Is comparison shopping the future of health care? Silicon Valley says yes.
By Sarah Kliff,
Whether it’s looking up restaurants on Yelp! or scanning Craigslist for apartment listings, Americans comparison shop for nearly everything online — everything except for health care. A recent survey found that we spend more time comparing value of dishwashers than doctors.
Castlight Health wants to change that. The nascent health care start-up launched last year with the goal of giving insurance subscribers meaningful information on health care costs. Castlight, in the simplest terms, wants to bring comparison shopping to health care.
That idea quickly turned heads in Silicon Valley. Castlight nabbed the top spot on The Wall Street Journal’s list of 50-Top Venture Backed Companies last year, and earned the endorsement of health care heavyweight the Cleveland Clinic. It counts a top tech mind among its co-founders: Todd Park, who now serves as the White House’s Chief Technology Officer, after a yearlong stint running IT for Health and Human Services.
After initially launching with $81 million in capital, Castlight will announce Tuesday another $100 million in backing. That’s pretty massive as far as start-up funding goes. With its capital now more than doubled, the health care start-up gives us some clues about what Silicon Valley thinks the future of health care looks like.
The idea of comparison shopping is a relatively simple one; it’s something we do all the time. But in health care, there’s traditionally been little place for it. Health insurance plans have traditionally assessed a flat co-pay for a specific health care service, like a colonoscopy or annual physical. The prices, from the consumers perspective, are all identical.
A flat co-pay, however, can mask huge variation in what doctors charge insurance companies. In California, for example, doctors bill anywhere between $1,529 and $186,955 for an appendectomy.
In recent years, health insurance has evolved to give subscribers more reason to care about what doctors bill. With premiums skyrocketing, employers have increasingly turned to Health Savings Accounts. Under those arrangements, employees are given a “defined contribution” — a set amount their employer will pay for health care. That’s different from a traditional, “defined benefit” plan, where employers cover a specific range of benefits, regardless of cost.
HSAs are generally paired with a high-deductible health plan, meant to provide stop-gap coverage for individuals who end up requiring especially high amounts of health care.
In a defined contribution plan, employees have a huge reason to find the doctor who charges $1,529 for an appendectomy — namely, that bill will be drawn directly from their Health Savings Account.
That’s also where Castlight comes in. It launched, last year, a Web site where employees on defined contribution plans can compare what doctors charge for the same service. The site, which you can see below, also includes other patients’ quality rankings of doctors, alongside information on what remains in an individual’s account:
“There’s an enormous growth in consumer-driven health care plans,” says Castlight president Giovanni Colella, a co-founder of the company. “All of this has created an environment where there’s a reason to compare costs. We wanted to change the way people approach health care, and were very lucky to be there are the right moment.”
Castlight began small, with just three sales people (Colella was one of them). But the company says it’s seen big growth in the year since it launched. “We couldn’t follow up on all the leads we had, so we’ve had to add a quite a lot of employees,” he said. Colella declined to comment on the exact number of employees he’d hired, for competitive reasons.
The hope, for employers turning to HSAs, is that employees will take a more active role in bringing down health care costs. “We help aggregate information so that consumers can make informed decisions,” says Colella.
Where employers see potential to control cost, some health policy experts see peril for consumers, who might delay needed care when faced with footing the bill. One study earlier this year found some evidence of this happening among those with chronic conditions.
Colella acknowledges that is definitely a concern, noting that many of these plans provide primary care for free as a means to encourage such visits that could save money in the long run. Comparison shopping, he concedes, may not work for all episodes of health care.
“If you’re getting heart surgery or brain surgery, that’s probably going to blow through your deductible no matter what,” he says. “But for more standardized procedures, there’s an enormous demand for clarity on cost. People want to know what they’re paying for.”
Colella makes the case that, rather than causing consumers to delay care, Castlight can help them be more strategic with health care decisions. “People are living paycheck-to-paycheck right now,” he says. “And they’re not dumb. If they can figure out where a lab test is one-tenth of the cost, that’s going to stretch their dollar a lot further.”