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Castlight Shines a Light on Health Care Costs

Giving consumers price information about services they pay for seems like an obvious choice, but such data is nearly impossible for the average consumer to come by.

February 29, 2012
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Related Topics: Top Stories - Frontpage, Human Resources Management Systems (HRMS/HRIS), Health Care Benefits, Benefits, Talent Management
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The average consumer wouldn't buy a car or hire a contractor without first finding out how much it would cost. But that's exactly what happens when they purchase health care. Whether they are treating a sore throat or having a baby, they rarely know what it's going to cost until after the fact.

When consumers don't know the price of treatments, they can't make cost-effective choices, says Ethan Prater, vice president of product marketing for Castlight Health, a San Francisco-based health care shopping services provider. Castlight is attempting to shine a light behind that health care curtain by letting consumers compare price, quality and other factors about health care providers—before they decide where to go.

"We want to encourage consumerism in health care," Prater says.

They are poised to do so, says Liz Boehm, a customer experience analyst at Forrester Research in Cambridge, Massachusetts. "It is pretty revolutionary," Boehm says of Castlight. "It solves a problem that has existed in health care for a long time."

The Castlight service went live in July 2010 with its first commercial launch, and it currently has several dozen customers in various stages of roll out, most of them midsize, self-insured companies. Once an employer implements the tool, Castlight's data are customized to each employee's health care plan, taking into account their past claims and health care data to help them make better individual decisions.

Giving consumers price information about services they pay for seems like an obvious choice, but such data are nearly impossible for the average consumer to come by. Every health care plan has different prices for services rendered, and costs vary widely across networks because they are the result of complex behind-the-scenes negotiations between insurers and providers. In Chicago, for example, the overall cost is between $195 and $383 for a basic gynecology exam, according to Castlight data, or $111 and $210 for a cardiac stress test.

"You don't find out that cost until after it's incurred," Boehm says.

But if consumers knew these prices upfront, it could help rein in health care costs for companies and for employees who are being held responsible for more of their health care expenses through rising deductibles and larger copayments. In 2011 workers' out-of-pocket costs rose 9.2 percent, following a 6.6 percent increase in 2010, according to independent actuarial and health care consulting firm Milliman Inc. At the same time, payroll deductions for insurance coverage rose 9.3 percent in 2011, also more than the year before.

"People with high-deductable health plans care more about cost," Prater says. "But to get answers they need information."

Yet that information is frustratingly scarce, according to the U.S. Government Accountability Office. In a September 2011 report on health care price transparency, the GAO recommended that the U.S. Department of Health and Human Services determine the feasibility of making estimates of complete costs of health care services available to consumers. This recommendation came in response to research showing that several health care and legal factors make it difficult for consumers to obtain price information for the health care services they receive.

Normally, consumers would never see these price variations, but that's beginning to change. In the past 10 years, 30 states have enacted some form of health care price transparency law in an effort to give patients the tools necessary to make cost effective health care choices and to prevent price discrimination where hospitals charge uninsured patients more than the hospital receives in reimbursement from private insurers and Medicare.

But the data, available through state websites, are limited and requires consumers to go searching for answers outside of their health care plan. Castlight works in conjunction with employees' plans, allowing them to plug in their ZIP code and the service they need and instantly compare the costs of multiple local providers, in the same way they might use Travelocity to find a hotel.

Arming consumers with this knowledge could fundamentally alter the way people approach health care decisions, Forrester's Boehm says. "It's about changing behavior."

Behavior changes can have a significant impact on costs, Prater says. He says initial studies show that some Castlight clients have seen health care costs drop by up to 9 percent as a result of sharing cost data with employees.

When Castlight engages a client, its team of analytics experts combs through the client's past two years of claims data using a custom algorithm to determine projected cost models. "It's a challenge, but there is a serious demand to overturn the entrenched business models for health care," Prater says.

"The tool is very intuitive," says Joanne Abate, director of health and wellness strategy for Delhaize America, an organization of grocery retailers. Delhaize piloted Castlight in 2010. Currently 20 percent of its 60,000 associates use the service, and the company plans to roll it out to everyone by the end of 2013.

Castlight is more than just a ratings tool, she says. "It educates our people about how to spend their health care dollars wisely."

Castlight is one of the only companies in the health care arena today offering a shopping service, and venture capital firms have been eager to support the business model. The 4-year-old firm was named No. 1 on the Wall Street Journal's list of "The Top 50 Venture-Backed Companies" for 2011, and it has garnered $81 million to date from several firms.

"The venture capital shows that there is a huge need to fix this problem, and that people believe transparency is the answer," Prater says.

Boehm says Castlight's closest competitor might be a few insurance companies, including Aetna Inc., that let consumers compare the price of a limited number of physicians and procedures. But those tools don't offer the flexibility to search entire databases or make suggestions about alternative options based on past choices. "Castlight is giving consumers information they've never had before," Boehm says. "Right now it's the only company doing that."

But it likely won't be long before this niche is full of players, and Boehm worries that Castlight will struggle to move beyond the self-insured customer base. Companies working with large health insurance companies may be harder to crack, she says, as those insurers don't like to share the claims data necessary to create cost and quality transparency.

But Prater doesn't seem too concerned. "We are figuring out ways to surface information without their cooperation," he says of the big insurance firms.

Sarah Fister Gale is a freelance writer based in the Chicago area. To comment, email editors@workforce.com.

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