Propensity Score Methods for Analyzing Observational Data Like Randomized Experiments: Challenges and Solutions for Rare Outcomes and Exposures

Randomized controlled trials are the "gold standard" for estimating the causal effects of treatments. However, it is often not feasible to conduct such a trial because of ethical concerns or budgetary constraints. We expand upon an approach to the analysis of observational data sets that mimics a sequence of randomized studies by implementing propensity score models within each trial to achieve covariate balance, using weighting and matching. The methods are illustrated using data from a safety study of the relationship between second-generation antipsychotics and type 2 diabetes (outcome) in Medicaid-insured children aged 10-18 years across the United States from 2003 to 2007. Challenges in this data set include a rare outcome, a rare exposure, substantial and important differences between exposure groups, and a very large sample size.