Digital healthcare investments are soaring again. Here’s why
Ah, November, that special time of year when Americans get to re-enroll for health insurance and find out whether their costs will go up “just” 5% or whether they face a double-digit increase for the year to come.
This year technology’s potential role in controlling seemingly unjustifiable increases is getting more attention than ever—in part because of wildly optimistic expectations surrounding consumer gadgets such as fitness bracelets. By June, funding for digital healthcare technology companies reached $2.3 billion—surpassing the previous year’s total, according to Rock Health, a startup incubator.
Two illustrative examples from this month alone: Xerox’s unprecedented investment in telemedicine company HealthSpot, which plans to install its kiosks not just at medical facilities but also at big companies; and pharmaceutical giant Novartis AG’s growing interest in wearable technologies that can track the effectiveness of its drugs.
Another indicator is the customer traction being reported this autumn by Castlight Health, which made its rather controversial I.P.O. in March. (The company debuted with a market cap of almost $3 billion, but its value currently stands around $1.01 billion.)
Every year, U.S. employers spend a whopping $620 billion on healthcare benefits with very little visibility into where that money goes. Castlight puts those costs under the microscope for at least 40 Fortune 500 companies including Google, Kraft Foods Group, Microsoft, and Wal-Mart.
Its service, called Enterprise Health Cloud, shows the prices a company’s employees pay for everything from cholesterol tests to magnetic resonance imaging, or MRI, scans to wellness visits to their doctor. The vision is to help employers better understand these cost and to let employees make more informed decisions about what they can expect to pay and about the quality of care they will receive.
“They have a cockpit where they get a ton of analytics about where the money is spent,” said Castlight CEO and co-founder Giovanni “Gio” Colella, whose previous company, RelayHealth, was acquired by McKesson in 2006. Collela’s co-founders were Todd Park (co-founder of Athenahealth and the tech guru who helped fix the troubled Healthcare.gov site) and venture capitalist Bryan Roberts (Venrock).
One Castlight customer, for example, discovered an unusually high incidence of back pain issues within certain departments. The company came up with an ergonomic solution to this problem, paring back on those medical costs, Colella said.
How did Castlight convince almost every insurance company (except United Healthcare because of an exclusivity clause) to disclose this information? By convincing businesses to demand the information. Right now, the service covers most medical procedures and pharmacy information. Offerings that cover dental plans and behavioral health are in the wings.
Castlight boasted 159 customers at the end of the third quarter. According to its latest earnings report, the company expects to generate $43.9 million to $44.3 million this year, with anticipated losses of $74 million to $75 million. (Its CEO and CFO are scheduled to present updates at two investor conferences later this week.)
Christopher Lochhead, partner with consulting firm Play Bigger and advisor to Castlight’s management team, says healthcare costs are among the top three to five costs for most big businesses. The rise of powerful analytics technologies along with the transparency demanded by social media are driving interest in Castlight’s services. “This is a company, as corny as it may sound, that could do very well by doing a lot of good,” Lochhead said.
Healthcare provider are also hungry for data that can help them make more informed decisions on behalf of their patients, said Mike Harden, co-founder and senior partner at ARTIS Ventures. This observation comes while during our chat last week about the role of wearable technologies in corporate wellness initiatives. “In order for make that information of value, it needs to connect to a professional,” he said. “It needs to connect to something that your nutritionist or doctor might be able to see. Together, you can make improvements to your health.”
That philosophy is behind ARTIS Ventures’ three rounds of financing for Practice Fusion, which manages electronic health records in the cloud for more than 112,000 healthcare professionals. So far, it has raised almost $160 million since it was founded in July 2005.
Heather Clancy is the author of Data Sheet, Fortune’s daily newsletter about the business of technology. Subscribe here.