Michigan’s behavioral health system is under structural strain as authority continues to concentrate within PIHPs and CMHSPs, even as providers report rate instability, workforce disparities, billing confusion, and rising uncompensated care. The proposed HSW Amendment on conflict-free planning is a pivotal moment that will shape who controls care coordination and referral pathways, making provider engagement before the March 16 deadline critical. Pull Up Your Chair & Let’s Start the Conversation.

HSW Amendment Signals Shift in Conflict-Free Planning: Providers Urged to Review and Comment by March 16

MDHHS has issued notice that it intends to submit a 2026 amendment to the Section 1915(c) Habilitation Supports Waiver (HSW), with an anticipated effective date of July 1, 2026. Pages 134–136 of the draft application outline the State’s proposed approach to meeting federal conflict-free case management and person-centered planning requirements under Home and Community-Based Services (HCBS). Specifically, the State signals its intent to rely on the federal “any willing and qualified entity” exception to the conflict-free rule. In practical terms, this means MDHHS is asserting that in certain geographic areas, the same public entity that provides HCBS may also conduct person-centered planning, so long as internal safeguards, separation of functions, and alternative dispute resolution processes are in place. This is a significant policy position with operational implications across PIHPs, CMHSPs, and provider networks.

For providers, the impact will depend on how MDHHS ultimately operationalizes this framework. If the State continues to allow planning within public systems under defined guardrails, the core structure of care coordination may remain intact, but expectations around documentation, internal firewalls, and audit scrutiny will likely increase. If CMS requires additional separation or if MDHHS tightens its interpretation of conflict-free access and planning (CFA&P), planning authority could shift, potentially affecting referral pathways, service authorization flow, and local collaboration dynamics. For providers delivering HCBS under HSW, this is not an abstract compliance issue. It goes directly to who designs the plan of service, how consumer choice is protected, and whether the planning process reflects local clinical knowledge and established working relationships.

MDHHS is accepting public comment on the proposed amendment through March 16, 2026. Providers should review pages 134–136 of the draft waiver carefully and consider how the proposed “any willing and qualified entity” approach could affect planning integrity, administrative burden, and network stability in their region. Comments must be submitted by email [email protected] “2026 HSW Amendment” in the subject line no later than March 16, 2026. This is an opportunity to put provider experience on record before the amendment is finalized. If planning structure, consumer safeguards, or operational clarity matter to your organization, now is the time to weigh in.

The Redesign

Although the Redesign of the MDHHS RFP was canceled, the PIHPs and CMHSPs continue to take advantage of providers. For example,

System-Level Concerns Emerging Across Multiple Regions

Rates That Do Not Cover the Cost of Care. Providers are reporting that reimbursement rates set by the PIHPs are insufficient to sustain operations. In order to make contracts financially workable, agencies are cutting staff, reducing program capacity, or limiting access points. The direct impact is reduced access to care.

In some regions, significant rate cuts have been issued mid-contract or applied retroactively. Examples include double-digit reductions for specialized residential services and retroactive adjustments to substance use disorder residential reimbursement. Providers report that these actions destabilize budgets mid-year and undermine planning.

In parallel, CMHSP wage pass-through requirements are creating additional strain. Providers are being asked to attest to minimum wage thresholds for direct support professionals while reporting that the increased funding intended to support those wages has not been fully passed through to them. The net effect is either absorbing losses or reducing wages elsewhere to balance budgets. Both options are unsustainable.

Retaliation and Chilling Effect on Advocacy. Several providers describe situations where raising procurement concerns, questioning RFP processes, or declining medically inappropriate directives resulted in adverse consequences. Allegations include:

Whether intentional or not, the reported pattern creates a chilling effect. Providers describe feeling there is no safe path to challenge procurement irregularities or policy concerns without risking their contracts.

Inconsistent Rules, Mid-Contract Changes, and Administrative Instability. Providers report confusion around billing rules, inconsistent application of requirements, and delayed or denied claims with limited guidance from contract managers. Examples include:

These issues create cash-flow instability and administrative burden, diverting resources away from direct care.

PIHP/CMHSP Expansion into Direct Service Provision. A growing concern centers on PIHPs and CMHSPs expanding into direct service delivery in areas previously provided by community-based organizations. Reported patterns include:

Because PIHPs often determine eligibility and certification status for programs requiring MDHHS approval (Home Based, Infant Mental Health, ACT, Mobile Crisis, Crisis Stabilization, etc.), providers report that recertification processes can function as gatekeeping mechanisms. When the PIHP and CMHSP are structurally aligned, providers argue that the entity functions as both payer and competitor, and certify themselves while decertifying others. This dual role raises concerns about conflict of interest, network contraction, and reduced independent provider participation.

Reduced Collaboration, Fewer Referrals, and Network Contraction. Providers report: Reduced collaboration, Reduced referrals, Recruitment of staff directly by PIHP/CMHSP entities, and Administrative funds and public resources being directed toward internal infrastructure expansion. The concern is that more resources are being concentrated within fewer entities, while overall service diversity and access shrink.

Access and Market Distortion Between CCBHC and Non-CCBHC Providers. Although not the focus of every complaint, there is an underlying structural tension between CCBHC-funded providers and non-CCBHC providers. Where enhanced reimbursement is available to some but not others, wage competition intensifies. Non-CCBHC providers report difficulty competing for workforce, leading to referral moratoriums or service reductions. This dynamic may distort the marketplace and reduce consumer choice over time.

Structural Risk to System Capacity. The cumulative effect of:

Leads to the erosion of independent provider capacity. On paper, services may still exist. In practice, providers report shrinking margins, reduced staffing, and program closures. From a policy standpoint, the core structural issue being raised is whether an entity can sustainably function as both payer and direct service provider in regions with established community networks without creating conflicts of interest or market consolidation effects.

The solution would be separating the funder from the service provider create new contracts with the PIHPs that clarify their role, in addition to legislation doing the same. All stakeholders are waiting to see what the state decides to do next. At a minimum, providers are calling for clear separation between payer and provider roles; transparent and actuarially sound rate-setting that covers the cost of care; uniform statewide contracting and administrative standards; prohibition of retroactive rate cuts and mid-contract changes; independent dispute resolution and appeals; enforceable anti-retaliation protections; transparency in service transfers and network changes; and guardrails that protect continuity of care and preserve a stable, community-based provider network.

The issue is not about who controls the system; it is about whether the system’s structure promotes trust, stability, and access for the people it is meant to serve.

CCBHC’s in Transition
Providers are navigating the end of the current CCBHC demonstration cycle, which is the second and final authorized phase under state rules. Because new additions are not permitted during this cycle, providers that were not included must wait until a permanent Medicaid State Plan Amendment is approved. While the state is working to formalize the CCBHC model through a permanent Medicaid structure, the timing remains uncertain. This creates a temporary freeze on expansion and leaves some providers in a holding pattern, unable to access the enhanced reimbursement structure that CCBHC status provides.

Billing Confusion and Claim Denials
Some providers are encountering claim denials, by the PIHPs, tied to confusion over billing structures, including whether certain relationships or contractual arrangements are required in order to submit claims. In some cases, providers report being advised one way operationally, only to have claims rejected upon submission. This lack of clarity creates administrative burden, delays in payment, and cash flow instability. It also signals broader inconsistencies in implementation guidance at the operational level.

Increase in Uninsured Clients
At the same time, a significant number of providers are reporting a rise in uninsured clients, in some cases representing roughly 20 percent of submitted claims. When individuals lack Medicaid or commercial coverage, providers often deliver services without a reliable reimbursement source. This results in increased uncompensated care, reduced margins, and financial strain. The operational implications are substantial. Staffing, compliance, documentation, and 24/7 coverage requirements remain constant regardless of reimbursement status. Financial reserves shrink as organizations absorb more unreimbursed services. At the system level, the growth in uninsured clients may reflect broader issues such as Medicaid eligibility churn, enrollment delays, paperwork barriers, or individuals entering care during crisis without active coverage. For CCBHC providers, the model requires serving individuals regardless of ability to pay. However, if the uninsured population grows without corresponding prospective payment adjustments or supplemental funding, the financial sustainability of the model can be pressured.

Wage and Workforce Disparities Between CCBHC and Non-CCBHC Providers
Finally, there is a growing tension exists between CCBHC and non-CCBHC providers related to workforce compensation. Providers operating under the CCBHC prospective payment structure often have greater flexibility to offer higher wages. Those outside the model must rely on traditional reimbursement rates, which in some regions have not kept pace with workforce pressures. This has led to recruitment and retention challenges, referral moratoriums in certain service lines, and concerns about long-term viability for non-CCBHC providers. Some providers report difficulty competing for home-based or specialty staff when compensation differentials can reach several thousand dollars per employee. Over time, this may create market distortions, limit consumer choice, and reduce service diversity in certain geographic areas.

System-Level Implications
Taken together, these issues point to broader system stress. The transition to a permanent CCBHC structure, uneven reimbursement models, administrative uncertainty, and rising uncompensated care are interacting simultaneously. While the system may appear operational on paper, providers report mounting financial and workforce pressures underneath. The concerns being raised are not isolated operational complaints; they reflect structural challenges tied to reimbursement design, eligibility processes, workforce economics, and implementation clarity. Without coordinated policy responses, there is concern that provider capacity could gradually erode, even as demand for behavioral health services continues to rise.

As of this publication, there is no funding available in FY27 for CCBHC expansion, despite movement on legislation in Congress. State Senator Bayer is working on legislation that mirrors the Brabec Bills of 2024 and perhaps these issues can be addressed through legislation or updates to the CCBHC Manual.

Bridge Magazine reports that Michigan lags in preparing students for mental health careers.

M-Live shared poll results that The Michigan governor’s race is a toss-up. These three things could decide the outcome.

Over the past five years, the Flinn Foundation has taken a strategic approach to strengthening mental health systems across Michigan. Learn how early intervention, prevention, cross-sector collaboration and data-driven learning came together, in this report, to drive systems-level change, and how a new evaluation framework is helping Flinn and other funders better understand what it takes to create lasting impact.

LEGISLATION + POLICY

From a policy perspective, Gov. Whitmer Delivers 2026 State of the State: Building A Michigan for All, while Rep. Matthew Bierlein is working on AI legislation that will try to address suicides associated with its risk. We also hear that the CMHAM is preparing legislation to strengthen the role and purpose of PIIHPs in Michigan. According to the Center for Health Care Strategies, Michigan, and five other states, selected for phase two learning series to strengthen Medicaid member engagement in Beneficiary Advisory Councils.

Upcoming Hearings + Other Opportunities

The state budget is moving forward and fast with a June 1 2026 passage deadline. The House Appropriations Subcommittee on Human Services is meeting Tuesday, March 3, 2026, 12 PM.Stakeholder Presentations are focusing on Child Welfare Services. Speakers include:

ADULT FOSTER CARE

Attorney General Dana Nessel is investigating a Cadillac Adult Foster Care Administrator Charged with Involuntary Manslaughter Following Death of Resident. Meanwhile, Bridge Magazine reports How a sword and SWAT standoff sparked fury over Michigan mental health crisis.

SUD

Data released in January by the Centers for Disease Control and Prevention (CDC) showed there were an estimated 73,000 overdose deaths in the 12 months ending August 2025. This is a 21% decline from the prior year and the longest sustained drop in decades, though the pace of improvement is slowing. According to the National Council for Mental Well Being US Overdose Deaths Fell Through Most of 2025, Federal Data Reveals. Congress Passes Funding Bill With Slight Increases for Substance Use Programs. The bill included a slight funding increase over current levels for the Substance Use Prevention, Treatment and Recovery Services block grant ($2.013 billion, compared to $1.929 billion for FY25) and State Opioid Response grants ($1.595 billion, compared to $1.575 billion for FY25).

RFP

MSHDA Funding Opportunity: Recovery Housing Investment Program (RHIP)

In partnership with the Michigan Department of Health and Human Services (MDHHS), the Michigan State Housing Development Authority (MSHDA) is pleased to announce the release of the Request for Proposals (RFP) for round 2 of the Recovery Housing Investment Program (RHIP). Awarded RHIP funds will be used to purchase and/or lease single family homes or multifamily properties to expand access to recovery housing for individuals with opioid use disorder (OUD)/substance use disorder (SUD) or co-occurring mental health conditions. The RFP is posted here on the RHIP webpage under “Funding Opportunities” for FY2026-2027. A webinar regarding the RHIP RFP is scheduled for Thursday, March 5, at 10am. REGISTER HERE. Questions may be directed to Zienab Fahs, Homeless Assistance Specialist & Recovery Housing Lead, Rental Assistance and Homeless Solutions Division, MSHDA, [email protected]. Please use subject line “RHIP RFP Questions”. Proposals are due Thursday, April 16, 2026, with an anticipated grant start date of June 1, 2026.