Healthcare transparency companies are attracting big investments from venture capital firms
Venture capital firms have poured money into healthcare transparency tool companies in recent years, betting that the demand for price and quality information will rise as employers and insurers shift more of the burden of paying for healthcare to patients.
With the Trump administration and congressional Republican leadership pushing policy changes that experts believe would raise deductibles for consumers, investors see no signs that the demand for transparency will fade.
“It’s this inevitable and relentless cost-sharing in healthcare” that’s driving the need for transparency tools, and thus, investments in the industry, said Dr. Bob Kocher, a partner at venture capital firm Venrock who invested in Castlight, the leading transparency company. With consumers on the hook for a larger share of their healthcare costs, employers, he said, “want things that help people get their money’s worth.”
Investors have taken note. Before its initial public offering in 2014, Castlight raised $184 million in six rounds of funding—the largest being in 2012 when it raised $100 million. Its competitor Vitals, a provider-search website, has raised $86.3 million to date.
Founded in 2012, MDsave, which lists prices for consumers, has raised $26.5 million.
Most recently, newcomer Amino, a San Francisco-based startup that offers consumers real-time healthcare price estimates, raised $25 million in venture capital in April. The company, launched in 2015, has raised $45 million to date. Amino, powered by more than $3 billion in yearly health insurance claims data, marks a new wave of transparency companies with its consumer-friendly interface and real-time data, said Michael Gregory, head of healthcare credit and equity at leading investor Highland Capital Management and an Amino board member.
Amino’s predecessor companies, he said, suffered from basic technology and a “clumsy” interface.
Another startup, Mpirica Health, which rates hospitals based on surgical outcomes, picked up $4.6 million in funding also in April, led by a crowdfunding platform and supported by a private equity fund. Zocdoc, which allows consumers to find and book appointments while staying in-network, has raised $223 million to date. The company is valued at over $1 billion. In total, investors pumped $3.5 billion into digital health companies in the first half of 2017, according to venture capital firm Rock Health. Of that, $321 million went to companies that offer tools to help consumers buy health insurance, including transparency tool companies. Last year, such companies didn’t even make the top six mostfunded categories. Rising deductibles are a driving force for more pricing information, said Megan Zweig, research director at Rock Health. In 2016, for the first time, more than half of all workers with single coverage—51%—faced a deductible of at least $1,000, according to a study by the Kaiser Family Foundation and the Health Research & Educational Trust. “When that happens you create more of a consumer marketplace, where patients are more likely to shop for their care and they are more likely to seek out the tools these entrepreneurs are providing,” Zweig said. Republican lawmakers have championed policies that experts believe would increase demand for tools that shine a light on healthcare costs and allow patients to make better decisions when choosing a provider or service, investors said. President Donald Trump and House Speaker Paul Ryan have emphasized the importance of health savings accounts linked to highdeductible plans as a way to increase consumer choice. The Republican push to repeal the Affordable Care Act is on hold after several attempts were defeated. But even if Republicans ultimately fail to repeal the ACA, “consumerism and a desire for transparency are trends that are not going away,” Zweig said.