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Cleveland Clinic invests in company that helps patients shop for care

Fri, 06/11/2010 - 1:39pm
Mass Device

By Mary Vanac

Already an outspoken advocate for healthy living as a means to cut healthcare costs, Cleveland Clinic CEO Dr. Delos “Toby” Cosgrove is getting behind a company that enables people to shop for care.

Armed with prices, it is believed consumers would shop for bargains, limiting the growth of healthcare costs. The Clinic has made an untold investment in California-based information technology company Castlight Health Inc. to push transparency in healthcare pricing by offering consumers a search engine to find those prices, according to the New York Times.

Castlight’s online tool enables users to better understand their healthcare benefits and costs. The San Francisco-based company recently raised $60 million from investors including the Clinic “to accelerate hiring and further product development in order to serve Castlight Health’s initial customers.”

Its first customer is Safeway, the grocery store chain that employs 200,000 people, according to the Times.

Castlight was co-founded in 2008 by Dr. Giovanni Colella, who is well known in the health IT industry for founding Relay Health — a secure way for patients to communicate with their doctors online — and then making a small fortune by selling that company to McKesson, according to ZDNet Healthcare.

Another heavy hitter helped start Castlight — Todd Park, now chief technology officer for the U.S. Department of Health and Human Services, who was CEO and co-founder of AthenaHealth.

Why would the Clinic want to invest in Castlight? For one, the Clinic has been a leader in using electronic medical records, which everyone is hoping eventually will lower the cost and raise the quality of healthcare. It’s also worked with Microsoft and Google on electronic medical record projects.

Meanwhile, the Clinic has been at the forefront of offering cost-effective care to employers like Lowe’s. Don’t forget President Obama has held up the Clinic as a model for delivering efficient, cost-effective care.

Typically, prices for healthcare procedures are notoriously hard to get. And healthcare insurers hold negotiated prices close to their vests for competitive reasons. As a result of the lack of transparency, patients can’t compare provider prices.

“The drive toward patient responsibility in healthcare combined with the complete lack of information to support that transition has landed Castlight Health in the middle of the perfect storm,” said Bryan Roberts, partner at investment firm Venrock and co-founder of Castlight, in the company’s release.

“The company is empowering individuals to take control of their healthcare expenses — something that has eluded this country, to date,” Roberts said. “This is a huge market, with extraordinary and palpable customer demand.”

Part of the problem is that employers subsidize a large portion of most employees’ healthcare — and employees don’t. Though some healthcare reform measures encourage individuals to take more responsibility for their healthcare, being equipped with prices alone may not lead to changes in behavior needed to bring down costs.

Meanwhile, the Clinic has about 100 different contracts with insurers, each with different rates for procedures, the Times said. Ideally, transparency in healthcare pricing would lead to higher-quality, lower-cost healthcare, as well as more consumer engagement, Cosgrove, the Clinic’s president and chief executive, told the Times.

Why? “Because they begin to realize that a trip to the doctor is not free, they might stay home and take the aspirin instead of getting the neurologic workup,” Cosgrove said.

Castlight sells its services to employers, charging them a monthly fee based on how many employees they have, the Times said. The employees log on to a search portal where they can find local doctors and their prices for services.

Some insurers have shared their pricing with Castlight, according to the Times. But the company has pulled most of that information from explanation-of-benefits forms doctors give their patients.

And some other companies have begun publishing healthcare prices, the Times said, among them Thomson Reuters and Change:healthcare. Some insurers also publish prices for their policyholders.

It was Castlight’s third funding round and included new investors Morgan Stanley Investment Management, The Wellcome Trust and U.S. Venture Partners. Existing investors Maverick Capital, Oak Investment Partners and Venrock also participated. Previously, the company had raised $21 million, the Times reported.

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