Do you mean that this distribution is actually a rollover to an HSA from a traditional IRA?
After you enter the 1099-R into TurboTax (and, yes, distribution code of '7' is OK), then TurboTax will ask "What did you do with the money from (this 1099-R)?"
Answer "I did something else with it".
The next screen will ask if you put this money into an HSA. It's likely that the screen appears only after you've indicated that you have an HSA (either code W in box 12 of your W-2 or by going to the HSA interview (Federal->Deductions & Credits->Medical->HSA MSA Contributions) and checking the box).
Note that is valid if you received the money then redeposited it within 60 days into your HSA. If this had been a trustee to trustee transfer, I don't think you would have gotten a 1099-R.
