Castlight Health Insurance, Launched by Gen Y Entrepreneurs, Offers ...

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Like Oscar Healthcare in New York, this California-based health insurance company is using technology to make it easy for individuals to see providers' prices, including medical laboratory test prices

Another group of Generation Y entrepreneurs has entered the marketplace with their unorthodox business model for a health insurance company. One cornerstone feature is a tool that enables both employers and beneficiaries to see the prices of different providers.

This new health insurance company is Castlight Health (NYSE: CSLT). Based in San Francisco, it was founded in 2010. One aspect of Castlight that pathologists and clinical laboratory managers may find particularly interesting is its price transparency tool.

Online Price Transparency Tool Is Customized for Each Client Firm

Castlight has a cloud-based healthcare pricing service that is an online transparency tool. Employers can use it to help their employees shop for quality health services and value. The transparency tool is customized to each client employer's health plan by using the claims data from that employer.

The use of technology in this fashion is consistent with another health insurance company launched in recent years by another group of Gen Y entrepreneurs. It is called Oscar Healthcare Company and is based in New York. Dark Daily covered this development and wrote that Oscar is combining 'telemedicine, transparency, design, functionality, and capabilities to support price comparison' as part of its innovative model for health insurance. (See Dark Daily, 'Gen Y Entrepreneurs Launch Oscar, a Consumer-Friendly Health Insurance Company in Bid to Disrupt Traditional Health Insurers,' April 11, 2014.)

The fact that employers are willing to pay for information provided by Castlight when their own health plans could provide it for free, is 'the most damning indictment of the healthcare market's opacity,' stated a report published by Modern Healthcare. 'It's also a measure of the thirst for solutions that lift the veil over what is otherwise known to buyers in other industries-the price of services and products.'

More Consumers Willing to Pay for Information on Healthcare Pricing

Unlike other goods and services, consumers rarely know how much medical service cost until they receive the bill. With consumers increasingly responsible for a greater share of their healthcare expenses, they are aggressively seeking healthcare pricing information, particularly for elective services.

To emphasize the high value consumers place on knowing the price of a healthcare service in advance of seeking care, the Modern Healthcare report noted that, shortly after this startup launched its initial public offering (IPO), the company's valuation rose from a few million dollars to more than $1 billion, despite the fact that Castlight has never turned a profit.

'It [Castlight] is pretty revolutionary,' commented Liz Boehm, a Customer Experience Analyst at Forrester Research in Cambridge, Massachusetts. 'It solves a problem that has existed in healthcare for a long time, she added, noting that the Castlight tool lets consumers compare prices, quality and other factors before choosing a provider.

'Arming consumers with this knowledge could fundamentally alter the way people approach healthcare decisions,' added Boehm.

Governments Push for Transparency to Reduce Healthcare Spending

Both the federal and state governments are currently engaged in efforts to control healthcare costs, which now total about $2.7 trillion annually and comprise 20% of the U.S. economy, noted a recent report by CNBC.com. Research indicates that price transparency could lower costs. Research at the University of Chicago, for example, revealed that government regulations forcing providers to disclose costs resulted in an overall 7% drop in the cost of common elective procedures.

That is why the federal government and certain states are taking steps to provide transparency and promote the concept of a consumer-driven healthcare system. To make consumers more aware of the arbitrary prices charged by different healthcare providers, the Centers for Medicare and Medicaid Services has published online lists of the prices that 3,000 hospitals and tens of thousands of physicians submit when they file claims with Medicare for common healthcare services.

One Problem Is That Many Price Websites Are Ineffective

Many states have implemented price transparency laws and launched websites to provide public access to pricing information, but most of these websites are ineffective, according to two non-profits, Catalyst for Payment Reform and the Health Care Incentives Improvement Institute, which graded them on whether the information was presented in a consumer-friendly and useful way.

Few state websites received a passing grade, noted the Modern Healthcare report. Since the state transparency report card was released last year, there has been some progress. Many states have introduced legislation to improve transparency and others collected all-payer claims databases to release to the public, but, according to the nonprofits doing the grading, they still have a ways to go.

Entrepreneurs Cashing in on Consumer Desire for Pricing Transparency

In addition to Castlight, other online pricing services offer consumers help in shopping for healthcare services. Similar to eBay, Medibid.com offers a bidding service, in which consumers solicit bids from healthcare providers for specific services. Similar to Nextag.com, Clearhealthcosts.com posts advertisements from providers. Healthcare Bluebook lists the 'fair' price for specific healthcare services.

Some health plans also provide online tools to help their members compare healthcare prices and quality. Three of these plans, Aetna (NYSE: ATE), UnitedHealthcare (NYSE: UNH) and Humana (NYSE: HUM), recently partnered with the nonprofit Health Care Cost Institute (HCCI) to provide the general public free access to healthcare pricing. HCCI will integrate insurers' member transparency tools with government payer databases to launch a public price transparency tool in early 2015.

Employers Offer Employees Incentives to Use High-Performance Providers

In 2013, one in four large employers used financial incentives to encourage their employees to use high-performance centers of excellence for high-cost healthcare procedures, such as back, heart, spine, organ transplant, and hip and knee replacement surgeries, according to a report by National Business Group Health.

Health plans are beginning to offer similar incentives, noted a story published by the Detroit Daily Tribune. Premera Blue Cross Blue Shield, Alaska's biggest health insurer, pays expenses for members to fly to Seattle for certain procedures at huge price breaks. For example, a knee surgery that costs $27,000 in Alaska is just $13,000 in Seattle, noted the Daily Tribune report.

Why It's so Difficult to Provide Accurate Healthcare Pricing

In the meantime, employers are willing to pay Castlight to create a transparency tool customized to their own employee health plans, because pricing is complex. Provider retail prices are higher than prices negotiated by insurers. Also, prices vary by health plan, provider, and geographic location, noted the Modern Healthcare story. In Chicago, for example, the cost for a basic gynecological exam is between $195 and $383 and a cardic stress test $111 to $210.

The movement to greater healthcare transparency signals the coming of a competitive, consumer-driven healthcare system. That has strategic business implications for all medical laboratories and anatomic pathology groups.

-by Patricia Kirk Related Information: Why don't all health plans work like Castlight? Patients, firms shop for better health care deals Castlight Shines a Light on Health Care Costs Gen Y Entrepreneurs Launch Oscar, a Consumer-Friendly Health Insurance Company in Bid to Disrupt Traditional Health Insurers UnitedHealthcare Introduces 'myEasyBook' Online Shopping Service to Help Consumers Select Hospitals, Physicians, and Clinical Pathology Laboratories Consumers Turn to the Internet to Shop for Cheapest Prices Offered by Hospitals, Physicians, and Clinical Pathology Laboratories Castlight Health Beats on Revenue, Updates 2014 Guidance Walmart, Lowe's and Pacific Business Group on Health Announce a First of its Kind National Employers Centers of Excellence Network High-Performance Networks/Centers of Excellence

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