI provides secure electronic data interchange between healthcare institutions, care providers, and patients, and allows for more secure and efficient data processing, including healthcare claims processing.

How does EDI work? First of all, we should realize that electronic data interchange healthcare transactions are not just emails or something like this. EDI involves electronic data transmissions between computer systems and applications. And, of course, those systems and applications vary depending on the end-users and the mode of delivery.

Among others we can name:

  • P2P EDI (point-to-point EDI)
  • VAN EDI (value-added network EDI)
  • Cloud EDI
  • Mobile EDI, etc.

It should also be mentioned that when utilizing healthcare EDI transactions healthcare providers must follow HIPAA regulations and ANSI standards. To find more information about HIPAA click here. The ANSI (American National Standards Institute) accredits standards developed by standards organizations to be used specifically in the healthcare industry. Standard electronic data interchange formats were developed by the American National Standards Institute Accredited Standards Committee X12 (also known as ASC X12) in 1979. The HIPAA EDI transaction sets are also based on X12 as the use of ASC X12 is an integral part of the HIPAA Transactions and Code Sets Rule.

According to information from the Centers for Medicare & Medicaid Services (CMS, part of the Department of Health and Human Services), these transactions include:

  • Claims and encounters information
  • Payment and remittance advice
  • Claims status
  • Eligibility
  • Enrollment and disenrollment
  • Referrals and authorizations
  • Coordination of benefits
  • Premium payments

All HIPAA-covered healthcare entities who conduct any of the mentioned above transactions electronically must use the adopted standard transaction sets. Here are the key EDI standards for healthcare systems:

EDI Health Care Claim Transaction set (837)

Intended use: submission of healthcare claim billing information and encounter information, excluding retail pharmacy claims.

Senders and recipients: providers of healthcare services and payers. Claims can be sent either directly or via intermediary billers and claims clearinghouses. Health care claims and billing payment information can be transmitted using this set of standards between different payers or between payers and regulatory agencies.

EDI Retail Pharmacy Claim Transaction (NCPDP Telecommunications Standard version 5.1)

Intended use: submission of retail pharmacy claims.

Senders and recipients: health care professionals to payers. Claims can be sent either directly or via intermediary billers and claims clearinghouses. Claims for retail pharmacy services and billing payment information can be transmitted using this set of standards between different payers or between payers and regulatory agencies.

EDI Health Care Claim Payment/Advice Transaction Set (835)

Intended use: making payments, sending Explanation of Benefits (EOB) remittance advice.

Senders and recipients: health insurers to health care providers.

EDI Benefit Enrollment and Maintenance Set (834)

Intended use: enrollment of members with a payer.

Senders and recipients: employers, unions, government agencies, associations or insurance agencies to payers (healthcare organizations paying claims or administering insurance).

EDI Payroll Deducted and other group Premium Payment for Insurance Products (820)

Intended use: making premium payments for insurance products.

Senders and recipients: healthcare institutions to financial institutions.

EDI Health Care Eligibility/Benefit Inquiry (270)

Intended use: transmission of inquiries for health care benefits and subscriber eligibility.

Senders and recipients: healthcare institutions to financial institutions and government agencies.

EDI Health Care Eligibility/Benefit Response (271)

Intended use: responses to request inquiries about healthcare benefits and subscriber eligibility.

Senders and recipients: healthcare institutions to financial institutions and government agencies.

EDI Health Care Claim Status Request (276)

Intended use: requesting the status of health care claims.

Senders and recipients: providers to recipients of healthcare products or services.

EDI Health Care Claim Status Notification (277)

Intended use: notification of providers, recipients or authorized agents concerning the status of a health care claim. This EDI transaction set is not intended to replace Health Care Claim Payment/Advice Transaction Set (835) and cannot be used for account payment posting.

Senders and recipients: providers to recipients of health care products or services.

EDI Health Care Service Review Information (278)

Intended use: transmission of health care service information, including subscriber, patient, demographic, diagnosis or treatment data to request for review, certification, notification or reporting the outcome of a healthcare services review.

Senders and recipients: providers to recipients of health care products or services.

EDI Functional Acknowledgement Transaction Set (997)

Intended use: X12 transaction set processing. According to Microsoft, EDI 997 reports the status of a received interchange and reports each error encountered while processing the received document. This transaction set is not specifically named in the HIPAA Legislation or Final Rule, but it is necessary to provide the information about document arrival and processing by the recipient’s EDI translator.

The fact is, EDI transactions compliant with HIPAA rules can provide distinct advantages for healthcare professionals and institutions. Let’s take a look at what these advantages are.

Advantages of EDI Transactions in Healthcare

The reasons that EDI has become so important in the healthcare industry are minimized transaction and other costs, improved security, improved productivity, and the standardization of data interchanges.

Lower costs

EDI healthcare transactions allow hospitals and other healthcare facilities cut handling costs for processing healthcare documents as the data is digitalized. Based on WEDI data, HHS estimates significant savings for healthcare players: $1.00 per claim for health plans, $1.49 for physicians and $0.86 for hospitals. EDI transactions allow information to be sent and received quicker, thus reducing the time required for data processing and operational time.

Improved security

Healthcare EDI systems enable secure data transfer between healthcare providers and payers or insurers. The security of the electronic transaction is mandatory under HIPAA standards. The use of electronic attachments allows only authorized users access to medical information, thus supporting secure healthcare data management.

Improved productivity

Using EDI for healthcare transactions improves productivity as data transmissions become more accurate, more efficient, and quicker. Limited human intervention in the data exchange process means fewer errors, such as manual data entry errors, errors from illegible handwriting, lost faxes/mail, keying and re-keying errors. EDI uses electronic attachments, which streamline the process of data transmission between healthcare providers, insurers, government authorities, and patients.


The purpose of the HIPAA/EDI provision, as defined by Wikipedia, is “the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans and employers to improve the healthcare system’s efficiency and effectiveness through standardization and simplification”. Different definitions, formats, and data values that healthcare systems have used for decades now must be unified into standard formats to make an electronic transfer of information more efficient and secure, improve overall data quality, and reduce the administrative burden. The use of standardized electronic healthcare transactions simplifies the methods of healthcare information management giving healthcare professionals more opportunities to provide better care and lower their costs.

According to MarketsandMarkets, the healthcare EDI market is forecast to be worth 3.77 Billion USD by 2022. Technology developments in the healthcare industry impact healthcare data management approaches and solutions. To keep pace with the industry, while providing the best possible care with high-level data quality and securing it, it is necessary to use HIPAA-secure communications platforms.

For more information about healthcare EDI solutions, reach out to us at info@archer-soft.com