December 8, 2010
Although a bit overused these days, the adage “Sunlight is the best disinfectant” seems so fitting for Castlight Health that I just can’t resist. The three year old Health 2.0 startup based in San Francisco is taking a page directly from Justice Brandeis’ playbook by shining some light on the historically opaque world of healthcare services pricing and quality. Their web based platform, only available through employers for now, allows users to search for doctor’s visits, lab work, and various other services, with corresponding out-of-pocket cost calculation and quality metrics. With a handful of companies already signed up for the service, a killer management team, and a great technology, they’re going to be a company to watch in the next few years.
Consumer Empowerment through Information Transparency
The healthcare system in the US is broken. That’s one thing most people can agree on today. What isn’t so well agreed upon is how to fix it. A lot of people, including me, are advocates of consumer empowerment – otherwise known as consumerism.
Consumerism is the idea that if healthcare consumers understand the costs and benefits of their care, have financial exposure to those costs, and are empowered to make decisions about care,they will optimize those decisions. Or more generally: if people have the information to make better decisions, they will. Sounds obvious, but he issue today is that quality and pricing information is not at all transparent in the US healthcare system. Here are a few reasons why:
- Insurance is paid for by the consumer, but healthcare services are paid for by insurers: you pay insurers (either directly or through your employer) for your insurance premiums. Insurers manage that pool of resources and then pay for healthcare services on your behalf. An unfortunate by-product of this scenario is that by handing over control of the purse strings, consumers lose the ability to demand information from providers.
- Pricing is locked in contracts, which are kept private: To prevent getting gouged and ensure reasonable rates and quality, insurers create networks and sign contracts with providers. These providers agree to a certain price point for a given set of services. Contract rates for services can be discounted from 10%-50% off the “list” price that is charged to the uninsured. However, neither insurers nor providers have any incentive to share that pricing; in fact, most contracts require that pricing remain private. From a market efficiency perspective, un-published pricing is great for business, terrible for consumers, and disastrous for efficiency.
- Quality information is available, but hard to find in the right context: Sites such as Yelp and Healthgrades provide consumer generated reviews of providers and the Department of Health and Human Services (HHS) has an incredible site for comparing hospitals across several quality and outcome metrics. However, it’s difficult to find quality information in the context of your price for a particular medical procedure, visit, or service.
The outcome of this structure is that consumers foot the bill for healthcare (mostly indirectly), but are not empowered to make optimal decisions about their care with regards to quality and cost.
The Castlight Platform
For many people, trying to figure out the cost of a procedure or physician visit involves a complex calculation of fees influenced by features such as a deductible, co-pay, personal maximum, HSA account level, and whether the provider is in or out of network. Taken in toto, this framework has created a complex environment where it can feel frustratingly impossible to get an answer on what a basic visit to the doctor’s office will cost.
To tackle this problem, Castlight takes hundreds of thousands of data points from insurer payments and reverse engineers them into pricing data. This allows the product to give you something that not a single person in the billing department can: a straight answer.
Consumers can search for services and get a no kidding “this is what your credit card will be charged” dollar amounts for a doctor’s office or lab visit. Add in some quality data and “convenience” metrics such as distance to the provider, and suddenly you’ve got yourself a “Travelocity for Healthcare”.
For a closer look at the product, check out this demo Castlight gave at the Health 2.0 conference in San Francisco in October.
The Future is Bright
Healthcare comparison shopping makes the most sense when addressing outpatient services such as physician visits and lab work as these are “plannable” and non-emergency in nature. However, a large portion of this spend and also emergency spend is related to managing chronic illnesses and generally more episodic care. Services in these buckets account for 75% of national spending and can generally be backed into (although not perfectly) based on your medical and prescription claim history. So, in the future, you can imagine a platform that takes as inputs your healthcare history (such as Google Health) and then helps you make better decisions about care for an entire future stream of costs. That’s a strong business case for health comparison shopping (and price transparency!).
Solid Team & Looking to Grow
Castlight was founded by Dr. Giovanni Collela, Todd Park, and Bryan Roberts in 2008. Dr. Collela is a successful entrepreneur who previously founded RelayHealth and grew it until it was acquired by McKesson. Todd Park was recently tapped by the Obama administration to serve as the CTO for the Health and Human Services Administration. The company raised $60MM of Series C investment in June to fuel their growth and you can follow them on Twitter. But, best of all … they’re hiring.
Alex Bovee is a product junkie and startup enthusiast. When he’s not thinking deep thoughts about products, marketing, and analytics, you can catch him on the slopes, climbing walls, or out hiking. He is a graduate of the University of Chicago Booth School of Business and currently lives in San Francisco.
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