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Generalized Modeling Approaches to Risk Adjustment of Skewed Outcomes Data

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  • Willard G. Manning
  • Anirban Basu
  • John Mullahy

Abstract

There are two broad classes of models used to address the econometric problems caused by skewness in data commonly encountered in health care applications: (1) transformation to deal with skewness (e.g., OLS on ln(y)); and (2) alternative weighting approaches based on exponential conditional models (ECM) and generalized linear model (GLM) approaches. In this paper, we encompass these two classes of models using the three parameter generalized gamma (GGM) distribution, which includes several of the standard alternatives as special cases OLS with a normal error, OLS for the log normal, the standard gamma and exponential with a log link, and the Weibull. Using simulation methods, we find the tests of identifying distributions to be robust. The GGM also provides a potentially more robust alternative estimator to the standard alternatives. An example using inpatient expenditures is also analyzed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0293.

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Date of creation: Oct 2003
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Publication status: published as Manning, Willard G., Anirban Basu and John Mullahy. "Generalized Modeling Approaches To Risk Adjustment Of Skewed Outcomes Data," Journal of Health Economics, 2005, v24(3,May), 465-488.
Handle: RePEc:nbr:nberte:0293

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  1. Mullahy, John, 1998. "Much ado about two: reconsidering retransformation and the two-part model in health econometrics," Journal of Health Economics, Elsevier, vol. 17(3), pages 247-281, June.
  2. Manning, Willard G. & Basu, Anirban & Mullahy, John, 2005. "Generalized modeling approaches to risk adjustment of skewed outcomes data," Journal of Health Economics, Elsevier, vol. 24(3), pages 465-488, May.
  3. Blough, David K. & Madden, Carolyn W. & Hornbrook, Mark C., 1999. "Modeling risk using generalized linear models," Journal of Health Economics, Elsevier, vol. 18(2), pages 153-171, April.
  4. Anirban Basu & Willard G. Manning & John Mullahy, 2004. "Comparing alternative models: log vs Cox proportional hazard?," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 749-765.
  5. Manning, Willard G., 1998. "The logged dependent variable, heteroscedasticity, and the retransformation problem," Journal of Health Economics, Elsevier, vol. 17(3), pages 283-295, June.
  6. Willard G. Manning & John Mullahy, 1999. "Estimating Log Models: To Transform or Not to Transform?," NBER Technical Working Papers 0246, National Bureau of Economic Research, Inc.
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