Instrumental variable analysis for cost outcome: Application to the effect of primary care visit on medical cost among low‐income adults

Abstract

Medical cost data often consist of zero values as well as extremely right‐skewed positive values. A two‐part model is a popular choice for analyzing medical cost data, where the first part models the probability of a positive cost using logistic regression and the second part models the positive cost using a lognormal or Gamma distribution. To address the unmeasured confounding in studies on cost outcome under two‐part models, two instrumental variable (IV) methods, two‐stage residual inclusion (2SRI) and two‐stage prediction substitution (2SPS) are widely applied. However, previous literature demonstrated that both the 2SRI and the 2SPS could fail to consistently estimate the causal effect among compliers under standard IV assumptions for binary and survival outcomes. Our simulation studies confirmed that it continued to be the case for a two‐part model, which is another nonlinear model. In this article, we develop a model‐based IV approach, Instrumental Variable with Two‐Part model (IV2P), to obtain a consistent estimate of the causal effect among compliers for cost outcome under standard IV assumptions. In addition, we develop sensitivity analysis approaches to allow the evaluation of the sensitivity of the causal conclusions to potential quantified violations of the exclusion restriction assumption and the randomization of IV assumption. We apply our method to a randomized cash incentive study to evaluate the effect of a primary care visit on medical cost among low‐income adults newly covered by a primary care program.