From ‘trial and error’ to major reform: The politics of Medicare demonstration projects

Published date01 September 2019
Date01 September 2019
AuthorPhilip Rocco,Andrew S. Kelly
From trial and errorto major reform: The politics
of Medicare demonstration projects
Andrew S. Kelly
| Philip Rocco
Department of Health Sciences, California
State University, California, USA
Department of Political Science, Marquette
University, Milwaukee, Wisconsin, USA
Philip Rocco, Department of Political Science,
Marquette University, 411 William Wehr
Physics, P.O. Box 1881, Milwaukee, WI
53201-1881, USA.
Facing fragmented institutions and partisan polarization, officials in
the United States often attempt to engineer policy change without
assembling new legislative majorities. To this end, they have
increasingly employed demonstration projects, policy innovations
undertaken by administrative agencies designed to test alternative
approaches to implementation or service delivery on a limited seg-
ment of the target population and for a limited period of time.
Despite the increasing importance of demonstration projects, they
are an undertheorized source of policy change. In this article, we
conceptualize demonstration projects as part of a class of experi-
mental institutions that, while incremental in scope, have the
potential to scale upinto more substantial reforms. Data from
three Medicare demonstrations suggest that policy change is more
likely when programmes generate strong support constituencies;
minimize administrative and infrastructural costs; are undertaken in
contexts with few veto points; and align with the time horizons of
elected officials.
In government systems with large numbers of veto points, major policy reform is a rare event (Immergut 1992;
Steinmo and Watts 1995). Even when significant changes are possible, they are imperiled by forces of ideological
polarization, inadequate implementation resources and weak institutional design (Patashnik and Zelizer 2013). In the
face of these constraints, officials in the United States rely on institutional structures that permit gradual policy
change without the need to assemble legislative majorities (Hacker 2004; Mahoney and Thelen 2010; Orren and
Skowronek 2017). One such structure is the demonstration projecta policy innovation undertaken by executive-
branch agencies designed to test alternative approaches to implementation or service delivery on a limited segment
of the target population and for a limited period of time. In recent years, Congress has given executive agencies (and
sometimes state governments) limited authority to waive existing programmatic rules in order to test drive new pol-
icy ideas addressing problems as diverse as highway construction, poverty, and healthcare (Oakley 1998; Thompson
2012). For example, three-quarters of states now run their Medicaid programmes as demonstration projects, which
account for more than a third of total annual Medicaid expenditure (Government Accountability Office 2018, p. 1).
Received: 11 June 2018 Revised: 12 October 2018 Accepted: 8 December 2018
DOI: 10.1111/padm.12585
Public Administration. 2019;97:621638. © 2019 John Wiley & Sons Ltd 621
Despite their increasing importance, demonstration projects are an undertheorized tool for authorizing gradual
institutional change in the United States (Mahoney and Thelen 2010). On the one hand, demonstration projects
resemble a piecemeal and partial form of authority. While they allow entrepreneurial bureaucrats or presidential
administrations to experiment with ideas that would not be legislatively viable, they are restricted in geographical,
technical, or fiscal scope, and may be easily eliminated by future administrations (Orren and Skowronek 2017, p. 98).
Public officials often note significant political challenges in translating successful demonstration projects into broad-
based reforms (Wilensky 2009). At the same time, empirical studies have illustrated how demonstration projects
ignite long-lasting changes in governing authority (Teles and Prinz 2001; Cassidy 2008). One reason for this confu-
sion is that policy literature often treats demonstration projects as technocratic sites of experimentation(Shadish
et al. 2002). Yet these projects often have explicitly political origins and effects (Coyle and Wildavsky 1986; Brodkin
and Kaufman 2000; Nathan 2000).
In this article, we conceptualize demonstration projects as part of a class of experimental institutions that, while
incremental in scope, have the potential to scale upinto more substantial policy changes. To better understand dem-
onstration projects as sites of gradual institutional change, we draw on insights from the literature on policy learning
and experimentation. We highlight four features of demonstration projects that we expect to be associated with
more significant policy change or scaling up. To probe the plausibility of this theory, we examine three demonstra-
tion projects undertaken within the Medicare programme, two of which scaled upinto national reform and one of
which did not. This article is, therefore, an effort at both theory building and theory testing, goals which are particu-
larly well served by a case-based methodological approach. We leverage both within- and cross-case analyses using
primary and secondary source material, as well as key informant interviews (George and Bennett 2005; Mahoney
and Thelen 2015). In recognizing the strengths and limitations of case-based analyses, we seek only to understand
the general conditions under which a demonstration project scales upand to generate insights that can be tested
across different policy areas and different experimental institutions. To this end, we conclude with a discussion of
the results and limitations of our study, as well as the implications of our findings for future research.
Demonstration projects are an emblematic feature of contemporary American governance. They have their origins in
the Progressive Era idea that public policy should be flexible to changing demands for performance, open to bargain-
ing and negotiation, and guided by technical expertise (Orren and Skowronek 2017). Beginning in the late nineteenth
century, executive-branch agencies developed deliberately experimentalprogrammes that tested new approaches
to public service delivery (Carpenter 2001). By the 1930s, Congress had begun to use the term demonstration pro-
jectto refer to intergovernmental grants designed to stimulate the creation of state-level public resources (Wallis
1998). The expansion of government during the long Great Societydramatically expanded the use of demonstration
projects in order to test controversial ideas in social policy (OConnor 2009). The 1980s saw a significant increase in
the number of congressional bills, both introduced and enacted, containing demonstration provisions (see Figure 1).
This trend has ebbed in recent years, yet over 2,000 sections of the US Code currently contain provisions relating to
demonstration projects.
While officialsreliance on demonstration projects has arguably increased, they remain undertheorized as a
source of gradual policy change (Hacker 2004; Mahoney and Thelen 2010). One reason for this is that the term dem-
onstration projectrefers to a heterogeneous mix of governance projects. This includes distributional (i.e., pork bar-
rel) spending programmes (Nathan 2000, p. 37), waiver programmes that allow federal or state agencies to deviate
from existing law (e.g., demonstration projects under Section 1115), as well as a range of research projects
governmental and non-governmental alikethat systematically evaluate the effects of a specific policy intervention
through a formalized research process, such as randomized controlled trials (Rosenbaum 1992; Marino et al. 2016). It

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