An Internet-connected pill bottle cap sounds a bit over the top, but its creator says the device can generate real health improvements, cost savings, and even revenue for insurance and pharmaceutical companies.

Called GlowCap, the bottle cap reminds patients to take their pills and keeps track of whether they're taking them when they should. The caps are built into lids that fit on prescription bottles. They contain chips that communicate wirelessly with a home server that's about the size of a nightlight and plugs into an electrical socket. The server contains a cell modem that connects to the AT&T network and to a service that runs in the cloud and connects to Google Health, Microsoft HealthVault, and standard electronic healthcare systems.

"We're trying to solve the medication adherence problem, which is well-documented and giant," said David Rose, CEO of Vitality, the startup that makes the devices. When individuals don't take their medications, they have poor health outcomes, which the New England Health Institute says is a $290 billion problem, Rose said.

The industry standard for patient adherence to medication regimens is 50% for asymptomatic chronic diseases like diabetes and hypertension -- in other words, people fail to take their pills half the time. The rate while using GlowCaps is 86%, Rose said.

People take their pills only half the time for 200 drugs that generate above a billion dollars in revenue for pharmaceutical companies. If they can achieve 100% compliance, revenue doubles. But even increasing compliance by 15% or 20% increases revenue significantly, Rose said.

GlowCaps' cost to pharmacies and insurance companies is small: $5 for the cap, with plans for the entire service priced at under $20 per patient per month.

Forgetfulness is an obvious reason for people to skip taking medications, but it's compounded by lack of social support and doctor accountability, Rose said. GlowCaps provides a mechanism for adult children to keep track of whether their parents are taking their meds.

Likewise, by providing more information to doctors, GlowCaps can help them understand why a particular treatment isn't working. If the doctor prescribes blood pressure medication and the patient continues to have high blood pressure, the doctor will know whether the patient is skipping taking the medication or if the meds are being taken but aren't working, Rose said.

GlowCaps flash amber when it's time to take meds. When the patient has taken the medication, the device turns a soothing blue, Rose said. And if the patient forgets his or her medication, the device will call using an interactive voice response unit to deliver a reminder.

"After you get a call, the next day people are very adherent," Rose said. "They don't want to get the call again."

The new version of GlowCaps has a "soft squishy button" on the bottom that a patient can push to refill. "If you ever need a refill for that med, we know who you are and when a refill is due," Rose said. The GlowCap service connects the patient to the pharmacy.

Vitality hopes to sell GlowCaps in volume to insurance companies, Rose said, because of its effectiveness in reducing care costs. It costs $4,000 to $5,000 more per year to care for a diabetic who isn't taking his or her meds, compared with the cost of a diabetic who's "highly adherent," Rose said. That means an insurer can spend $300 to $400 per patient, per month, to improve adherence, and still break even. The cost of GlowCaps is far less than that, starting at less than $20 per month. "It's a no-brainer for insurance company trying to cut costs out of the system," he said.

Vitality also plans to sell GlowCaps to pharmaceutical companies, which stand to grow revenue by selling more pills every month to existing customers. The average costs of a chronic disease medication is $5 to $6 per day, and for some transplant medications, the cost is $75 per day. Some oncology drugs cost $100 per day. That represents a big revenue opportunity if drug companies can get customers to take more of the pills they've already been prescribed.

The device is available on Amazon.com. A few large pharmaceutical companies are doing pilot projects with patients.

Rose is a serial entrepreneur, and Vitality is his fourth startup. His best-known previous business was Ambient Devices, which made Internet-connected information displays, including the Ambient Orb, a frosted glass device that changed color based on changes in data input from the Internet, such as the stock market or outside temperature. The device was hackable by design, and people modified it to reflect data streams for traffic and sports scores. One researcher connected the device to glucose readings for diabetes, the Orb changed colors based on blood-sugar levels.

Vitality has raised $4 million in Series A funding. Investors include Patrick Soon-Shiong, M.D., executive chairman of Abraxis BioScience. The company has 10 full-time staff, with an additional 20 people contracting on parts of the project.

Blue Cross of Northeast Pennsylvania, the University of Louisville School of Medicine, and a range of large and small healthcare providers are using mobile apps to improve care and help patients manage their health. Find out how. Download the report here (registration required).