What is EDI in Healthcare: Importance and How to Implement It

Published on May 27, 2021

An enormous number of documents, tons of paper, and hundreds of returned claims—that’s how the healthcare industry looked before introducing electronic data interchange (EDI). Using EDI in healthcare helps medical organizations secure data exchanges, provides a quicker turnaround of information, and eliminates claim processing delays. All this makes EDI implementation a crucial part of delivering a high quality of care.

Whether you develop new healthcare solution or have an EDI software, but it doesn’t work properly—this article will help you discover:

  • What EDI is and how medical organizations use it 

  • The benefits of healthcare electronic data interchange

  • How to integrate EDI into a healthcare software system

But before we dive into all these aspects, let’s briefly cover what EDI is.

What is EDI in healthcare?

Proper EDI testing in the healthcare industry is important to ensure proper EDI transmission.

Electronic data interchange in healthcare is a secure way of transmitting data between healthcare institutions, insurers, and patients using established message formats and standards.

The introduction of EDI dates back to the 1960s when there were more than 400 different standards in use. Conversion errors, poor interoperability, high IT costs, and security gaps were common issues at that time. EDI implementation tackled those problems, ensuring quick and smooth data transmission and interpretation. 

Today, covered entities (i.e., health plans, clearinghouses, and care providers) that exchange medical information electronically are obliged to use uniform standards for all healthcare EDI transactions by the HIPAA EDI Rule. HIPAA EDI compliance means that organizations use ASC X12 protocol when sending HIPAA documents (i.e., any documents containing health-sensitive information). 

Being the only acceptable format for HIPAA EDI transactions, the ASC X12 protocol ensures the security and accuracy of medical data. It requires all entities involved in the transmission to follow specific data specifications. In particular, before the information is transmitted to a receiver computer, it is converted into computer (non-human) language. Also, all documentation sets are assigned with standardized codes. 

To generate standardized EDI documents and translate them into common business formats, organizations use HIPAA EDI software solutions.

Read also: How to Make Healthcare Software HIPAA-Compliant

Healthcare EDI transaction types

In general, organizations in the healthcare industry use ten types of HIPAA electronic data interchange transactions:

  • Healthcare claim transaction set (837). It allows healthcare providers and patients to submit healthcare claim information and encounter information.

  • Retail pharmacy claim transaction. It allows healthcare professionals and regulatory agencies to submit retail pharmacy claims. It also lets them transmit claims for retail pharmacy services 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 advice to healthcare providers.

  • Benefits enrollment and maintenance set (834). It is used by employers, unions, government agencies, insurance agencies, associations, or healthcare organizations paying claims. Its aim is to enroll members in a healthcare benefit plan. 

  • Payroll deducted and other group premium payment for insurance products (820). This transaction serves to make premium payments for insurance products and is used by healthcare institutions to send information to financial organizations.

  • Healthcare eligibility/benefit inquiry (270). This transaction set is used by healthcare institutions to transmit inquiries for healthcare benefits and subscriber eligibility to financial institutions and government agencies. 

  • Healthcare eligibility/benefit response (271). Its main purpose is to respond to request inquiries about the healthcare benefits and eligibility associated with a subscriber or dependent. Like the previous transaction, it is used by healthcare institutions to transmit information to financial institutions and government agencies.

  • Healthcare claim status request (276). This transaction is used by healthcare providers to request or verify the status of healthcare previously submitted to a payer, such as an insurance company.

  • Healthcare claim status notification (277). It serves for reporting on the status of claims (EDI 837 transactions) previously submitted by providers. EDI 277 is used by healthcare payers and insurance companies.

  • Healthcare service review Information (278). It is used by hospitals to request an authorization from a payer, such as an insurance company.

The EDI transactions list also includes EDI Functional Acknowledgement Transaction Set (997). But it doesn’t cover any semantic meaning of the information encoded in the transaction sets. It is only necessary for X12 transaction set processing.

What does EDI mean in medical billing

Healthcare EDI transactions allow a quicker turnaround of information.

Medical billing is a complex process due to the complexity of billing and coding and the many different parties that need to be involved. Standardization is particularly important here to avoid getting lost in a huge number of services, procedures, and diagnoses.

Healthcare providers use an X12 HIPAA 837 Healthcare Claim to request payment from a health insurance provider. A medical billing process starts with an inquiry from the care provider and ends with a payer response. Here is how it happens:

  • Step 1. Inquiry. Care providers make an inquiry that includes member ID number, date of birth, and Payer ID. In most cases, it goes through a clearinghouse, an intermediary used to help reformat claims to conform to the HIPAA standard, but it can also reach a payer directly. The role of the clearinghouse is to facilitate inquiries to the payers.

  • Step 2. Response. When a payer receives an inquiry, they respond to the intermediary (clearinghouse), which, in turn, sends the data to the care provider’s system. If there is an error in the data, the care provider corrects it and resubmits it again to the clearinghouse. 

Without the use of medical electronic data interchange, all these transactions would be much more difficult to handle because the various systems of providers and insurers would use different data formats. This was initially the case, and healthcare payment and remittance processes took weeks, especially when some errors occurred in the process. Simplifying the medical billing process is not the only positive aspect of implementing EDI. Let’s look at some other benefits an organization can expect when it uses HIPAA EDI formats.

The benefits of EDI integration

Among the benefits of EDI in healthcare are improved productivity and accuracy.

Healthcare electronic data interchange became a vital part of the healthcare supply chain allowing healthcare providers and insurance institutions to operate and communicate more efficiently. Let’s look at the main advantages that EDI implementation brings to the table.


Using standardized formats ensures the secure and efficient transfer of patient health information (PHI). Since the introduction of EDI for healthcare, the overall data quality has greatly improved as it pushes all parties to follow universal standards instead of using a wide variety of formats. 

Lower administrative expenses

Healthcare EDI cuts down on handling costs for processing documents (e.g., purchases of paper, forms, supplies, and postage) as most of the data is digitized. The Workgroup for Electronic Data Interchange (WEDI) estimates that adopting EDI can help healthcare organizations save $1 per claim for health plans, $1.49 for physicians, $0.86 for hospitals, and $0.83 for other parties.

High level of security 

Using EDI transactions for the healthcare industry guarantees secure data transmissions between authorized parties, supplies, insurers, and patients. Firstly, because of EDI mapping—the process of transforming business files into EDI format. Since the information isn’t transmitted in a human-readable way, the risk of data leakages is minimized. Secondly, HIPAA laws require that only authorized users can access the information. Thirdly, all the files are shared using B2B file transfer over secure protocols, such as AS2, MLLP, and SFTP.

Enhanced accuracy

HIPAA EDI software solutions streamline core transactions in medical organizations. Besides increased efficiency, it results in a lower number of human errors, including typos, incorrect entries, or lost faxes/mail. Besides, all EDI files go through a fine-grained testing and validation process. A system called Snip Levels is used to validate healthcare EDI files across seven levels to ensure they provide all necessary information. 

Improved productivity

Healthcare EDI increases productivity by enabling immediate data transactions to multiple parties. It also minimizes denials and rework requests and eliminates the need to confirm the receiving party got the information. As a result, recipients get the required data faster and without errors, which reduces the administrative burden and helps healthcare workers spend their time more efficiently.

How to make your healthcare system EDI-compliant

HIPAA EDI compliance is an important aspect to guarantee PHI protection.

Maintaining compliance is a critical task for healthcare providers. Prior to exchanging documents, they need to be completely sure their software adheres to modern standards and requirements. So whether you are building a new custom healthcare software or want to implement EDI to your existing one, there are several important aspects to pay attention to, in order to comply with requirements.

Building a proper system architecture 

Develop a robust system architecture or upgrade the existing one to:

  • Allow users to efficiently process (store, generate, change, retrieve and save) EDI information

  • Ensure business continuity (implement a back-up system and resilience scenarios)

  • Guarantee a quick response to requests and completion of transactions

Using role-based access 

Access control is a critical feature to make your healthcare application secure. Dividing users into groups and types (e.g., administrators, care providers, patients, etc.) and granting them role-based rights is a must to protect data from unauthorized access. 

Using encrypted communication

According to the latest Centers for Medicare & Medicaid Services (CMS) standards, all providers must use and maintain systems/platforms that are secure, encrypted, and minimize the risks to patient privacy and confidentiality. That’s why using encryption is extremely important to secure communication channels and infrastructure and guarantee that the information exchanged can’t be read by cybercriminals, even if they intercept it.

Keeping PHI safe

Protected health information, be it a health record or payment for healthcare services, is a core element of any healthcare system. You can cover it by implementing: 

  • Smart keys, biometrics, secure user IDs, PINS to make user identification systems hackerproof and secure 

  • Precautions including emergency access, automatic sign-off, security alerts, and data restoration procedures

Building EDI compliance is not a cakewalk. It requires extensive knowledge and expertise to properly implement document generation (EDI mapping and translation), testing, validation, and transfer algorithms. Hence, finding a trustworthy partner is equally important to ensure all these requirements. 

Comply with EDI in your healthcare software with Demigos

Integrating EDI is a complex task that requires a high level of programming skills and practical knowledge of HIPAA standards. Without a team experienced in healthcare development, a provider risks investing in software that won’t properly perform its functions and may even lead to HIPAA violations.

Having successfully completed a number of healthcare projects, Demigos can become your trusted partner in this domain. Our experts can consult you on EDI implementation, create a custom-tailored healthcare management solution or fine-tune your existing one, so it complies with all regulatory requirements.

Contact us today, and we’ll help you reap the benefits of HIPAA EDI implementation.

Ivan Dunskiy
Ivan has been working in the tech industry for more than 10 years as a Quality Assurance Engineer, Mobile Software Developer, and Product Manager. Co-founder of 2 startups.