Journal of Medical Systems

, Volume 31, Issue 3, pp 178–184

EDI and ERP: A Real-Time Framework for HealthCare Data Exchange


    • Department of Computer and Information ScienceCleveland State University, College of Business Administration
Original paper

DOI: 10.1007/s10916-007-9053-4

Cite this article as:
Woodside, J.M. J Med Syst (2007) 31: 178. doi:10.1007/s10916-007-9053-4


A framework is presented for Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) in the healthcare industry. As the total cost of healthcare continues to rise and competitive pressures increase, the ability to reduce expenses while at the same time improving overall business characteristics, create an opportunity and necessity for technology usage. The framework addresses current barriers of EDI setup such as cost and flexibility along with ERP communication between entities. A prototype system is created to show feasibility of recent technology improvements and generate a proof of concept for the real-time framework.




EDI is the computer to computer exchange of information using international standards. Large retailers such as Wal-Mart, the automotive industry, and the healthcare industry all use EDI. ERP systems integrate the organization’s data and processes into a single system. ERP is least efficient when it is required to send/receive information externally. This can result in decreased performance and slowdowns. EDI allows for standardized and efficient transmission of data between organizations. The combination of ERP and EDI improves overall business characteristics. A major movement in EDI and ERP is towards XML (Extensible Markup Language) based formats and technology which seeks to reduce overall costs. SAP announced they are planning to make their software more accessible and easier to use along with other applications, and plan to use XML as a format for data interchange across its SAP Business Framework. Using XML will remove barriers for transferring data across applications, and make use of SAP’s programming interfaces [1, 2].

Electronic Data Interchange (EDI) as part of the Health Insurance Portability and Accountability Act (HIPAA) standards, permit for administrative cost savings and efficiencies. EDI utilizes computerized technology to exchange data and improve processing efficiencies, delivery times, reliability, and quality over existing methods. Enterprise resource planning systems (ERPs) are management information systems (MISs) that integrate and automate business processes of a company typically engaged in manufacturing products or services [2].

Both EDI and ERP both have barriers to enterprise to enterprise communication. The purpose of the research paper will be to explore uses of ERP in healthcare applications. It will explore the association with EDI, and the benefits to integrating the two areas, and to identify cost savings and industry performance improvement opportunities within ERP and EDI.

Problem statement

This paper seeks to determine ways for the implementation and integration of ERP and EDI functionality to achieve organizational improvements in terms of tangible savings and efficiencies. Other industries have utilized new improvements in technology, and likewise the healthcare industry has benefits to gain. This includes utilization of enabling technologies such as XML and web services, to allow for the creation of a framework for more efficient and cost-effective real-time exchange of data between external and internal healthcare entities. Given the ubiquity of EDI and ERP systems in industry, new technologies and processes are presented to give a competitive advantage while reducing costs and improving efficiency.

Literature review

Health care costs

The cost of health care has been double the U.S. inflation rate and has averaged over 10% annually since 1973. Health care spending has risen at the fastest rate in recent history. In 2003, expenditures increased by four times the rate of inflation during the same period. In 2004 premiums also increased by four times the rate of inflation. Governmental officials and policymakers are attempting to further address health cost increases. Years after President Bill Clinton’s efforts to re-forge healthcare, President George Bush is introducing new plans during his January 2006 State of the Union address [35].

As one of the major efforts to reduce health care costs, EDI standards have been created, and require consistent implementation for the health care industry to achieve the potential administrative cost savings associated with Electronic Data Interchange (EDI). The Health Insurance Portability and Accountability Act of 1996 (HIPAA) includes provisions for Administrative Simplification, which require the Secretary of Department of Health and Human Services to adopt standards to support the electronic exchange of administrative and financial health care transactions primarily between health care providers and plans. Transaction standards and specifications were adopted by the secretary to enable health information to be exchanged electronically. Implementation Guides for each standard have been produced at the time of adoption, and consistent usage of the standards including loops, segments, data elements, etc., across all guides is mandatory to support the Secretary’s commitment to standardization [6].

Elsewhere China has implemented measures to promote EDI, including policies, and infrastructure investment. Problems confronting the healthcare organizations include increasing costs and inefficiencies in resources. Hospitals began using EDI to communicate with other hospitals, suppliers, insurance companies and banks. The relatively limited EDI presence is explained by high EDI start-up costs as compared with labor, unfamiliar new relationship making, and technical infrastructure and complexity [7].

A 1995 New Jersey state study, the HINT project estimated the cost savings from application of computerized systems. Their findings included estimates that 17 percent of costs are administrative, and a minimal reduction in those costs would amount to several billion dollars across the industry. Most payers have already put significant investment into computer technology, however much of the capable savings through EDI remain untapped [3].

One of the most detailed and comprehensive analysis for EDI standards was created by Workgroup for Electronic Data Interchange (WEDI) in 1993. A large number of estimates were provided, and included pilot projects. WEDI mentioned that although estimated savings may not result in hard-dollar savings, it will allow for efficiency to be improved and resources to be re-allocated to improve quality, care, and service. Additional studies list benefits which include near-term reduction of administrative hassle and paperwork, and a long-term potential to use information technology to improve quality and cost effectiveness of health care, based on the 1992 WEDI Technical Advisory Group findings. System data standards integrated across parties will allow for improved accuracy, reliability, and data usage. Table 1 lists the estimated EDI savings [8, 9].
Table 1

Estimated EDI per transaction savings



Est. savings

Est. savings









Coordination of Benefits








Eligibility Inquiries








Claim Status








Eligibility transactions allow confirmation of an individual’s eligibility for health care services payment by a third party, as well as determining benefit coverage including patient liabilities. An estimated 150 million transactions occur each year, primarily by telephone. The savings estimated for payers is of $0.50–1.00 per inquiry. The savings estimated for providers is $1.10 to $2.09 per inquiry [8].

Claims transactions are also simplified through EDI. Information can be entered and transmitted electronically from the provider to the payer. Claim information can be re-sent easily, which include claims corrections and adjustments. The estimate of payer savings ranges from $0.50 to $1.50, minus a transaction cost of $0.17. Provider per transaction for physician claims varies from $0.51 to $1.96, with hospital claims from $0.11 to $1.07 [8].

Payment and remittance transactions include transfer of funds typically by check, and the explanation of the benefit payments from the payer. Potential savings include electronic remittance and electronic funds transfer transaction. The savings result from the elimination of postage and handing. The manual costs of processing a remittance and payment range from $0.45 to $1.00, while the costs of processing under EDI are $0.11 to $0.35. The net savings range from $0.10 to $0.89. Estimated $73,432 saved per year per hospital with an average of four people posting accounts at $27,400 each per year, and $1,918 per year per physician practice [8].

Claims status transactions typically are received by mail or phone. It is estimated that public and private health care payers receive over 60 million claim status inquiries per year, and EDI is estimated to save payers $1.06 to $2.72 net per inquiry, and save providers $3.56 to $3.88 per inquiry [8].

Coordination of benefits transactions enables electronic transmission on a single claim. The cost savings potential for payers is $0.22 per transaction. The savings for providers is $0.95 to $1.16 per transaction, based on savings by not identifying, copying, and re-submitting remittances from one payer to another [8].

A referral in a managed care environment typically requires logging and in some cases approval. Precertification is the prior approval by the payer of a certain action to be taken by the provider in the course of treatment. EDI reduces time spent by the payer contacting one another or the provider. Additional time is reduced by documenting and/or entering data received manually. Assuming 30% referrals, admissions and emergency room visits require review/approval; the payer savings from using EDI is $0.81 to $1.23 per transaction, with provider savings of $0.65 to $0.98 per transaction [8].

Strategic advantages

With increased competition, companies seek competitive advantage via price, product and quality. Value chain activities are combined with linkages, and these linkages require exchange of information. EDI is a technology that can be used for linkages. Strategies against competition from Porter’s model include product differentiation, market segmentation, and lowest cost. Technology can be used to address these strategies, namely EDI can be used to reduce cost and improve efficiency. Staged models have been introduced for EDI, where a company goes from beginning EDI (discovery), to regularly using EDI (operation), to using EDI as a strategic advantage (innovation). Timely imaginative technology and investment in the innovation stage allows for competitive advantage to be realized in an otherwise equal environment. Examples of innovation in a mature EDI environment include made to order automobiles and jeans, in which a customer inputs information such as options or measurements, and through EDI the applications create and delivery the customized product [10].

In their discussion of “Seeking strategic advantage in the post-net era: viewing ERP systems from the resource-based perspective”, Beard and Sumner’s research indicates that ERP systems do not provide conclusive advantage based on value, distribution, and portability. This is caused by the “vanilla” method of ERP system implementation. They suggest true competitive advantage may result from the planning and management of the ERP system, and the process alignment of the ERP system and the organization. To gain a competitive advantage through cost, an organization can improve operationally or through strategic positioning. Operationally an organization can improve training and education, use of improved technology, improved management, etc. The introduction of the Internet and “vanilla” method of ERP implementation, creates a difficult situation in which any organization cannot maintain a competitive advantage for a prolonged period. Strategic positioning is uniquely delivering a set of services or products. To create this, an organization can employ a distinct set of features, services, products, or logistics. This will then lead to business strategies which include cost-leadership, integration, cooperative, etc. [11].

EDI and ERP integration

In a survey Themistocleous (2001) found 81% of respondents incorporated EDI with their ERP systems. This was attributed to global EDI standards such as X12 and EDIFACT. Additionally EDI is based on exchanging data between varying applications, and the resulting translation that occurs as a result, and is comparable to application integration (AI). 73% of the companies did not replace their legacy system, as major issues where presented when attempting to integrate. All respondents did not accept interconnectivity as the best solution to the integration issue due to maintenance concerns. Complexity also increases as the number of interconnected application increase. The integration of ERP systems with other systems can be done with CORBA, XML and middleware technologies, and is often more efficient and flexible than EDI. ERP systems only provide partial integration, and require AI technology to resolve this issue [12].

The need for integration created EDI and VAN in the past as a way to exchange business documents and piece together supply chains. While EDI does achieve integration, it is not adequate for enterprise communication. EDI is complex, and does not provide the needed flexibility and maintainability to gain a competitive advantage. ERP systems have been introduced as a resolution to integration issues. While the internal components are integrated, the systems do not work well with autonomous systems. Enterprise application integration (EAI) has occurred as a result, and attempts to overcome the issues with ERP and EDI by combining technicalities to create integration. The lack of IT infrastructure integration creates problems for organizations which are seeking to unify and automate business processes. Technology is desired that allows for sufficient flexibility and manageability [13].

The functionality and integration of ERP systems has improved recently as a result of industry specific solutions, such as SAP’s IS-H for the Hospital industry. The new ERP systems have also improved integration with other autonomous systems. EAI technology now allows communication through a common interface layer, versus the direct methods previously used, which allows for savings. EAI solutions have been shown to reduce costs by 50 percent compared with other solutions. This is more impressive as organizations spend 40 percent or more of their IT budget on system integration. Due to the diverse nature of healthcare systems such as labs, pharmacy, materials, administration, etc., ERP systems did not solve integration issues. Many organizations chose a best of breed approach, which required integration between several ERP applications and in house applications. Web-based interaction between hospitals, vendors, insurance companies, government and customers is not yet complete. This functionality would allow for web based ordering of medical supplies, remote communication between patients and physicians, appointment scheduling, insurance claim verification, and accessing patient care data from external systems. The current inability to communicate between organizations reduces the overall efficiency and cost effectiveness of healthcare organizations. ERP integration with mobile communication devices will also have an impact as physicians will be able to access real-time information, yielding better decision making and delivery of care. Mobile functionality already exists and is supported through ERP vendors such as SAP and Oracle [14].

Electronic commerce

Electronic commerce is a critical component of business, and has emerged in a timeframe similar to ERP. Both technologies require process changes, in which ERP is viewed as a building block to electronic commerce. The ERP system has been described as the central point of real-time information, such as up to date inventory, pricing and configuration. EDI has long been used for communication of information between enterprises. Web form technology (WFT) is also gaining popularity in cases where a few transactions are passed. In a Deloitte survey, EDI was the highest solution implemented along side an ERP system. Difficulties with EDI include the standardization and lack of flexibility. EDI is also reserved for larger customers due to the integration involved and cost factors of sending over value added networks (VANs). WFT is instead used in these cases, due to cost improvements and flexibility. However the WFT process may become too costly or untimely if there are many orders that have to be placed by the customer. In addition, there are issues with updating the source and target system with the necessary data that was sent, since the order form only resides on the target system [15].

Business to business (B2B) e-commerce develops just-in-time (JIT) capability, and involves integration throughout the supply chain. EDI on VAN is the primary method for data exchange. Many vendors are using internet-based EDI to reduce costs of VANs, but the high cost of implementation remains. Many companies are reviewing universal formats to reduce customization of data documents. The Extensible Markup Language (XML) was formally approved in 1998 by the World Wide Web Consortium (W3C). EDI is a uniform format to exchange data, which contains the business information. EDI uses a common protocol to implement connections. XML’s data exchange advantages include ease of Internet usage, wide application support, programming and document creation. Leading ERP vendors including SAP and Oracle have XML support. SAP plans to use XML as the format for data exchange across its business framework, and will eliminate the need for custom translations. Database development also addresses XML storage. Typically most systems utilize relational databases as part of their ERP or system packages. Object databases are more appropriate for the hierarchical XML storage. Existing XML aware systems by relational vendors are object relational databases, which compromises with an object layer that sits on top of a relational database [1].

To utilize XML advantages, several vendors are adding functionality. A typical approach is to add modules or enhancements to the existing system. However, these programs are highly specialized, which makes reusability limited. Cheung, Lee, introduce a generic XML processing architecture. This architecture is made up of a Document Integrator (DI), which processes XML documents. The DI processes an XML document according to the scripts that are written by passing the data to various Transformation Modules (TMs), which returns a resulting document. This architecture allows for flexibility and can be extended simply by implementing new TMs, since no modifications are needed to the DI or existing TMs. Other components of the architecture include a Database Access TM (DATM), Message Generating TM (MGTM), EDI Gateway TM (EDIGTM), and Logging TM (LogTM) [16].

While FTP-based methods allow adequate functionality, the web services approach allows for an improved solution for data exchange. A major U.S. retailer, Wal-Mart, has required suppliers to create software to exchange daily orders, invoices, notices, etc. Wal-Mart was using an FTP-based approach but has moved toward web services. The retailer’s website is used, which formats the data into an XML format. Once payment is completed, an XML file is sent to the vendor via FTP. The vendor is able to access the retailer’s website and retrieve order information in XML format. Current FTP methods copy information from one system to another creating redundancy. Web services uses API methods to access database information directly and create XML documents. Security concerns are also addressed, through the HTTP layer for transfer and the application layer for kernel protection. SSL technology is also used which allows for 128 bit encrypted data transfer, in addition to local security methods [17].

Methods and discussion

Given the current methods of exchanging data, a framework is presented for more efficient exchange of healthcare data between care organizations and health insurers. This framework attempts to address issues as above with the high cost and complexity of current integration methods using EDI and ERP. It also addresses maintenance, speed, and flexibility through reduced steps in the process cycle, and the capability to add additional transactions as needed, and to remove and update individual modules without impacting the entire system.

The typical healthcare data process flow involves setting the standard transaction set in batch mode through a file transfer protocol (FTP) or other similar transport method over a VAN. This typically results in once a day transmission/receipt occurrence. The alternative would be a real time transmission/receipt resulting in multiple transmission/receipts per day, and would utilize HTTP or similar protocol as the transport method. The EDI X12 standard is then converted to XML, through a variety of third-party applications or custom-built software. The XML data is then stored in a database typically as a character large object (CLOB). Existing applications that need to interface with the various EDI transactional data such as billing systems, claims systems, membership systems, authorization systems, financial systems, etc. typically cannot read EDI or XML. This results in a secondary conversion to a fixed file format readable by the source system. The data is then stored within the source system for use. The data is also stored within the source system, resulting in data redundancy within internal systems. For EDI transactions responses such as a 271, 277, 278, and 835, the process repeats. The source system produces a file in a fixed file format. The file is then converted to XML, which is then converted to the EDI X12 standard [6].

This research proposes a framework for a new model and is shown in Fig. 1. This model expands and improves further upon the model by Cheung, Lee. This model addresses issues with the current healthcare process including cost, efficiency, and complexity. The standard transaction is sent via HTTPS protocol, which eliminates the need for batch mode transmission, and eliminates VANS and the associated cost. The cost here is that of an Internet connection. The transaction can be exchanged in virtually any predefined standard, with the preferred method of exchange as XML, which eliminates the unneeded step of converting from another EDI standard to XML, this also allows for the data to be in a common format upon transmission/receipt. The XML data is then stored in an object or object-relational database versus a relational model described previously. This improves upon CLOB based storage through search and querying functionality and efficiency. Presuming the existing applications are relationally based, data can be retrieved directly from the central repository, eliminating the need to maintain separate file format export/import processes. The applications view the data on the centralized database in the localized format, accomplished through a customized view, which can easily be web-based. The actual document request is generated through the DI and associated TMs, and is essentially a view of the centralized database. For outbound transactions this process repeats where the central database can access the existing relational applications to create an outbound transaction in XML or EDI format in a single step through a TM. This greatly reduces the development costs of multiple steps, the maintenance costs of multiple steps, and the complexity of the integration process. Individual modules can be added, modified, tested, without impact to the remaining system [16].
Fig. 1


Consider the following example of a 276/277 claim status request and response EDI transaction. The data format is sent as EDI as shown in Fig. 2 according to the specifications. The parsing program pseudo-code is shown in Fig. 3 and deconstructs the EDI elements into XML elements, with each element delimited by an * and each segment terminating with a ∼ and beginning a new line. The data is converted to XML shown in Fig. 4 after completing the parsing program. While EDI file size is less during transmission than XML, the advantage is lost as additional software processes are required to convert EDI to an element based XML document for use. In addition, this new model assumes real-time transmission, which avoids issues of a single large batch. To avoid issues with larger file size, the XML can be compressed. A XML schema is also created which describes the data being transmitted. The schema is then registered in the object-relational database. This allows inbound XML data to be loaded directly into the database, and also allows for validation of the XML document to ensure it conforms to the schema through use of a trigger or programming interface. For example, the schema and trigger could verify whether a tax identification number conforms with the necessary format, and if the validation fails could return an error message [18, 19].
Fig. 2

EDI 276 X12
Fig. 3

EDI to XML Parser
Fig. 4

XML 276


A prototype system was generated using a front-end parsing program and an object-relational database following the methodology described. The parsing program was written in Visual Basic and translates the X12 format to XML format. The database was created using XML technology within the Oracle 10g2 enterprise edition software. To test capacity and throughput, the entire program processed two files of 500,000 276 X12 transactions for a total of 1,000,000 276 X12 transactions. The transaction body used is shown in Fig. 2 and was repeated within the files. The program parsed the X12 files to XML and loaded the data into the Oracle database. The system ran on a Pentium IV 2.4 GHz with 1GB of RAM, with a disk speed of 5400 RPM, on Windows XP SP2. The entire inbound load process took 4.57 h to complete. This speed could be improved further with advanced hardware and disk I/O speeds and multiple threads or servers running simultaneously. The model also uses real-time transaction processing methods, which would avoid large batches of transactions, which are tested here for comparison purposes. The data is then accessible in a native XML format for easy data transfer to other XML enabled applications, and for easy extract for corresponding transactions and the 277 X12 response. To test this capability, a web page coded in ASP.NET was created to query elements within the transaction, and return the results to the user. In addition a simple 277 output program can be created to translate the natively stored XML data into X12, allowing for full cycle transaction processing and querying from a single repository without the need for conversions to native formats [20].


Given the preceding, significant improvements are shown with the new model of enterprise to enterprise communication versus the traditional model. Several of the existing limitations are resolved including cost, flexibility, efficiency and maintainability. This model can be applied across disparate systems and applications. Additional technology could be substituted where appropriate for the individual usage. This model is useful across varying industries utilizing EDI and ERP systems and business processes. Improvements and developments of web services and object relational technology that did not exist previously are now widely available. Additionally, future technology may be developed that would further enhance this model and enterprise to enterprise interaction. The improved model of EDI and ERP integration allows for a reduction in number of process steps, leading to lowered maintenance/development costs and increased productivity, improving overall business characteristics and creating a strategic advantage for the healthcare organization. This model allows for efficient access to a variety of data by multiple users, using a web-based or other application interface allowing for communication between providers and patients, supply ordering, appointment scheduling, etc. Real-time healthcare data exchange allows for reduced billing/payment discrepancies, improved cash flow, and accurate patient liability assignment, which improves overall satisfaction of stakeholders. Further opportunities for research include comparing existing systems on the traditional model to a fully functional production system on the new model to measure performance and testing transmissions between organizations using web services to determine processing performance across networks.

Copyright information

© Springer Science+Business Media, LLC 2007