Estimating cost-offsets of new medications: Use of new antipsychotics and mental health costs for schizophrenia

Estimation of the effect of one treatment compared to another in the absence of randomization is a common problem in biostatistics. An increasingly popular approach involves instrumental variables—variables that are predictive of who received a treatment yet not directly predictive of the outcome. When treatment is binary, many estimators have been proposed: method-of-moments estimators using a two-stage least-squares procedure, generalized-method-of-moments estimators using two-stage predictor substitution or two-stage residual inclusion procedures, and likelihood-based latent variable approaches. The critical assumptions to the consistency of two-stage procedures and of the likelihood-based procedures differ. Because neither set of assumptions can be completely tested from the observed data alone, comparing the results from the different approaches is an important sensitivity analysis. We provide a general statistical framework for estimation of the casual effect of a binary treatment on a continuous outcome using simultaneous equations to specify models. A comparison of health care costs for adults with schizophrenia treated with newer atypical antipsychotics and those treated with conventional antipsychotic medications illustrates our methods. Surprisingly large differences in the results among the methods are investigated using a simulation study. Several new findings concerning the performance in terms of precision and robustness of each approach in different situations are obtained. We illustrate that in general supplemental information is needed to determine which analysis, if any, is trustworthy and reaffirm that comparing results from different approaches is a valuable sensitivity analysis. Copyright © 2011 John Wiley & Sons, Ltd.