Imagine that you’re a healthcare provider who’s just treated a patient. It’s time to get paid for your services, but you don’t want to deal with endless paperwork and unnecessary phone calls. There’s a better and more streamlined way to handle it — the electronic way. Electronic Data Interchange (EDI) is responsible for providing just that. 

EDI is at the core of modern healthcare claims processing. EDI claims processing functions like a digital conversation between systems, facilitating the hassle-free transfer of information between healthcare providers and insurance companies. These transfers convey data on patient treatments, services, and payments.  

For example, an EDI claim submitted by a hospital to an insurance company will contain details of the patient’s visit, including diagnoses and procedures. Sharing this information electronically minimizes errors and accelerates the reimbursement process.  

This blog explores EDI’s role in healthcare claims processing and its considerable benefits. 

What is EDI Claims Processing?  

EDI makes conventional, paper-based claims processing redundant and ensures that all stakeholders follow a streamlined and well-structured process. 

Here’s how consistency, reliability, and security are ensured throughout the different stages of EDI claims processing: 

• The American National Standards Institute developed ANSI X12 standards to provide a constant format for healthcare EDI transactions. For example, Claims Submission (EDI 837) formats data about patient services for electronic claims, and Payment Advice (EDI 835) details payments and denials from insurers. 

• HL7 (Healthcare Level 7) standards focus on clinical and administrative data exchange between healthcare providers. These standards ensure that accurate clinical information (such as diagnoses and lab results) is included in the claims. HL7 also supports ANSI X12 by providing up-to-date data for claims.   

• The Health Insurance Portability and Accountability Act (HIPAA) mandates standardized formats and security by ensuring the use of ANSI X12 for healthcare transactions and specifying protocols for securely exchanging healthcare information.  

Providers submit claims using ANSI X12 837, incorporating HL7 clinical data. These claims are encrypted and securely transmitted following HIPAA guidelines. Lastly, insurers process these claims and respond to providers with ANSI X12 835 transactions. 

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Manual vs. Automated Claims Processing  

Traditional claims processing involved paper-based procedures and manual data entry. In the early days, correspondence between stakeholders relied on conventional mail and, eventually, fax. These methods contributed to a cumbersome, long process prone to delays and human errors. 

Conversely, automated or EDI claims processing uses electronic submission following specified formats. Built-in validation rules minimize the risk of errors and inaccuracies in the claims data before it’s submitted for processing. Automated claims processing is a faster, more cost-effective method. 

Here’s an overview of the difference between manual and automated claims processing.

How Does EDI Claims Processing Work?  

Step 1: Claim Creation  

Healthcare providers create electronic claims — formatted according to the ANSI X12 EDI 837 format — using their billing platform, electronic health record (EHR) system, or practice management software. 

Step 2: Claim Submission  

The electronic claims are then sent to the payer’s EDI gateway. This secure platform enables data exchange in accordance with HIPAA’s data privacy regulations. 

Step 3: Data Validation  

Data validation at the payer’s end involves formatting and syntax checks. These checks verify that the claim data aligns with the applicable standards. Any errors caught are flagged for correction and rectified. 

Step 4: Claim Adjudication  

During adjudication, the insurance provider reviews the claim and the applicable insurance policy to determine their financial responsibility to the healthcare provider. Based on the claim information, the insurance company can decide to take one of the following actions: 

• Pay the claimed amount in full.  

• Deny the claim outright. 

• Reduce the payable amount. 

Step 5: Payment Processing  

Once the insurance provider approves a claim, they generate a payment to the healthcare facility. This step is done by sending an Electronic Remittance Advice (ERA) —subject to the ANSI X12 EDI 835 standard — with details of the payment and any reductions made in the amount. 

Step 6: Acknowledgement Reports  

Payers send acknowledgment reports to healthcare providers, notifying the latter once they’ve received a file. EDI 999 is the standard Implementation Acknowledgment document used in healthcare. The 999 Acknowledgment can offer one of the following outcomes for a transaction: 

• Approved  

• Rejected   

• Accepted with errors  

Step 7: Reconciliation  

The EDI claims processing concludes with the provider reconciling the payment information with its own records for accurate recordkeeping and proper financial management.  

5 Benefits of EDI Claims Processing  

EDI claims processing provides a range of benefits for providers and payers alike, including the following:  

1. Increased Efficiency 

Healthcare and insurance providers benefit from faster turnaround times and a quicker workflow from submission to reimbursement. 

Additionally, automation minimizes errors so that claims don’t need to be resubmitted, saving time and significantly lowering the risk of rejection due to missing values, data entry errors, or illegible handwriting.  

2. Cost Savings 

EDI claims processing eliminates the manual labor, physical storage, and document handling requirements associated with manual procedures. Healthcare providers and payers save money on paper and postage, decreasing administrative expenditure. 

3. Improved Cash Flow 

Healthcare providers receive payments quickly because of accelerated disbursement through EDI claims. Better cash flow contributes to maintaining financial viability and allows healthcare practices to plan investments, upgrades, and improvements more efficiently. 

4. Better Security 

EDI transactions are conducted directly (using secure networks) or via clearinghouses. This keeps patients’ confidential medical and billing information private more effectively than manual processing. Authentication and encryption protect the data from breaches, misuse, and unauthorized access. 

5. Environmental Considerations 

Organizations today face more pressure than before to practice environmental friendliness and eco-consciousness, and the healthcare sector is no exception. Healthcare facilities can create a paper-free claims processing mechanism using EDI, helping them reduce their carbon footprint and become more eco-friendly. 

What to Look For In An EDI Claims Processing Solution 

If you’re searching for an EDI processing solution to help facilitate your claims processing, here are some features to look for to ensure smooth operations, increased efficiency, and seamless integration: 

1. Compliance & Security Features 

When it comes to EDI claims processing, especially for the healthcare sector, payers have to ensure they’re compliant with HIPAA. To do so, it’s important to look for a solution that is HIPAA-compliant, specifically that it follows the EDI X12 837 and 835 standards.  

It’s also important to look for solutions that can handle sensitive PHI (Protected Health Information) securely using compression, encryption, access controls, and digital signatures.   

Finally, look for solutions that offer in-built business partner profile management so you can effortlessly maintain your EDI partner profiles for secure and smooth communication and data exchange. 

2. End-to-End Automation 

Manual EDI processing is quickly becoming a thing of the past with EDI management tools offering a variety of automation features. A solution that offers end-to-end automation can automate data extraction and validation to reduce manual data entry and errors. 

Similarly, by setting up automated workflows, EDI specialists can perform claim scrubbing and error detection by automatically identifying incorrect or incomplete information before submission. 

Finally, look for a solution that facilitates auto-adjudication, streamlining the claim approval process with minimal to zero human intervention. 

3. Seamless Integration 

Your EDI processing tool will not only have to manage EDI files but also need to be integrated with the EHR (Electronic Health Records), PMS (Practice Management System), and ERP and accounting systems to ensure smooth workflows. 

Since claims processing also requires seamless communication with providers, your EDI processing solution should also offer native database connectors and API deployment features.  

4. Transformation & Validation Features 

 Look for an EDI claims processing tool that can automatically translate EDI transactions to other formats such as JSON, XML, and delimited files. Plus, built-in transformation features can also help with streamlining and modifying your data as per your specific needs.  

Similarly, validation features ensure that the EDI messages you receive and send conform to the industry standards as well as your custom-defined rules. This helps integrate data from numerous sources and maintains consistency across business operations. 

Summing It Up  

The American Medical Association (AMA) encourages physicians to implement EDI and strive towards more efficient claims processing as part of its policy. EDI claims processing helps relieve the administrative burden on medical practices, but that’s not all. It improves a claim’s trackability by moving from the provider to an intermediary to a payer and enhancing efficiency and accuracy. Implementing EDI claims streamlines operations and improves patient care, allowing healthcare facilities to use their resources better.  

HealthEDI is a robust, no-code EDI solution that empowers the healthcare sector to implement EDI claims processing and optimize it for ease of use.   

The tool’s scalability helps it cater to healthcare facilities regardless of their size or scope. From small one-physician private practices to large, multi-state networks of medical centers, healthcare organizations can readily work with all EDI transactions and integrate EDI data into various destinations using the intuitive drag-and-drop interface.  

Find out how EDIHealth can cater to your unique use case with a customized demo, or contact our team for more information.