TL/DR –
The Leonard Davis Institute of Health Economics (LDI) at the University of Pennsylvania is grappling with challenges in the American healthcare system, including changes in federal policy, healthcare workforce shortages, and advancements in AI. The LDI, which was established in 1967 after the introduction of Medicare and Medicaid, conducts research to assess the impact of these issues on health outcomes, care quality, and access. Recent areas of focus for the institute include the impact of the One Big Beautiful Bill Act (OBBBA) on Medicaid, the potential applications of AI in healthcare, and the ongoing crisis in rural healthcare access.
Latest Challenges in US Healthcare Discussed by Experts at Penn’s Leonard Davis Institute of Health Economics
The US healthcare system is currently facing unprecedented challenges, which are being closely examined by the interdisciplinary experts at Penn’s Leonard Davis Institute of Health Economics (LDI). These experts have been analyzing healthcare issues since the formation of LDI after the introduction of Medicare and Medicaid in the 1960s.
Recent changes in federal policy, escalating healthcare workforce shortages, and rapid AI advances have significantly impacted the healthcare landscape in the last 18 months. LDI is leveraging its nearly six decades of experience and a network of experts from across the University to evaluate these changes’ effects on our health, including the cost and quality of care, access to care, and equity in its delivery.
When LDI was formed in 1967, just two years after Medicare and Medicaid were introduced, it was the first university-based interdisciplinary group in the United States dedicated to healthcare economics. LDI’s mission was and remains to improve “health and healthcare by catalyzing collaborative, multidisciplinary research that influences policy and practice,” according to its executive director, Rachel M. Werner. The interdisciplinary work of LDI integrates expertise from Penn’s medical and nursing schools with management insights from Wharton faculty.
With this approach, LDI has been instrumental in shaping government action, providing evidence about patient outcomes that have influenced policies at various levels of government.
Impact of the One Big Beautiful Bill Act (OBBBA)
In 2026, Werner and her colleagues faced arguably unprecedented challenges. The One Big Beautiful Bill Act (OBBBA) passed by Congress the previous year is projected to reduce federal spending on Medicaid by nearly a trillion dollars over the next decade, significantly impacting healthcare access for millions of low-income citizens. The significant funding cut, along with the expiration of the enhanced premium tax credits for Affordable Care Act marketplace coverage, has more than doubled out-of-pocket premiums for some consumers, thus underscoring the importance of LDI’s work in providing evidence to healthcare policy.
Can AI Help?
Some have suggested that artificial intelligence could offload up to 30 percent of the administrative burden in clinical settings. However, without policies that align financial incentives with improved care, there’s a risk of stifling innovation and driving up costs without improved outcomes. LDI Senior Fellow Amol Navathe GrW’08 M’10 proposed a classification system to distinguish between AI applications based on their implications for clinician time and cost.
Controlling Costs and Addressing Rural Healthcare Crisis
Healthcare affordability remains a top concern for the American public. LDI has examined costs in numerous studies. Werner believes the federal government needs a new strategy that focuses on the long-term implications of new payment models for healthcare delivery.
Additionally, access to healthcare heavily depends on the availability of medical professionals and hospitals. Currently, there is a shortage of about 65,000 physicians, which is particularly acute in rural areas. Approximately 80 percent of rural America is designated as medically underserved, and nearly 200 rural hospitals have closed in the past 20 years.
Unequal Access to Healthcare
Equity in healthcare is not bound by geography. A study by Werner and her colleagues found that report cards, which publicly release quality information, could potentially exacerbate existing racial and ethnic disparities in healthcare.
A Sustainable System of Healthcare
Sustaining a pipeline of students to carry on LDI’s work is of fundamental importance to the institute’s leadership. LDI aims to complete the transition to a healthcare system that pays for value and reduces health disparities, a complex but achievable goal.
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