What is Electronic Data Interchange (EDI) and Why it Still Matters for Healthcare

Payers and providers need an interoperability partner that gets both EDI and FHIR

Is EDI technology on the way out in healthcare?

Absolutely not. EDI has provided the standard format for fast, secure health data exchange for more than 25 years. Payers and providers rely on EDI transmission to exchange claims, eligibility, and payment information.

So while the integration buzz surrounds FHIR-based APIs, payers, providers, and developers must set and evolve smart EDI strategies alongside FHIR and other data exchange technologies.

That takes a partner masterful in healthcare technology, EDI, and FHIR. Picture that partner helping you craft a rapid integration roadmap with winning strategies and a software integration engine that connects all the dots for EDI and FHIR success.

Read on and we’ll show you how to get there.

What is EDI in Healthcare?

EDI in healthcare is the computer-to-computer exchange of standardized business documents between partners. Through established EDI formats, businesses can electronically transmit various documents, including purchase orders, invoices, etc. By moving from a paper-based exchange of business documents to an electronic format, businesses enjoy major benefits such as reduced cost, increased processing speed, and improved relationships with business partners.

First conceived in the late 1940s by the Army to accelerate supply chain communications and logistics. EDI systems first appeared in the 1960s, and adoption began to grow rapidly in healthcare in the 1990s with a strong nudge from HIPAA.

EDI transactions are typically called “point-to-point,” which means each request, response, and exchange transfers securely from one computer to another. But EDI transmission also lets users send messages and documents to multiple recipients at one time, with each transaction moving point-to-point with each recipient. It’s not the same one-to-many; it’s more like one-to-one many times.

All EDI transactions use the ANSI ASC X12 standard for electronic data exchange. The use of this single standard eliminates variation and helps make EDI exchanges more secure and accurate.

Types of EDI Transactions in Healthcare

Many industries have used EDI for decades. So what makes the EDI standard for healthcare different from standards for, say, supply chain or invoice management?

EDI defines specific data and document formats for different transactions in different industries. In healthcare, there are nine primary EDI transaction sets, each designated by number:

• Eligibility benefit inquiry and response (270 and 271): Providers send a benefit inquiry (270) to payers, and payers respond (271) with either an eligibility confirmation or a reason for rejection (such as incomplete or incorrect format).
• Claims information (837): Providers use this transaction to either request payment for a claim or provide encounter information.
• Payment and remittance advice (835): After a provider sends an 837 payment request, the payer will respond with an 835 transaction to document the payment and explain any claim adjustments.
• Claim status request (276): Providers use this transaction to request the status of a previously submitted claim from the payer.
• Claim status notification (277): Payers use this transaction to update providers on a claim status.
• Care service review (278): Hospitals use this transaction to request prior authorization for patient service from a payer.
• Benefits enrollment (834). Employers, unions, government agencies, associations, and payers use 834 to enroll new members in a health plan, manage or change their status, and remove or reinstate them.
• Payment order and remittance advice (820): Companies use this transaction to send payment instructions to banks, provide pending payment details to suppliers, and send the premium payment information to payers.

How EDI In Healthcare Works

Electronic Data Interchange (EDI) plays a crucial role in securely and efficiently transmitting electronic data across different institutions within the healthcare ecosystem.

1. Uniform Formats

When data is exchanged through EDI, it follows set formats such as ANSI X12 or HL7. These formats provide a clear and consistent structure for both senders and receivers, ensuring an effective understanding of shared information by all involved parties.

2. Data Conversion

Healthcare data transforms before transmission to meet the required EDI format. It involves converting data from internal systems like electronic health records (EHRs) or practice management systems into a standardized EDI-compliant format.

3. Data Transfer

After converting to EDI format, data is securely transmitted between parties using protocols like FTP or AS2, ensuring data integrity and confidentiality.

4. Data Verification

Upon receipt, the recipient checks the EDI data for accuracy and compliance with regulations. This involves cross-referencing patient identities, procedure codes, and insurance details with relevant databases.

5. Data Handling

The recipient’s systems manage validated EDI healthcare data. The EDI transaction scope includes updating patient details, creating claims, processing payments, and performing administrative and clinical tasks.

6. Confirmation and Reply

After processing the EDI data, the recipient will promptly reply to the sender. This acknowledgment validates the data receipt and may include details such as claim acceptance, payment specifics, or error notifications.

What Are Uses and Benefits of EDI Exchange in Healthcare?

Healthcare providers and payers primarily use EDI to exchange financial, claims, and reimbursement information. For example, hospitals commonly use EDI to confirm benefit and payment eligibility for patients. Providers and payers also exchange claims processing data, claim status, benefit enrollment information, and more.

Here are the applications and benefits of EDI in the healthcare sector:

• Security: In 1996, HIPAA mandated the adoption of healthcare EDI formats to both standardize the more than 400 existing formats and enhance data security. EDI standards and formats build in document security through encryption. Only the recipient in an EDI transaction can unencrypt the file. Here, the relative simplicity of computer-to-computer EDI transactions helps establish strong protection of private health data.
• Speed: EDI exchanges data from point to point with well-defined document types and codes. This low complexity provides for fast data exchanges. It also simplifies billing processes and promotes faster payments.
• Accuracy: EDI enables faster data exchange by replacing paper documents with digital transmission, reducing processing time. HIPAA EDI software helps medical firms boost transaction efficiency, minimizing errors like typos and incorrect entries. Testing and validation on EDI files use the Snip Levels method to ensure healthcare data accuracy.
• Cost-efficiency: Although initial setup for EDI can be costly and take time, once it’s in place secure transactions flow back and forth with little technology overhead or cost.
• Productivity: EDI improves efficiency and speed, reducing input, shipping, and billing errors with greater standardization and less human intervention, Fast, secure, reliable data exchange reduces denials and rework.

Many payers and providers made that investment long ago. They have little incentive to replace a solution that works and makes claims, payments, and communications faster and easier.

How to Comply with EDI in Your Healthcare Software System

It’s vital to predict, assess and reduce obstacles in the integration of EDI into an existing healthcare software system. Here are 6 key steps to make EDI compliant in a particular medical system:

• Specify clear objectives
• Collaborate with a software partner
• Initiate the EDI solution
• Check data validation
• Train employees on operation
• Maintain and improve continuously

Step 1: Specify clear objectives

For a successful integration of EDI in healthcare, start by defining clear requirements and goals. Assess your internal systems to ensure they are integration-ready.

Identify the challenges and enhancements you aim for with EDI. If you require guidance on assessing the viability and advantages of EDI for your organization, seek advice from a reputable IT provider.

Step 2: Collaborate with a software partner

To enhance your healthcare systems, seek out a reputable technology partner experienced in healthcare EDI. Collaborate on a comprehensive plan for integrating EDI seamlessly. 

Evaluating software firms’ EDI expertise, adherence to industry standards, and understanding of your specific needs. Prioritize their track record in data security and compliance to safeguard critical healthcare information.

Step 3: Initiate the EDI solution

Collaborate with your IT partner to develop or select healthcare EDI software that aligns with your firm’s needs. Integrate the EDI solution with existing systems like practice management, electronic health record (EHR), and billing systems. Ensure seamless communication and interaction among all systems.

Step 4: Check data validation 

Make sure your EDI transactions adhere to regulations and align with your trading partners’ systems by conducting comprehensive testing and validation. Verify the accuracy and integrity of the data during transmission and reception.

Step 5: Train employees on operation

Employees are required to complete training offered by your company. They should be taught about transaction sets, procedures, and policies related to the integration of medical EDI in your organization. Confirm their competency in operating the EDI software and understanding its advantages for their everyday responsibilities.

Step 6: Maintain and improve continuously 

Maintain continuous communication and collaboration with your IT partner to address any EDI system issues. Stay updated on EDI standards and regulatory changes for compliance and peak performance. Evaluate the healthcare EDI implementation’s efficacy and make required adjustments to optimize its advantages.

The Future of EDI for Healthcare Payers and Providers

The shift towards electronic exchange of various document types is on the rise. For instance, the emergence of e-prescriptions is set to revolutionize and digitize the pharmacy sector. Full-service wholesalers and pharmacy partners are poised to introduce digital platform solutions that enhance patient experience. Struggling healthcare providers may opt for mergers to boost competitiveness or get acquired by larger entities looking to streamline non-core services like EDI software.

The development of country-specific formats and standards is projected to drive greater EDI adoption. Streamlining regulations and cost-saving via centralized exchange platforms will significantly cut down digitization expenses. More healthcare firms will turn to experts for guidance on conforming to organizational or national standards. 

Moreover, healthcare has another big motivation to figure out and adopt FHIR: The 21st Century Cures Act. It established HL7 FHIR as the basis for future interoperability for healthcare, effectively making integration technology decisions for providers and payers. And payers feel the most heat. The Cures Act set an aggressive timeline for payers to publish outward-facing APIs for patient access, provider directories, and payer-to-payer integration.

So while EDI isn’t going away anytime soon, the FHIR train keeps gaining tremendous momentum as the standard for comprehensive healthcare system interoperability.

What is Unique About EDI for Healthcare?

Many industries have used EDI for decades. So what makes the EDI standard for healthcare different from standards for, say, supply chain or invoice management?

EDI defines specific data and document formats for different transactions in different industries. In healthcare, there are nine primary EDI transaction sets, each designated by number:

• Eligibility benefit inquiry and response (270 and 271): Providers send a benefit inquiry (270) to payers, and payers respond (271) with either an eligibility confirmation or a reason for rejection (such as incomplete or incorrect format).
• Claims information (837): Providers use this transaction to either request payment for a claim or provide encounter information.
• Payment and remittance advice (835): After a provider sends an 837 payment request, the payer will respond with an 835 transaction to document the payment and explain any claim adjustments.
• Claim status request (276): Providers use this transaction to request the status of a previously submitted claim from the payer.
• Claim status notification (277): Payers use this transaction to update providers on a claim status.
• Care service review (278): Hospitals use this transaction to request prior authorization for patient service from a payer.
• Benefits enrollment (834). Employers, unions, government agencies, associations, and payers use 834 to enroll new members in a health plan, manage or change their status, and remove or reinstate them.
• Payment order and remittance advice (820): Companies use this transaction to send payment instructions to banks, provide pending payment details to suppliers, and send the premium payment information to payers.

The Future of EDI for Healthcare Payers and Providers

The shift towards electronic exchange of various document types is on the rise. For instance, the emergence of e-prescriptions is set to revolutionize and digitize the pharmacy sector. Full-service wholesalers and pharmacy partners are poised to introduce digital platform solutions that enhance patient experience. Struggling healthcare providers may opt for mergers to boost competitiveness or get acquired by larger entities looking to streamline non-core services like EDI software.

The development of country-specific formats and standards is projected to drive greater EDI adoption. Streamlining regulations and cost-saving via centralized exchange platforms will significantly cut down digitization expenses. More healthcare firms will turn to experts for guidance on conforming to organizational or national standards. 

Moreover, healthcare has another big motivation to figure out and adopt FHIR: The 21st Century Cures Act. It established HL7 FHIR as the basis for future interoperability for healthcare, effectively making integration technology decisions for providers and payers. And payers feel the most heat. The Cures Act set an aggressive timeline for payers to publish outward-facing APIs for patient access, provider directories, and payer-to-payer integration.

So while EDI isn’t going away anytime soon, the FHIR train keeps gaining tremendous momentum as the standard for comprehensive healthcare system interoperability.

FHIR Momentum: Will Eligibility be the First Place FHIR Replaces EDI?

The current FHIR release 4 already has resources defined for eligibility requests and responses, as well as for claims, enrollment, explanation of benefits, and payments. That means FHIR has the parts in place to enable all of the transactions that EDI covers.

Our interface experts expect eligibility transactions to be the first to move from EDI to FHIR. FHIR has made great progress on the relatively straightforward eligibility standards. Our experts expect the more complex claims exchange and transaction will take longer to catch FHIR.

What Next? Find a Technology Partner with Expert Knowledge of EDI and FHIR

Even with aggressive FHIR compliance deadlines for payers, EDI will serve payers and providers for many more years.

The good news? EDI can work side by side with evolving technologies while healthcare transitions to newer data exchange tools and protocols.

That’s why healthcare organizations must tackle their needs, strategies, and technologies for EDI and FHIR to work in a mixed environment. But that requires elite knowledge of EDI, FHIR, and other advanced healthcare technologies. And a smart partner will be able to help map out your triumphant integration plan.

Whether you are a vendor, payer, or provider, KMS Healthcare has the right mix of EDI and FHIR expertise combined with a ready interface accelerator to help:

• Assess your needs
• Define the right EDI and FHIR roadmaps
• Put the right technology in place to accelerate your success
• Develop and test your interfaces

KMS Healthcare stands ready to enthusiastically help. Rely on us as your technology and knowledge partner and guide to success with data exchange and integration—starting with getting EDI and FHIR working in productive harmony.