Is there anything wrong with setting provider fees a fixed percentage above the maximum allowable fee among all of our contracted payers for each CPT code? What are the disadvantages of this pricing approach relative to a rational approach of setting provider fees based on costs, desired margins, and market competition?

I would say that most practices set their fee schedule at a percentage (150 to 200 percent) of Medicare (similar to a percentage of highest allowable). 

The advantages: You are pretty assured that no payers are paying you more; it’s easy to update the fee schedule annually (just change the multipliers in your spreadsheet); and it’s sure a heck of a lot easier than allocating costs for each service/procedure, investigating market prices for each service, and so on. 

You certainly can take the full analysis approach, but make darned sure your cost allocation method is a true one. When you excise a benign lesion, what percentage of your billing person’s salary does that represent? And the front desk? 

In dermatology, depending on what your practice is like, it might make sense to fix your fees as a percentage of Medicare for most routine, billable services, But do a competition/cost-based analysis for cosmetic services usually paid for out of pocket, as consumers of these services are more likely to shop based on price.