The $140 Billion Industry Devouring American's Wallets: How Healthcare's 'Revenue Cycle Machine' Outgrew the Auto Industry

In the shadows of America's healthcare system lurks a behemoth industry that's bigger than the entire U.S. automobile sector, growing at breakneck speed, and largely unknown to the public. Welcome to the world of Revenue Cycle Management (RCM), or as it should be more aptly called, the "Revenue Cycle Machine."

This trillion-dollar juggernaut is the engine behind healthcare's complex billing and payment processes, and its impact on American lives is staggering. While its official purpose is to manage the financial aspects of patient care, from insurance verification to debt collection, the Revenue Cycle Machine's true output is far more sinister: medical debt, bankruptcies, and even unemployment. [Hang in there. There's good news* at the end.]

The Scale of the Machine

The RCM industry is massive and growing rapidly. 4sight Health highlighted Grand View Research's estimate of the U.S. RCM market in 2022 was conservatively valued at $140.4 billion, with projections to grow 10.3% annually through 2030. To put this in perspective, the entire U.S. car and automobile market in 2022 was estimated at just $100.9 billion, growing at a mere 2.6%.

However, these figures only scratch the surface. The $140.4 billion represents only outsourced RCM services. When we factor in the internal RCM operations of healthcare providers and insurers, the true scale of this industry becomes mind-boggling. Some estimates suggest that administrative costs in healthcare, which include RCM, could range from 15% to 30% of total U.S. healthcare expenditure.

With U.S. healthcare spending at $4.3 trillion in 2021, this means the RCM industry could be worth anywhere from $645 billion to a staggering $1.29 trillion. At its upper limit, that's larger than the commercial banking industry, America's fifth-largest sector.

The Human Cost of the Machine

In essence, the "Revenue Cycle Machine" has become a wealth extraction device, funneling money from communities into a system that produces medical debt, bankruptcy, and unemployment as its primary outputs.

While the RCM industry boasts impressive growth and size, its impact on American lives is far less rosy:

• Medical Debt: Over 100 million Americans, or 41% of all adults, are burdened with medical debt.
• Bankruptcies: Medical bills are the leading cause of personal bankruptcies in the United States.
• Skipped Care: A 2018 survey by NORC at the University of Chicago and the West Health Institute revealed that a large number of Americans skip necessary medical care due to cost concerns.
• Fear: More Americans fear medical bills than they do serious illness. That fear has deadly consequences. Consider what Justin Leader shared in the following quote.

“As my Aunt lay dying in a hospital due to her inability to take time off work to seek care as well as afford out of pocket expenses, I think about so much of what we are doing and the impact it might have.  She hid symptoms for the past 12 months and then revealed them after a collapse a few days ago.  Turns out unbeknownst to her and our family, she has been bleeding for months.  Turns out, she has stage 4 metastatic cancer and now is hemorrhaging.  Her thoughts 'I was afraid I couldn’t pay my bills.'”

Click on the article below for more on the devastating consequences of financial toxicity and medical debt.

The Productivity Paradox

Perhaps most alarming is that the healthcare industry represents a sector that hasn't seen a productivity gain since 1990. While nearly every other industry has become more efficient over time, healthcare has become enormously bloated and expensive. This has brought in increasing understanding that healthcare is an economic drain, not driver. Not only is the industry unproductive, what is a more unproductive member of the economy than a patient in a hospital?

This lack of productivity improvement is not just an academic concern. A recent Wall Street Journal article, citing research from Yale and the University of Chicago, found a direct link between rising hospital prices and local economic downturns. For every 1% increase in hospital prices, there was a corresponding increase in the percentage of people who lost their jobs.

The Bigger Picture

The RCM industry's growth is symptomatic of deeper issues within the U.S. healthcare system. As 4sight Health's David Johnson points out, "Revenue optimization is the primary driver of healthcare operations. It shapes which services providers offer, where they offer those services and the prices they charge for them."

This focus on revenue optimization often comes at the expense of patient care and overall public health. The vast technological expertise in healthcare is primarily dedicated to managing complex billing and payment processes rather than improving health outcomes. Remarkably, only $0.27 of every $1 ostensibly spent on healthcare goes to clinicians (physicians are $0.08 of the the $0.27).

It's no longer news that the U.S. has the worst health outcomes of developed economies. What's less known is how healthcare not only devastates household budgets (e.g., stealing 30 years of wage gains) but crushes budgets for social determinants (responsible for 80% of health outcomes) as can be seen in the graph below that has likely gotten worse in the last decade. Even Massachusetts can't tax its way out of devastating education and other funding. On the other coast, Bill Gates' TED talk used California data to demonstrate how healthcare has devastated education. When I started my K-12 education, I lived in California when it was widely acknowledged as having the best public education system. Today, it ranks 50th on many rankings of K-12 state outcomes.

A Call for Change

The sheer size and impact of the RCM industry demand closer scrutiny and fundamental reform. As 4sight Health suggests, "Redirecting RCM's talent and expertise into value-creating service provision has the potential to revolutionize U.S. healthcare service provision."

It's time to redefine the "Revenue Cycle Machine" and shift its focus from maximizing billing to maximizing health. Only then can we hope to create a healthcare system that truly serves the needs of all Americans, rather than bankrupting them.

In a nation where processing medical claims is more lucrative than manufacturing and selling cars, it's clear that our priorities need a serious adjustment. The first step is recognizing the true scale and impact of this hidden industry. The next is following the lead of an increasing number of public sector entities.

A Way Out of the Mess

Fortunately, the devastation of the Revenue Cycle Machine can be avoided. Let's look at an American comeback story. Like many Midwestern manufacturing towns, Ashtabula, Ohio was devastated when automobile makers lamely responded to observations in the 1990s that there was more healthcare in their vehicles than steel (e.g., a $2000 premium on American-made cars) by shipping jobs out of the U.S. rather than address the root cause (healthcare profiteering and bloat).

In contrast, in that same timeframe Rosen Hotels & Resorts took the wise path and stopped the healthcare heist as I highlighted in my TED Talk - Healthcare Stole the American Dream - Here’s How We Take it Back. Not only was it hugely beneficial to their business but it had enormously positive impacts on education outcomes. That single company that grew from 500 to 5000 employees (a fraction of the auto industry) has cumulatively saved over $540 million.

The video below highlights beneficiaries of a new model described below.

Civic and business leaders such as Ashtabula Area Schools Superintendent Dr. Mark Potts and Bryce Heinbaugh, MBA - Healthcare Trailblazer who followed Rosen's lead and adopted the Health Rosetta model. In normal circumstances, when the school levy failed in May 2021, draconian cuts to programs, teacher pay/benefits, etc would have followed since it's the 8th poorest school district in Ohio. Fortunately, in July 2020 they put in a new and better health plan that led them to save more money in the 10+ months leading into the school levy failure than the entire school levy. This small school district (300+ staff) is now sitting on a surplus of over $5 million from its improved health plan (e.g., removing cost sharing, great primary care, etc.).

The results weren't limited to the school district. Private and public sector employers are now spending 20-40% less per capita with far superior benefits and health outcomes which led Patient Rights Advocate to create the mini documentary above that features the beneficiaries of the greatly improved health plan.

*️⃣ Please note that there are great people inside of hospitals and performing revenue cycle activities, however I invite them to have the same revelation I had (as a former revenue cycle consultant). Follow the link below for more.