An analysis of the variation in billing charges of medical providers: causes and implications

The purpose of this paper is to review the billing methodology of physicians that participate in fee-for-service plans, and, using a data set of billing charges, determine the significance of the variation in fees by providers of certain kind of procedures. Providers use cost-plus pricing and take into account the medical aspects of the services and market forces. Using the Current Procedural Terminologies (CPT) established by the American Medical Association, the providers define the medical services by the six digit CPT code, and bill accordingly. The statistical evidence shows that there is some evidence that fees of providers who bill under the ‘medicine’ codes tend to exhibit more variation in charges than other procedures.