Centers for medicare and medicaid services provider characteristics fail to explain billing variability

We aim to explain the variation in provider charges based on Centers for Medicare and Medicaid Services’s (CMS) recently released data containing information on payments to and charges by health‐care providers. The large data set includes operational, financial, and quality measures, as well as service identifiers. We evaluate how CMS’s published payment models explain payments and charges for inpatient and outpatient services, and employ additional models that incorporate available service‐ and provider‐specific information. We found that the variation in payments is explained extremely well by CMS’s payment models, but these same models only explain provider charges to a limited extent. Efforts to include service‐ and provider‐specific data and segment the data only marginally improve the fit of provider charges, leaving almost 30% of the variation of charges unexplained for all global models. Our analysis demonstrates that provider charges are highly variable and providers are using potentially diverse information and different methods to determine their prices.