Castlight is in the news, with the largest IPO in the history of employer cost savings tools. Despite only $13 million in sales and a $62 million loss, the market is rewarding the company by valuing it at more than $1 billion.
We will let others opine on the fairness of that valuation, but clearly that valuation reflects an expectation that there is a huge market for tools that employees can use to shop around for lower-priced medical care. And there is so much buzz around this company that even notoriously insulated human resources executives are going to hear about it, and ask you whether it works. By way of background, in case you’ve been off the grid for a few months, the basic Castlight intervention is an app that allows employees to identify and price venues for elective procedures, high-cost diagnostics, specialists, hospitals, physical therapy and other uses of care. It may help employees avoid emergency care for conditions that are merely urgent, and there is a pharmacy app, as well.
This column will help you provide the type of pluses and minuses that your clients count on you for, and that should sound insightful enough to cement your status as a trusted adviser.
Employees who have not yet satisfied the annual deductible will indeed save money, possibly a lot of money, on fungible resources – like MRIs and CT scans – where there really is no actual or perceived quality differential;
In addition, employees will appreciate the convenience of being able to find a place that may be closer, have earlier availability, weekend hours, etc.;
Employees will also appreciate that the app will tell them how much of their deductible remains to be satisfied and give them other financial insights;
Because the employee is the one saving the money if they are low-enough utilizers not to exhaust their deductibles, you can offer this app as an offset when moving to a high-deductible plan, or use this as one enticement to get employees into a high-deductible plan. Otherwise, direct decreases in your own health benefit are likely to be modest.
So far, so good. And, by the way, Castlight is good, relatively speaking. It is a far better use of money than wellness, for example. However, your client can learn these benefits directly from Castlight. The greater insights you can provide are about the cautions, and setting low expectations for an ROI.
First, much of medical care is not likely to be shopped. Perhaps employees new to an area will shop for a primary-care physician (PCP) using Castlight, but probably not on the basis of price, given that PCP checkups are free. And generally people don’t shop for specialists on the basis of price, but rather use someone referred by the PCP who is “in-network,” and typically in-network doctor visits have the same co-pay once the deductible is satisfied. Or if employees don’t use someone referred by the PCP, they’ll use a referral by a friend to someone who is “supposed to be one of the best.”
Second, once employees satisfy the deductible, people are far less likely to be price-sensitive beyond in-network and out-of-network differentials. Employees will be much more interested in saving their own money than saving your clients' money.
Third, a corollary is that the really high-cost employees—the 5% who consume 50% of your resources—will easily blow through their deductibles. Castlight will be of very little use to them. Likewise, emergency care and admissions generally are not price-sensitive, and the latter itself would blow through a deductible.
Fourth, there is an implicit assumption that when employees go shopping for medical care, it’s for the lowest price. They are equally if not more likely to be shopping for convenience, perceived quality, availability etc.
Finally, in non-urban areas and for less common specialties, there isn’t likely to be much choice; all the price comparisons in the world aren’t going to be helpful if the low-price option is an hour’s drive away.
Put all that together and the result is at best a very modest cash-on-cash ROI. Note that Castlight doesn’t scream about ROI on its website. This could be a testament to their honesty, or else – call me a cynic here – because they are going public they’ve decided not to be liable to shareholders for false representations.
In the past, their impact calculations have been squirrelly. Take a hard look at that link because they may be reporting similar statistics to you. Don’t assume that “influencing a healthcare decision” means saving money, and when you see a figure like “61%” for engagement, don’t assume 61% means 61%. In this Honeywell example, 53% registered, 60% of registrants used the app and 61% of users say the app “influenced a decision.” Do the math--53% times 60% times 61%--and that means just 19% of all employees in the case study say they benefited from the app. Yet somehow Castlight claims 9% overall savings. To make their own figures tie together, you’d need to assume that those 19% used the app for just about everything and were able to cut almost 50% out of the price of everything they used the app for.
In other words, that 9% savings figure is made up. (Welcome to the world of population health management.) However, unlike with wellness vendors (which are more likely to harm employees than benefit them), there is an employee benefit to using Castlight, and unlike with wellness vendors you don’t need to bribe or threaten employees into using the app. The app speaks for itself.
Beyond these observations, there are many strategies you yourself could undertake with your client to maximize the value of Castlight and, more importantly, your own services. For instance, if you find that a delivery costs between $2,000 and $8,000 (for hospitals that get an A or B from Leapfrog – and you want to choose those so you don’t expose yourself to charges that you are pushing lower-quality institutions), you might recommend a $5,000 delivery benefit and let people make their own decisions as to where to go.
You can also use the Castlight app as a negotiating lever. If you show a nearby high-cost provider what the price differential is and how you are giving employees the tool to look elsewhere, you may be able to negotiate a better price, a win-win for everyone in your value chain. It’s a “lose” for the provider in question, but that just means you’re doing your job.