What Is Healthcare EDI and Why Does It Matter?

Posted by Brooke Lester on Mar 5, 2019 5:13 PM

What Is Healthcare EDI and Why Does It Matter?

What sorts of things come to mind when you think about healthcare?  I hope you think of lifesaving technologies and procedures as well as dedicated, tireless staff whose goal is to help patients live better lives. If you are in the healthcare industry, you might think of all of that, but you cannot forget about the paperwork.

Despite numerous technological advances, the healthcare industry still relies on an enormous amount of paper. Implementing EDI in the healthcare industry can help eliminate that problem; healthcare EDI allows the secure exchange of information in a standardized format among healthcare practitioners, healthcare institutions, and patients.

What Is Healthcare EDI?

Healthcare EDI utilizes a technology called Electronic Data Interchange (EDI). Through EDI, organizations can transmit data back and forth using standardized formats. Because information is sent electronically, manual errors are virtually eliminated. Data processing becomes more efficient.

The roots of healthcare EDI stem from the first Bush administration’s concern for rising healthcare costs. In 1991, the Workgroup for Electronic Data Interchange was formed to address the inefficiencies in the American healthcare system. The Workgroup played a significant role in the enactment of the Healthcare Insurance Portability and Accountability Act (HIPAA) of 1996.

How Does It Work?

How does healthcare EDI work? EDI messages can be transmitted in more than one way. There are peer-to-peer EDI messages, in which partners exchange messages directly. Value-added networks (VANs) are third-party routing services for messages; when the VAN receives the message, it examines the delivery data and then sends the message to the recipient. Mobile EDI and cloud EDI are becoming more popular, too.

EDI relies upon standard messaging formats so organizations can communicate with one another. Healthcare EDI utilizes specific standards designed just for the healthcare industry. There are standard transaction sets for claims, payments, enrollment, eligibility inquiries, and claim status requests.

What does healthcare EDI look like in action? Healthcare EDI software converts documents into computer language, then it assigns transaction codes to each document. Each transaction contains its own name, number, and usage information. The recipient’s EDI software converts the information back into documents when it reaches the recipient.

Why use healthcare EDI? There are several benefits to using healthcare EDI, which will be addressed later on. What is important to note is that healthcare EDI plays a role in HIPAA compliance, making it a crucial solution for healthcare providers and insurers.

Healthcare EDI and HIPAA Compliance

What does healthcare EDI have to do with HIPAA compliance? To understand that, it helps to have a bit of background on the legislation.

HIPAA had several goals. One of those goals was to make the American healthcare system more efficient. Title II of HIPAA mandates the Department of Health and Human Services (HHS) to establish national standards for processing electronic healthcare transactions. In addition, the law requires healthcare organizations to implement secure electronic access to health data and comply with HHS privacy regulations.

The penalties for not complying with HIPAA are severe. Willfully violating HIPAA can cost you at minimum $10,000 per violation, and at most, $50,000 per violation. But, what does it mean to violate HIPAA?

When people talk about HIPAA compliance, they generally refer to adhering to the regulations in Title II. There are several HIPAA compliance requirements in this section: the National Provider Identifier Standard, the Transactions and Code Set Standard, the HIPAA Privacy Rule, the HIPAA Security Rule, and the HIPAA Enforcement Rule.

HIPAA mandates healthcare organizations to follow a standardized mechanism of EDI to submit and process insurance claims. The logic behind this regulation is to make the administration of healthcare in the US more secure and efficient. The standards apply to nine types of administrative and financial health care transactions used by payers, physicians, and other providers.

Before this rule came into effect, healthcare providers had their own local or proprietary codes. The landscape was confusing and difficult to navigate. Standardized codes reduced complexity for all parties.

Rules of the Healthcare EDI Road

One step in reducing complexity was the introduction of the National Provider Standard. The National Provider Standard requires that each healthcare entity (including individuals, employers, health plans, and healthcare providers) have a unique ten-digit national provider identifier number (NPI). An NPI creates national standards for HIPAA transactions, and it doesn’t carry any personally-identifying information aside from a name and a business address. All HIPAA-covered entities must have an NPI.

NPI numbers play a vital role in healthcare EDI transactions; you can only submit standard HIPAA transactions with your NPI. Standard HIPAA transactions include claims, encounters, eligibility, claim status inquiries, electronic remittance advice, precertification adds, and referral adds.

Healthcare EDI helps organizations in the healthcare industry abide by HIPAA rules because of features like the NPI. Here is more detail regarding those rules.

The HIPAA Privacy Rule puts national standards into place that protect patient information, while the HIPAA Security Rule establishes a model for patient data security. HIPAA’s Enforcement Rule, as the name implies, sets out the guidelines for investigating HIPAA violations.

These rules are meant to keep patient data safe and private. Before HIPAA’s enactment, there were over 400 forms for processes, many of which were paper-based. There was no national healthcare data privacy law to protect patients from unauthorized access and sharing of their information.

Healthcare EDI is an inherently more secure method of transmitting information. EDI enables secure data transmissions that comply with HIPAA mandates. Only authorized users have access to transactions, which is in keeping with healthcare data management practices.

What Is Healthcare EDI and Why Does It Matter?

The Benefits of Healthcare EDI

Now that it is clearer what healthcare EDI is, how it works, and its relationship to HIPAA compliance, what benefits does it deliver to organizations? There are several reasons to use healthcare EDI.

Standardization:  The first benefit is standardizing electronic healthcare transactions. Instead of using many different local or proprietary formats, which lead to confusion and complexity, standardized messaging means that everyone receives messages that are comprehensible and clear. There are no more errors or time spent trying to decode “foreign” message formats; everything is consistent.

Greater efficiency:  Consistency saves time and money. Healthcare EDI makes processing transactions significantly more efficient because humans are not involved. No longer do organizations have to wait for information to be entered manually; the data automatically goes into the requisite systems because everything is handled by a computer.

Greater accuracy:  Less manual data entry means greater accuracy. Humans err, which leads to expensive mistakes that cost money and time. Automated data entry drastically reduces the likelihood that errors will take place, so you can trust the information you have received from your healthcare EDI solution.

Cost savings:  Efficiency and greater accuracy yield greater cost savings for healthcare organizations. Paper-based processes are expensive. The cost of purchasing the paper, printing out documents, the time it takes to fill out those documents, and the expense of storing it all adds up. Digital transactions cut down those costs; the US government estimates that healthcare EDI can save $1.49 per claim for physicians.

Higher productivity:  Healthcare EDI can lower costs in an intangible way, too – through higher levels of productivity. Think about all the time that organizations waste by filling out forms, correcting information that contains errors, transmitting information, and then having to confirm that the recipient actually got the forms. With healthcare EDI, those processes are a thing of the past; automated data transmission enables recipients to obtain the data they need quickly, and no one has to worry about errors because the information was not manually entered. 

Greater security:  Security is another major benefit of healthcare EDI. Because authorized parties are the only ones who can access patients’ personal information through healthcare EDI transactions, the risk of HIPAA violations is significantly lower. Not only are you taking measures to protect patients, but you are also lowering your risk of hefty financial penalties.

Healthcare EDI matters because it offers healthcare organizations a more efficient, cost-effective, and secure method of transmitting data. It removes concerns about compliance, errors, and lost productivity because it automates the flow of information. Want to know if your healthcare organization is ready to move to a healthcare EDI solution? Get an EDI Assessment. Absolutely free.

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