What Is an EDI 835 Transaction in Medical Billing?

The healthcare industry relies on efficient data exchange to manage claims and payments. Electronic Data Interchange (EDI) facilitates this by providing standardized formats for communication between different entities. Among these, the EDI 835 transaction holds a significant role in medical billing, serving as a digital explanation of benefits from insurance payers to healthcare providers. This electronic format streamlines the reconciliation of healthcare claims, moving away from cumbersome paper-based processes. It represents a fundamental shift towards automation in managing financial transactions within the complex healthcare ecosystem.

Defining the EDI 835

The EDI 835, formally known as the ASC X12 835 Healthcare Claim Payment/Advice, is a standardized electronic transaction set used by healthcare payers to transmit payment and adjustment information to healthcare providers. It functions as an Electronic Remittance Advice (ERA), detailing how a healthcare claim has been processed, including payment, denial, and adjustments made to submitted charges. This electronic document serves as a comprehensive explanation of benefits (EOB).

The primary function of the EDI 835 is to automate the reconciliation of claims, allowing providers to efficiently match payments received against the services they billed. This automation reduces the need for manual posting of payments and adjustments into practice management systems. It replaces traditional paper remittance advices, offering a more efficient, cost-effective, and secure way to manage financial transactions. The EDI 835 is a HIPAA-mandated standard, ensuring consistent electronic exchange of healthcare payment and benefit information across the industry.

Data Elements Within an EDI 835

An EDI 835 file contains information organized into segments and data fields, providing a breakdown of claim adjudication. It includes details such as the payer’s identification and the provider’s identification. Patient-specific information, including their name and member ID, is also present to link the payment to the correct individual.

Claim-level details within the EDI 835 specify the claim number, the total amount originally billed, and the total amount paid by the payer. For each service line, the document provides information such as the procedure code, service date, billed amount, paid amount, and allowed amount. The EDI 835 also includes adjustment reasons, which explain why a claim was paid differently than billed or denied. These reasons are communicated using standardized codes, primarily Claim Adjustment Reason Codes (CARCs) and Remittance Advice Remark Codes (RARCs). CARCs provide the main reason for an adjustment, while RARCs offer additional context or instructions for payment modifications.

How the EDI 835 Operates

The operational flow of an EDI 835 begins after a healthcare claim, typically an EDI 837 transaction, has been processed and adjudicated by the insurance payer. Once the payer determines the payment or denial status for a claim, they generate the EDI 835 file. This electronic file contains all details of the claim’s adjudication, including paid amounts, adjustments, and explanations for any discrepancies.

The generated EDI 835 is then transmitted to a clearinghouse, an intermediary entity that facilitates the secure exchange of electronic healthcare transactions. The clearinghouse validates the format and content of the 835 file, ensuring it meets industry standards and payer requirements. After validation, the clearinghouse routes the EDI 835 to the appropriate healthcare provider. Providers typically receive the EDI 835 through their practice management system or a clearinghouse portal. Upon receipt, the data can be automatically posted to the provider’s accounting system, streamlining payment posting and reconciliation, and reducing manual data entry.

Parties Involved in EDI 835 Transactions

Several parties play specific roles in the exchange and utilization of EDI 835 transactions. Healthcare payers, primarily insurance companies and government programs like Medicare and Medicaid, are responsible for adjudicating submitted claims. They generate the EDI 835 files to communicate payment decisions, adjustments, and denials to providers.

Healthcare providers, including hospitals, clinics, and individual physicians, are the recipients of EDI 835 files. Their role involves receiving, interpreting, and utilizing the information for accurate payment posting and account reconciliation. Clearinghouses serve as intermediaries in the EDI 835 transaction process. They facilitate the secure and standardized exchange of these files between payers and providers, often offering services such as data validation and routing. These entities handle the technical complexities of EDI, allowing payers and providers to focus on their core functions while ensuring seamless and compliant data flow.