EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
EXECUTIVE SUMMARY
Introduction
Castlight Health (Castlight) is hoping to revolutionize healthcare with a simple proposition: comparison shopping. Its online shopping
portal allows users to comparison shop the most common outpatient and inpatient procedures using what the company terms ‘true
quality’ and ‘cost transparency’ metrics before they receive the prescribed healthcare service. At first glance, a healthcare quote
system seems like a commonplace value proposition, but it is innovative in the context of the healthcare industry, which is inherently
opaque due to the absence of an open marketplace and the existence of innumerable stakeholders.
Today, an employer or healthcare consumer faces a dizzying array of inputs – deductible, co-pay, out of pocket maximums, HSA
account level, and in or out-of-network status of provider – to determine the total out-of-pocket cost of a service. The current process
places an enormous burden on buyers (Employers) and users (Employees and Other Consumers), who are unable to make an informed
decision based on performance/price trade-offs before they commit to a healthcare supplier.
Project Objective
The objective of this paper is to identify a feasible ecosystem management strategy to address key risks associated with market and
competitive uncertainty, which Castlight is sure to encounter as it grows. We have attempted to answer these questions:
Current State
(0-5 Years)
Market Uncertainty
 Who is the target customer for Castlight’s
offering?
 What scale can the company expect to
achieve in this initial market?
Competitive Uncertainty
Future State
(5-10 Years)
 Who can the target customer become?
 Are there any externalities to explore?
 Who are Castlight’s rivals?
 Whose support does Castlight need?
 Who is threatening whom?
 How can Castlight protect its position?
KEY FINDINGS
Methodology
First, we mapped the ecosystem to identify key players, their roles and responsibilities, the value of the opportunity to each. Second,
we determined the relative positions of each key player before and after (both current state and future state) the introduction of
Castlight’s innovative offering. Third, we conducted a competitive landscape analysis to identify key rivals, and extrapolated future
state scenarios for the entire industry. This exercise enabled us to determine which future state scenario Castlight is most likely to
operate within, and to conceive an ecosystem management strategy recommendation to help it protect its market leadership position.
Market Uncertainty: Ecosystem Evolution & Key Risks
Current & Future State Customers: According to our ecosystem, value chain and competitive analyses, Castlight’s initial (current
state) target market is comprised of large Employers. In the short-run, the company’s value proposition is most valuable to
Employers. This stakeholder set holds the power within the ecosystem because they encompass a critical mass of claims that can be
reverse-engineered to reveal the pricing scheme negotiated between their agents, the insurance company’s contracting department, and
healthcare suppliers. In the long-run, we believe Castlight will begin to reap the benefits of network externalities. With a solid base
of buyers and users, the company can push for the aggregation of claims data across suppliers so that it can uncover the fair market
value of healthcare services across markets, be them a consumer segment or a geographical location. Castlight can then become the
marketplace for healthcare services via a two-sided platform where it is the link between healthcare supply and demand. In this future
state, its final customers are Employees and Other Consumers. In summary, we have discovered that Castlight facilitates the transition
of the decision-making role from Insurers (via their contracting services) to Employers and ultimately, to Employees and Individual
Consumers (end-users of healthcare services). The ecosystem’s evolution is covered in detail in our Ecosystem Analysis on page 3.
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Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
Key Risks & Sources of Potential Delays: Our analyses have uncovered several risks, which we have grouped into high, medium and
low categories. The two most critical risks are: retaining access to claims (high risk) and managing healthcare providers’ ability to
meet demand for services (medium risk). These risks are covered in detail in our Value Chain Analysis on page 5.
Competitive Uncertainty: Maintaining Market Leadership
Recommended Ecosystem Management Strategy: In Castlight’s ecosystem, unrestricted access to data is critical. Therefore, to
compete and succeed, it must coordinate and cooperate with existing players. Our recommendation is covered in detail in our
Competitive Analysis on page 6.
Defining & Validating Success: A validation to this expectation is the fact that Castlight recently partnered with Cleveland Clinic and
several small insurance companies, thereby signaling that the leadership team is well aware of the benefits of early and preemptive
coordination.
CASTLIGHT BACKGROUND
Company Information
Castlight was founded in 2008 by Dr. Giovanni Collella, Todd Park, and Bryan Roberts. It is backed by venture firms Venrock, Oak
Investment Partners and Maverick Capital, as well as larger firms such as Morgan Stanley and Wellcome Trust. Currently, the
company serves an estimated 50 clients, including Safeway and Hannaford Brothers, and healthcare consumers across the United
States from its offices in San Francisco.
How it Works
To provide its price estimates, Castlight takes hundreds of thousands of data points from insurer payments and reverse engineers them
into pricing data. This allows users to get a “this is the check I am going to write in two months” estimate – down to the dollar – for
the selected healthcare service in real-time, via web or mobile applications. The company has recently introduced a robust set of
enhancements to its platform to further enhance its value proposition. For example, it now boasts quality measurements from CMS
(Center for Medicare & Medicaid Services) on providers, convenience information (e.g. distance from provider and hours of
operation), and patient reviews (e.g. Yelp or Angie’s List with 1-5 star rankings across categories). See Appendix, page 9, for
screenshots.
Business Model
Castlight currently operates a software-as-a-service platform (SaaS). In this model, employers pay a per-month, per-user fee on a
subscription basis. The company provides training, implementation, and ongoing support to employers and member employees on an
as-needed basis. New clients can be brought into the platform in 4-6 months, which includes time to process the data and train
employees. In general, the service is highly scalable due to Castlight’s Agile Development process and the uniformity of its platform
with 85-90% repeatable programming across all clients, implying low marginal costs.
Target Customer
In the short-run (current state), Castlight’s target customer is large self-insured Employers seeking to provide a win-win solution and
mechanism to optimize employee healthcare spending with high-value providers (low-cost/high-quality). In an era where many
employers are mandating or encouraging employees to switch to high-deductible insurance plans – leaving the employee exposed to
the first several thousand dollars of spend per year – employers are seeking a way to smoothen this transition. They have found
Castlight to be an empowering tool for their employees, the ultimate consumers of the healthcare services. In return for providing this
tool free to employees, employers benefit by bringing their own healthcare expenses under control since their employees now pricecompare and utilize high-value providers.
In the long-run (future state), Castlight expects to expand its offering to include small and mid-sized employers as well as individual,
direct consumers. The company is working to combine claims data across employers into a single data set so that it can expand into
these new segments and create a more robust and universal data set for the application. However, each employer owns its claims
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Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
information and in certain locations it is illegal to combine data sets. Regulation, therefore, presents one source of adoption delay for
the company.
Expectation
The expectation is that Castlight will become analogous to J.D. Power & Associates or Kelley Blue Book – a third party data/insight
provider and platform in the healthcare market for large employers and consumers – introducing an element of neutrality and
objectivity while helping to cut costs in a high-potential market with a tangible need (i.e. healthcare cost increases consistently
outpace inflation year-over-year).
OPPORTUNITY ANALYSES
ECOSYSTEM ANALYSIS
We have mapped the ecosystem to identify the key players – i.e. the influencers, suppliers, decision-makers, buyers, and users –
affected by Castlight’s value proposition. We have also determined how their roles and responsibilities have change before and after –
both current and future states – Castlight entered the landscape.
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EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
Key Players
Government/Regulatory Bodies
Before
Current State
Future State
Role
 Influencer and evaluator
 Unchanged
 Unchanged
Responsibilities
 Healthcare reform; protect
employers by regulating
healthcare insurers and suppliers
 Healthcare reform; protect data
rights (e.g. no aggregation across
employers or insurers)
 Continued enforcement of new
healthcare reform requirements
Value of
Opportunity
 Opacity in pricing increases
overall healthcare spending and
reduces both government and
private parties’ ability to assess
performance/price trade-offs
 Market transparency “trims the
fat” in healthcare where annual
spending increases have reached
the high single digits each year
over the past decade
 Pushing new and effective uses
of healthcare data to cut costs and
increase service quality
Current State
Future State
Insurers/Health Plans (Payers)
Before
Role
 Decision-maker
 Supplier
 Supplier
Responsibilities
 Insurers act as an intermediary
between healthcare service
suppliers and employers by
negotiating service packages and
prices
 Value proposition stripped down
to unattractive, low-margin
claims processing, administration
and billing activities
 Meet new requirements of
Affordable Care Act (healthcare
reform bill) in providing nominal
estimates prior to service (quote
system)
Value of
Opportunity
 Benefit from current noncompetitive market where
suppliers and employers have no
visibility into the pricing
schemes negotiated across peers
 Market transparency limits
opportunities for price
discrimination and disengages
insurers from high-value
contracting services
 Ability to purchase a turn-key
system that delivers compliance
to current and future transparency
requirements
Hospitals, Doctors, Medical Service Providers (e.g. Pharmacies, Imaging & Test Laboratories)
Before
Current State
Future State
Role
 Suppliers
 Unchanged
 Unchanged
Responsibilities
 Honor service packages and
prices agreed to with insurers
 Substantiate cost structures,
prompting the need for activitybased or value-based cost
accounting
 Continue to deliver value-based
services within their respective
market segments in an effective,
competence-enhancing manner
Value of
Opportunity
 Ability to inflate prices and
massage cost structures
 Reduces ability/flexibility to
allocate and shift costs across
enterprise (e.g. surgeries
subsidizing margin-eroding
services)
 Refines their understanding of
how they create value in the eyes
of buyers and consumers,
therefore improving their
resource allocation decisions
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EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
Employers
Before
Current State
Future State
Role
 Buyer
 Buyer & Decision-Maker
 Buyer & Decision-Maker
Responsibilities
 Control total healthcare spending
through selection of competitive
contracts designed by insurers
 Provide employees with a “tool”
to research and learn about
performance/price trade-offs in
selected healthcare services
 Continue to educate employees
and to optimize total healthcare
spending through value-based
decisions
Value of
Opportunity
 Faced with the burden of forcing
employees to move to highdeductible health plans
 Insight into performance/price
trade-offs for first time – “do I
know who the high value
providers are?”
 Ability to build a knowledge base
on performance/price trade-offs
and form partnerships with
leading suppliers for effective
resource allocation
Employees/Independent Consumers
Before
Current State
Future State
Role
 User
 Informed User
 Buyer, Decision-Maker, User
Responsibilities
 Decide which supplier to reward
with deductible expenditure
 Make a value-based decision on
which supplier to reward with
deductible expenditure
 Take ownership of healthcare
purchases independent of source
of payment funds (employersponsored vs. individual
healthcare exchange-based plan)
Value of
Opportunity
 Saves consumers the onerous
manual process of obtaining
healthcare service price estimates
 Able to assess
price/quality/patient satisfaction
metrics prior to committing to a
supplier – “where can I get the
best value?”
 Ability to get what you pay for –
make wiser, data-driven
decisions
VALUE CHAIN ANALYSIS
We then conducted a value chain analysis to assess how changes in the relative position of each player (i.e. the power shifts across the
value chain) may give rise to risk and potential adoption delays.
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EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
Market Power Shifts
High Risk: The highest risk power shift involves Insurers, who go from being a dominant player to having little
power. As discussed above, Castlight’s value proposition disengages Insurers from high-value contracting
services, limiting their contribution to claims processing, administration and billing activities, which are
commodities. Castlight’s biggest vulnerability is access to claims data and/or pricing information. Insurers may
resist this power loss by lobbying the Government/Regulatory Bodies to further restrict Castlight’s ability to access claims information
via Employers. This is a significant risk because in the current state, Castlight is best suited to serving large Employers who have
deep claims databases – the company is currently unable to draw meaningful pricing insights for small employers due to their small
data sample sizes. Any obstacles insurers manage to place in Castlight’s path to gathering and aggregating data will undoubtedly
hamper its ability to build positive network externalities at a competitive pace. We believe the overall effect on Insurers’ power is a
permanent, significant downgrade.
Medium Risk: Medium risk power shifts involve healthcare suppliers, namely, Hospitals, Doctors and ancillary
Medical Service Providers such as pharmacies, imaging and test laboratories. Castlight’s value proposition limits
these suppliers’ ability to price discriminate across client segments (namely Employers) and geographies.
Furthermore, it forces suppliers to adjust their pricing to remain competitive and to substantiate their cost
structures, since price transparency implies greater public scrutiny, further limiting suppliers’ power. This is a risk because in the
short-run, Castlight may greatly affect the supply-demand curves of each supplier, putting strain on the system and potentially
compromising the overall experience for buyers and users. Castlight should strive to influence this process by working with suppliers
to smooth out demand at high-quality facilities and helping high-cost ones adjust to the new environment. If it is successful, in the
long-run, low-cost/high-quality providers stand to gain share while high-cost/low-quality and middling providers stand to lose share.
This dynamic will stratify the market along a premium to low-cost continuum, which will deliver additional value to buyers and users
by further simplifying the shopping process. We believe that the overall effect on providers’ power will be neutral for those
companies that can meet consumers’ desired performance/price trade-offs.
Low Risk: Finally, the low risk power shift involves the users, Employees and Other Consumers (e.g. individuals, government) of
healthcare services. Although these users must increase their engagement in the shopping process by investing
time in self-serve, upfront research, we believe compelling incentives are in place to support this behavioral
change. Castlight offers consumers a free solution (currently subsidized by employers) which is easy to use and
akin to other consumer shopping/price-compare platforms. The biggest risk lies in educating these consumers and
forming new expectations regarding healthcare service quotes. We believe that with the current pace of healthcare reform and the
ensuing regulatory pressures, Employers and Insurers will bear the brunt of this education effort, therefore lowering the risk for
Castlight. We believe the overall effect on consumers’ power is a permanent, steady upgrade.
COMPETITIVE ANALYSIS
We have conducted a competitive landscape scan to identify Castlight’s competitors and understand their value propositions. Based
on this information, we have extrapolated potential future state scenarios for the entire industry. We then selected the scenario we
believe has the greatest likelihood of occurring and devised an ecosystem management strategy to help Castlight manage its growth.
Competitive Landscape Scan
At present, Castlight is the market leader in healthcare price transparency, although several competitors exist. Companies such as
change:healthcare, Thomson Reuters, Aetna, and the New Hampshire state government are all dabbling in this emerging market space
and seeking to clarify the currently opaque and complex system with their own unique offerings. Although all competitors seek to
provide a minimum level of information transparency to consumers, Castlight is the first to provide a comprehensive and integrated
platform that combines price, location, quality, patient satisfaction, and benefit assessment. With its first mover advantage,
experienced management team, and enthusiastic early cohort of customers, Castlight is well-positioned to remain in a market leading
position as this nascent market grows.
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Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
Potential Future State Scenarios
Castlight can protect its current market leadership by adjusting its business model in one of three ways, depending on how the
ecosystem evolves. In the first scenario, we assume that current munificent trends hold and that transparency continues to be pushed
upon healthcare suppliers by regulators. Here, Castlight can continue to pursue its current strategy by attracting Employers and by
remaining an ‘independent third party’ offering an objective quotation system. In the second scenario, we assume that the market
continues to evolve but that suppliers, specifically Insurers, show resistance to any data gathering and aggregation attempts Castlight
makes. Here, the mitigating strategy would be to pursue partnerships and joint ventures with these suppliers so that Castlight maintain
its market penetration and growth rates. In the third scenario, we assume that Castlight will want to protect its ‘independent third
party’ positioning despite any data aggregation challenges. In this case, it would have to pursue a direct-to-consumer strategy, which
would require that it reach out to a diverse and fragmented customer base, one customer at a time.
Recommendation
We believe that it is unlikely that conditions will remain munificent given the sheer size of the opportunity in this new, emergent
market. At the same time, it is unlikely that any single competitor, Castlight included, can succeed in building network externalities
one customer at a time. Therefore, we recommend that Castlight pursue partnerships and joint ventures to increase the depth and
breadth of its data set, allowing it to ramp up quickly and to provide more value to consumers ahead of the competition.
SCENARIOS
Current
Strategy
Partnerships &
Joint Ventures
Direct to
Consumer
Model
PROs
CONs
 Protects value proposition and remains independent
while fostering stronger bonds with consumers
 Vulnerable to decreased service levels due to lack of
consumer coverage (e.g. small employers)
 No incremental costs for data access
 Data ownership and aggregation issues and lack of
coordination slows growth
 Partnering with suppliers (insurers or providers)
enables Castlight to control its data set and ramp up
scale fast to further entrench itself as the market
leader
 Potential to be perceived as a’sell-out’ – i.e. losing
objectivity depending on financial arrangements
with partners – compromising current value
proposition of impartiality
 Enables platform strategy to take hold – increases
value to consumers by centrally locating data across
plans, locations, providers, and services at the
individual level regardless of employer
 Payments for data access erode margin
 Protects value proposition and remains independent
while fostering stronger bonds with healthcare endusers
 Time and effort required to harness critical mass
leaves Castlight more vulnerable to competitive
threats as it becomes distracted from current value
proposition
CONCLUSION
Castlight has embarked on a bold journey to change the way healthcare is purchase in the United States and in turn change healthcare
as we know it. Value-based purchasing has been stressed as key to the future sustainability of healthcare in this country among
leading academics for quite some time (e.g. Michael Porter, Elizabeth Teisberg, Jack Wennberg). Castlight’s all-in transparency play
is quite a disruptive innovation to the current healthcare ecosystem. Winners and losers will be made as the supply-demand curve for
each company shifts. In this context, Castlight has the opportunity to bring surplus value to consumers in a way that was previously
unattainable.
The impact of transparency can be observed in the travel industry (Travelocity, Orbitz, Expedia) and the automobile industry
(Edmunds.com, Autotrader.com), where a comprehensive consumer-centric quote system has benefitted end-users immensely as they
quickly came to demand greater value from their spending and forced suppliers (travel agents and auto dealers) to meet their
price/performance trade-offs in a more efficient manner before they were willing to spend hard-earned dollars. If Castlight is able to
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EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
successfully ‘lift the veil’ in a manner similar to the travel and automotive industries, healthcare procurement will be a far easier and
more enjoyable proposition in ten years than it is today.
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EIS Fall
Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
APPENDIX: SCREENSHOTS
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Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
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Renata Ferraz, Section 2
Johnny Kaye, Section 1
Castlight.com Mini Project
October 10, 2011
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