Think of it as night vision goggles for the frustratingly opaque health care industry. True to its name, Castlight Health is doing for health care what Travelocity, Kayak and the like did for travel: Casting a light on costs, and creating a market where there once was none.
This San-Francisco start-up is trying to revolutionize health care with a simple proposition: Go shopping. Its online, comparison-shopping portal allows users to compare the cost– and increasingly quality– of common outpatient procedures and a few inpatient ones too, long before their bill arrives in the mail.
That might not sound like rocket science, but in an industry as dense and enigmatic as health care, it’s a breakthrough. One reason health care is so expensive is because most of us consume it as if it were free. Insurance policies with low deductibles have long insulated consumers from the high costs of medical care—so much so that we rarely ask for prices anymore.
“It’s easy to spend someone else’s money,” says Castlight’s chief executive Giovanni Colella. “But it’s hard to have a free market when you’re using someone else’s credit card.”
In reality, doctors and health insurance providers often negotiate rates and agree not to disclose costs for competitive purposes. That means the price tag of a routine colonoscopy, performed in the very same Bay Area neighborhood—in some cases by the very same doctor— can range from $500 to $3,000 dollars.
Colella, who co-founded Castlight with Venrock partner Bryan Roberts and Todd Park, who is now chief technology officer for the Department of Health and Human Services, made it their mission to change that. The three couldn’t have asked for better timing. As more employers get fed up with ballooning costs, they are switching to high-deductible health plans that require employees to pay more out of their own pockets. Since Castlight launched in 2008, the average worker’s out-of-pocket expenses have surged 47% and are projected to rise another 12.6% in 2011, according to Aon Hewitt, a consulting firm.
Castlight stands to profit as once-indifferent spenders become empowered customers. Investors agree: The start-up has raised $81 million to date from venture firms Venrock, Oak Investment Partners and Maverick Capital, as well as bigger outfits like Morgan Stanley and Wellcome Trust. Even Cleveland Clinic— who along with other providers stands to lose from price transparency— invested last June.
The company pulls most of its pricing information from fine print in the explanation-of-benefits forms patients receive after doctor’s visits. Castlight developed a way to pull pricing figures from the millions of forms provided to it by employers. For now, that means the company is confined to selling its service directly to employers and charging by employee per month.
California grocery chain Safeway, which has 200,000 employees, signed on as Castlight’s first customer in June. Since then, another three companies have signed up. As the service gains steam, Castlight says insurers have shown a greater willingness to share pricing information directly. Eventually, that means the company will make its search-engine available to everyone: “Providers realize it’s not a matter of if this is going to happen, but when,” says Colella.
The risk, of course, is that until that happens, the company is in a race against time as big providers— who already have pricing information, only much more of it— decide whether to enter the space. Aetna recently created its own search-engine tool. So did Thomson Reuters and the New Hampshire state government. If other big players attack this space, it’s hard to tell what Castlight’s competitive advantage will be. Watch this play out in 2011.