Castlight Health announced today it raised $100 million in a Series D round, bringing the total amount raised to $181 million since its inception in 2008. New investors include T. Rowe Price, Redmile Group, two of the country’s biggest mutual funds (unnamed), as well as previous investors. “This is a vehicle to something bigger,” says Giovanni Colella, co-founder and chief executive, who expects an IPO next. He declined to disclose revenues, or profitability, but says capital was raised at a “huge upward valuation.”
Castlight has been at the forefront in tackling the lack of transparency in health care pricing. It offers employees of self-insured companies the tools to shop around for tests and procedures based on cost and quality, which can vary widely within the same geographical area. For example, a study published last month by UC San Francisco in the Archives of Internal Medicine revealed that the cost of a routine appendectomy in California can vary between $1,529 and $183,000. In San Francisco alone, the difference between the highest and lowest charge was $172,000.
Pushing consumers to shop around for prices is the rise in high-deductible plans. According to Mercer, the percentage of employees enrolled in those plans has increased from 3% in 2006 to 13% last year. A recent New York Times article suggested a permanent change in consumer behavior toward health care consumption, and although economists are still unsure about the causes which include the recession, high-deductible plans could be one reason. “The reality is, when you put people on a high-deductible plan, they’re going to think twice before going to the doctor,” says Colella. “Tools like ours will be needed more and more.”
The company says it has more than 10 customers, including Honeywell, Life Technologies, and global insurance broker Willis North America. Peter Isaacson, Castlight’s chief marketing officer, says that overall, 70% of employees use Castlight’s price comparison tool, and 61% attribute a change in how they spend their health care dollars to Castlight.
To get claims data from prospective customers, the company often ran into resistance from health insurers that process the claims. They balked at releasing such data because of confidential pricing contracts with hospitals, but Colella says that will change within two years when those contracts are up. He says that some employers are also “fed up,” pointing at one potential customer who might switch insurers to be with Castlight. “We’ve never seen this kind of traction; everyone thought the health plans would root us out,” says Colella, who’s ready to do battle with insurers, such as WellPoint and UnitedHealthcare, which are releasing their own price comparison tools to members. “We don’t have to report to [health care] providers, we don’t have to please any constituency; we are neutral,” he says.
Because of demand for Castlight’s product, Colella went to his board last January to get the green light to raise more money. He plans to use the $100 million to recruit and expand sales. “It signals to the market that we’re here to stay,” he says.
Castlight’s other founders include its chairman, Bryan Roberts who’s a partner at Venrock, and U.S. chief technology officer Todd Park.