Mar 11, 2014

castlight health

I mentioned before that Castlight Health might be the most important company you've never heard of. Here's why.

When you want to buy a fridge, you read some reviews, check Consumer Reports, ask your friends, go down to Sears or wherever and look at them and play around with them, check prices, compare prices, etc. The natural outlet of these activities is that competition exists.

What do you do when you need a colonoscopy? You go to your doctor who recommends you need a colonoscopy and then he/she recommends a specialist based on your insurance and you go there and they do the procedure and a bill is sent to your insurance company and you may or may not get a bill.

See the difference?

Castlight is trying to change that. Here's what they do. They go to a big company like Wal-Mart and say give us your healthcare data. They connect to this data and now can see what people are paying for colonoscopies and they can ask the employees to rate the service and check on how well it was done and so forth. Now imagine Castlight has this data nationwide. What Castlight really does is allow employees to make choices by presenting cost and performance data on healthcare. Wal-Mart might say, "Look. We'll pay for colonoscopy costs up to $500. You pick up the rest. Here are a bunch of providers that charge less than $500. You want to go to Gold Star Supreme Colonoscopies 'R' Us? It'll cost you $200 extra. Your choice."

What this does is introduce competition and it will shatter the healthcare industry and they know it. I was lucky enough to chat on the phone with one of the founders last week and he was in it from the beginning to bring down the entire healthcare industry one brick at a time.

Here's how the incumbents will try to stop it. They have 3 levers at their disposal.

  1. Government. Lobby, lobby, lobby. Probably the most effective tactic.
  2. Create impediments to Castlight getting the data. They already do this. Healthcare providers will serve employers but they also may set up contractual limits about what they can do with that data. I'm sure this was the case with Wal-Mart. My guess is Wal-Mart said, 'Give us the data or we are leaving your healthcare system with all of our hundreds of thousands of employees." They caved but may not for smaller companies.
  3. Byzantine data services and storage. They already do this. Castlight spends an inordinate amount of time actually hooking up the data from employers to their systems. Colonoscopies might be classified under many different codes and subcodes. It's expensive and time consuming work and it could just bankrupt the company.
Why would I be hopeful in the face of this?

Because Castlight just raised their IPO price offering. In I-banker parlance that means there is demand for this company. Others see what I see. We'll have to wait this one out though. It's going to take a long time for them to make a dent.

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