High-Value Castlight Health IPO Signals Challenging Trend for Payer CIOs

Archived Published: 21 March 2014 ID: G00263351

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The high valuation of the Castlight Health IPO shows market momentum toward member-facing technology purchased by employer plan sponsors from third-party vendors, rather than from payers. Payer CIOs must react strategically.

News Analysis


On 14 March 2014, Castlight Health, a cloud software provider, announced its initial public offering (IPO). Castlight sells cloud software to large self-insured employers. It enables employees and their dependents to shop for medical services based on price measures and patient satisfaction. In its first day of trading, Castlight was valued at more than $3 billion.


Castlight sells most of its business directly to large self-funded employers. Some healthcare payers offer transparency tools to their members. Employers that purchase plans from multiple carriers may buy directly from vendors that offer transparency tools, like Castlight, so that all employees benefit from a common user experience that can be centrally managed by HR. In this way, member-facing technology offered by payers sometimes competes with third-party vendor offerings.

The competition between third-party vendor technology and payer technology is increasing as it:

  • Extends beyond transparency tools into other solution spaces, such as on-line wellness, member engagement and population health analytics.

  • Offers employees health plans from multiple carriers through health insurance marketplaces, such as multi-payer private exchanges.

Castlight barraged employers with nearly $34 million in sales and marketing in 2013. The success of the IPO signals that the barrage may accelerate among employer-focused vendors. Payers with competing technology will struggle to retain mind share. Payers with large investments in transparency tools will be tempted to undercut Castlight and other employer-focused vendors by refusing to provide data. Gartner views this strategy as bringing immediate risk to business with some employer groups, and the long-term reputation of the payer as a good faith partner to employers. It also contradicts a general trend of increased transparency in data sharing.

A better strategy is to compete vigorously and let vendors like Castlight succeed or fail on their own merits – and a successful IPO is far from proving a successful business model. Castlight faces some fundamental challenges. Castlight cannot ultimately provide what consumers expect in every other industry: the final out-of-pocket purchase price. In addition, its value proposition may fail if certain market conditions change, such as a reduction in the variability of provider pricing or the adoption of alternate payment models. We see it as better to let these vulnerabilities play out.


Healthcare payer CIOs invested in tools that compete with employer-focused, third-party vendors:

  • Avoid outright confrontation in data sharing negotiations with plan sponsors and the vendors they choose.

  • Evaluate the business case for investment in member-facing technology. Include scenarios where third-party vendors dominate the employer market and ones where they fail.

Healthcare payer CIOs with no investment in tools that compete with employer-focused, third-party vendors:

  • Promote your capabilities and experience as an integration partner to high-profile, employer-focused vendors, such as Castlight.

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