Regulatory Volatility: Why DOFR Matters More Than Ever for MSOs and Delegated-Risk Organizations
Updated: Sep 30
The healthcare industry is entering another period of significant change. Medicaid and Medicare remain the mainstay of public healthcare programs, and both are undergoing shifts in enrollment, reimbursement, regulation, and financial oversight. Those shifts create new challenges for health plans, MSOs, IPAs, and other delegated-risk organizations.
As of July 1, 2024, 84.8% of Medicaid beneficiaries (more than 73 million beneficiaries) received some or all of their care through a managed care plan, demonstrating how deeply managed-care arrangements are embedded in the Medicaid program.[1]
Medicare is undergoing its own transformation. In 2026, 55% of Medicare beneficiaries with Parts A and B (approximately 35.2 million of 64.2 million) are enrolled in Medicare Advantage.[2] CMS also projects average Medicare Advantage payments to increase 5.06%, or over $25 billion, from 2025 to continuing to implement changes to the risk-adjustment model. [3]
Regulatory changes and financial predictability
The scale of the change is already evident. During the Medicaid unwinding that followed the end of the pandemic-era continuous enrollment provision, more than 25 million people were disenrolled, while 56.4 million had their coverage renewed.[4] By October 2024, Medicaid and CHIP enrollment had fallen to approximately 79.3 million, a net decline of approximately 15 million from the April 2023 peak of about 94 million, although enrollment remained above the pre-pandemic February 2020 level of about 71 million.[5]
The AMA projects further impact across Medicare, Medicaid, and the Health Insurance Marketplaces under the One Big Beautiful Bill Act, enacted in July 2025, including an estimated 11.8 million people losing coverage.[6] Looking ahead to 2027-28, McKinsey is projecting an additional 6 to 7 million Medicaid disenrollments, potentially pushing operating margins into negative territory [7].
For MSOs, IPAs, and delegated-risk organizations under capitated arrangements, a change in membership assumptions or governing regulations does not remain at the regulatory level. It ultimately flows into contracts, reimbursement arrangements, covered services, delegation terms, and financial responsibility.
Financial impact and responsibility can shift with any of the following:
Changes in Medicare/Medicaid populations
Carve-outs and carve-ins
Changes in delegation arrangements
New or revised regulatory requirements
Contract renegotiations
Changes in benefit design
New reimbursement models
Changes in network or provider arrangements
The growing importance of “Who is financially responsible?”
One of the most fundamental questions in a delegated-risk arrangement is also one of the most consequential: Who is financially responsible for the service delivered?
That question is answered by the Division of Financial Responsibility (DOFR). The DOFR is the exhibit to the delegation agreement that assigns, service by service, which party bears financial responsibility for a given service. A well-structured DOFR translates contractual financial responsibility into operational rules that ultimately influence how claims are evaluated, routed, paid, denied, or recovered.
A DOFR configuration that matched the arrangement when a contract was implemented may no longer match it after enrolled membership changes. Contracts may need to be renegotiated, responsibility reassigned, and services added or removed to reflect a changing business environment. For a delegated-risk organization, this creates a critical operational challenge, as the contract can change faster than the systems and processes used to administer it.
When the underlying contract changes but the DOFR configuration does not, a gap can open between contractual responsibility and actual financial behavior along three dimensions:
What the contract says.
What the DOFR configuration reflects.
What happens when the claim is processed.
This gap can have financial consequences: the wrong entity may pay a claim, a responsible party may not be billed, a recovery opportunity may be missed, or disputes may arise over who was financially responsible for a service.
Historically, DOFR has been viewed primarily as a contracting or configuration exercise. But as regulations evolve, DOFR increasingly sits at the intersection of contracting, claims, financial performance, and operational efficiency. In a stable environment, DOFR can be treated as configuration, but in a changing environment, DOFR becomes an instrument of financial control.
From DOFR configuration to DOFR intelligence
DOFR should not be treated simply as a static configuration maintained inside an administrative platform. It can become a source of operational and financial intelligence, connecting contractual responsibility to claims activity and financial outcomes.
Organizations should be able to identify when:
A regulatory change alters financial models
A service moves between delegated and non-delegated responsibility
Claims are being paid contrary to the expected responsibility
Potential recoveries or leakage exist
Configuration no longer reflects the current contract
Financial responsibility is unclear or disputed
The objective is not simply to maintain an accurate DOFR. It is to continuously understand whether financial responsibility in the system still reflects financial responsibility in the contract and what happens when it does not.
Preparing for what comes next
The organizations best positioned to navigate this environment will be those that can quickly connect changes in membership, contracts, reimbursement and delegation to their financial consequences. MSOs and delegated-risk organizations need a more systematic approach to keeping contracts, DOFR, claims operations, and financial outcomes aligned.
A practical pathway has four steps:
1. Define the current state
| Create a comprehensive view of existing delegation agreements, DOFR configurations, services, exceptions, reimbursement arrangements, and financial responsibility. Identify where contractual language and operational configuration may already be out of sync. |
2. Identify the points of impact and integration touchpoints.
| Create a process to assess every material change in regulation, payer contract, benefit structure, reimbursement arrangement, network, or delegation agreement for its potential impact on financial responsibility. Build necessary integration touchpoints to underlying data sources. Regulatory changes should trigger a DOFR impact assessment, not simply a compliance review. |
3. Configure DOFR to claims and financial outcomes.
| Validate whether the responsibility defined in the DOFR is reflected in claims routing, adjudication, payment, denials, recoveries, and provider settlement. This is where organizations can identify inappropriate payments, missed recoveries, disputes, and potential revenue leakage. |
4. Evaluate and update DOFR continuously.
| Move from periodic DOFR maintenance to ongoing monitoring. Organizations should be able to identify when financial responsibility changes, quantify the potential financial impact, prioritize exceptions, and initiate corrective action before the issue becomes embedded in claims and payment operations. |
The objective is to ensure that contractual financial responsibility remains aligned with operational and financial reality, even as the regulatory and reimbursement environment changes. For MSOs and delegated-risk organizations, that makes DOFR more than a configuration artifact. It becomes a strategic financial control tool for protecting margins, reducing uncertainty, and ensuring the right organization pays for the right care.
Key Software helps MSOs and delegated-risk organizations realize this approach by connecting DOFR, contractual responsibility, claims, and financial outcomes to provide greater visibility and control over who is responsible for what and minimize financial risk.
Ready to see how this approach could work for your organization?
References:
[1] CMS, Medicaid Managed Care Enrollment and Program Characteristics, 2024 (data as of July 1, 2024). https://www.medicaid.gov/medicaid/managed-care/downloads/2024-medicaid-managed-care-enrollment-report.pdf
[2] KFF, Medicare Advantage in 2026: Enrollment Update and Key Trends. https://www.kff.org/medicare/medicare-advantage-in-2026-enrollment-update-and-key-trends/
[3] CMS, 2026 Medicare Advantage and Part D Rate Announcement (Fact Sheet). https://www.cms.gov/newsroom/fact-sheets/2026-medicare-advantage-part-d-rate-announcement
[4] KFF, Medicaid Enrollment and Unwinding Tracker (unwinding data archived, last updated September 12, 2024). https://www.kff.org/medicaid/medicaid-enrollment-and-unwinding-tracker/
[5] CMS, Medicaid and CHIP Enrollment Data, monthly enrollment reports (October 2024 data). https://www.medicaid.gov/medicaid/national-medicaid-chip-program-information/medicaid-chip-enrollment-data/index.html
[6] AMA, Changes to Medicaid, the ACA and other key provisions of the One Big Beautiful Bill Act. https://www.ama-assn.org/health-care-advocacy/federal-advocacy/changes-medicaid-aca-and-other-key-provisions-one-big
[7] McKinsey, What to expect in US healthcare in 2026 and beyond. https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare
About Key Software: With more than 30 years of experience supporting delegated entities, Key Software helps optimize administrative operations, strengthen claims processing, and enhance financial and operational performance.
