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Use of instrumental variables for endogenous treatment at the provider level

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  • R. Tamara Konetzka
  • Fan Yang
  • Rachel M. Werner

Abstract

Health economists are often interested in the effects of provider‐level attributes (e.g., nonprofit status or quality rating) on patient outcomes, but estimation is subject to selection bias due to correlation with other omitted provider‐level attributes that also affect patient outcomes. Recently, researchers have attempted to use patient‐level instrumental variables, such as differential distance, to solve this problem of a provider‐level endogenous treatment variable in settings where patients are nested within providers. However, to satisfy validity assumptions, an instrumental variable for a provider attribute must be at the provider level or a larger unit of aggregation, not at the patient level. A patient‐level instrument cannot predict variation in a provider attribute separately from other, potentially unmeasured, provider attributes. In this paper, we explain this misapplication, review the extent of this problem in recent literature, and offer alternative approaches to avoid this misapplication of patient‐level instrumental variables.

Suggested Citation

  • R. Tamara Konetzka & Fan Yang & Rachel M. Werner, 2019. "Use of instrumental variables for endogenous treatment at the provider level," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 710-716, May.
  • Handle: RePEc:wly:hlthec:v:28:y:2019:i:5:p:710-716
    DOI: 10.1002/hec.3861
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    References listed on IDEAS

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    3. Konetzka, R. Tamara & Stuart, Elizabeth A. & Werner, Rachel M., 2018. "The effect of integration of hospitals and post-acute care providers on Medicare payment and patient outcomes," Journal of Health Economics, Elsevier, vol. 61(C), pages 244-258.
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    Cited by:

    1. Bär, Marlies & Bakx, Pieter & Wouterse, Bram & van Doorslaer, Eddy, 2022. "Estimating the health value added by nursing homes," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 1-23.
    2. Pablo de Pedraza & María Rosalía Vicente, 2021. "Are Spaniards Happier When the Bars Are Open? Using Life Satisfaction to Evaluate COVID-19 Non-Pharmaceutical Interventions (NPIs)," IJERPH, MDPI, vol. 18(19), pages 1-13, September.
    3. Bar, M.; & Bakx, P.; & Wouterse, B.; & van Doorslaer, Eddy.;, 2022. "Estimating the health value added by nursing homes," Health, Econometrics and Data Group (HEDG) Working Papers 22/12, HEDG, c/o Department of Economics, University of York.

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