With testimony complete, the question before the Court is no longer about the volume of concerns raised. It is about the structure of Michigan’s behavioral health system. Judge Yates made clear that MDHHS has the authority to redesign the system and move to a competitive model. His forthcoming opinion will determine if and how the RFP aligns with Michigan law, what roles CMHSPs and PIHPs can legally hold, and what remedies, declaratory or injunctive, may be required to bring the system into compliance. Pull Up Your Chair & Let’s Start the Conversation.
The Redesign
MDHHS Hearing Update: Court Continues Review of Mental Health RFP and System Structure
Reporting on testimony from Dec. 8–10, 2025
The Court of Claims resumed testimony this week in the consolidated cases Region 10 PIHP v. State of Michigan and Centra Wellness Network v. State of Michigan. The proceedings focus on the Department of Health and Human Services’ (MDHHS) decision to move from a single-source contracting model for Prepaid Inpatient Health Plans (PIHPs) to a competitive procurement process. Judge Christopher P. Yates has indicated he will likely issue a declaratory judgment and maintain oversight of the matter, preserving the option of injunctive relief if needed. An opinion is expected Monday December 15, and you may be able to access that opinion on the Court of Claim’s website.
Day One: CMHSP Leaders Describe Impact on Financial Stability and Services
Community Mental Health Services Program (CMHSP) leaders testified that the RFP, as written, would leave them unable to sustain operations and fulfill statutory obligations.
Sandra Lindsey, CEO of the Saginaw County Community Mental Health Authority, testified that 95 percent of her organization’s $130 million budget depends on Medicaid. She emphasized the role of CMHs in coordinating care, operating a unified electronic health record, and managing continuity across the network.
Nena Sork, CEO of the Northeast Michigan CMH Authority, testified that the average cost per person served is roughly $156,000 before inpatient hospitalization costs, noting that absorbing those costs would exhaust general funds and eliminate resources for the uninsured. Together their testimony focused on the financial harm the RFP will cause on their organizations and impede their ability to perform functions they interpret the statute as they are legal obligated to do.
The state’s attorney argued there is a difference between the Mental Health Code and Medicaid Managed Care, which the plaintiffs were treating as one and the same. The state also argued that the RFP for pre-paid in-patient health plans (PIHP) aligns with federal requirements and state law, while attorneys for the PIHPs continued to reinforce potential conflicts with the mental health code. The state’s attorney also questioned witnesses about their salaries and potential bias. One CMH CEO earned over $250,000.
Day Two: State Outlines Rationale for Competitive Procurement
Testimony on Tuesday turned to the state’s rationale for the RFP process. Leslie Asman, Director of the Bureau of Legal Affairs at MDHHS and a member of the RFP steering committee, described concerns about duplication, inefficiency, and structural conflicts.
She cited the example of the mid-state PIHP, which contracts with the state and delegates more than 80 percent of its functions to 12 CMHSPs. Asman testified this structure created 13 entities performing managed care functions, limiting cost efficiency, transparency, accountability, and uniformity across the region.
“So now we have 13 entities doing managed care functions,” she said, “There’s no cost efficiency; there’s no cost transparency; there’s no accountability; and there’s no uniformity of services across the region. It’s just really a fragmented system.”
Asman also referenced the expiration of the federal Section 115 waiver and past instances of fiscal mismanagement within PIHPs where CMHSP leaders sat on the PIHP board, underscoring concerns about conflicts of interest. She shared an example where a PIHP experienced serious financial mismanagement in 2018 that led the state to consider terminating their contract. The CEO also sat on the PIHP board and voted against an audit on the CMHSP so the state could not see its finances. The MDHHS recognizes that the PIHPs and CMHSPs are spending large amounts of money with no accountability. The legal counsel of the CMHSPs argued in Court on the third day of testimony, during closing arguments, that “you will not find any more transparent organization than his clients, the CMHSPS.”
She also shared with the court that there were additional reasons why the state chose to redesign the system at this time. She noted there was concern about conflicts of interest because community mental health leaders sit on the PIHP governing boards, which means “they are basically monitoring and policing themselves.” She provided an example from 2018 where a PIHP was at financial risk and the state was determining to cancel their contract. They asked for an audit. The CEO of the PIHP sat on its board and voted against the audit, prevent the state from looking at their finances to base a decision on.
In addition, out of the 10 PIHPs, 5 did not sign contracts for FY 2025 and 4 did not sign contracts for 2026. The PIHPs countered that they did not sign the agreements because they sent redlined agreements back to the Department. Regardless the extensions to the previous contracts will expire on September 30, 2026.
Centra Wellness Executive Director Joseph Johnston testified that 89 to 90 percent of his agency’s budget is Medicaid-funded and expressed concern about contracting requirements under the proposed RFP. During cross-examination, he acknowledged reading only portions of the RFP.
Key Legal Questions Before the Court
In November, Judge Yates held that the Department of Health and Human Services (DHHS) could reduce the number of regions from 10 to three and could move forward with the RFP. Proceedings are now focused on whether the RFP structure complies with Michigan law and, if not, what remedy would be required. Judge Yates stated nothing in Michigan law prevents MDHHS from reducing the number of regions from 10 to 3 or from choosing a competitive system over a single-source model. The question, he emphasized, is how the rights and roles of PIHPs and CMHSPs fit within that structure, are their conflicts in the law, and how are those conflicts resolved.
Testimony and questioning also centered on these issues:
The Mental Health Code differs from Medicaid managed care.
CMHSPs hold statutory duties under MCL 330.116(2)(b) related to direct service delivery, including maintaining a recipient rights office. These duties remain intact regardless of changes to Medicaid contracting.CMHSPs may continue to act as direct service providers.
Under the RFP, CMHSPs would no longer perform managed care functions. MDHHS argued those functions should reside with PIHPs, who would manage the full Medicaid administrative and financial responsibilities.Funding concerns remain central.
CMHSPs testified that administrative functions cannot be supported by Medicaid alone, and that general fund revenues would be insufficient to fill gaps. MDHHS stated that CMHSPs should not be performing managed care administration in the first place.The PIHP will retain control of Medicaid funds.
The “purse strings” would sit entirely with the PIHP, while CMHSPs would remain the primary agencies responsible for delivering services.Substance Use Disorder (SUD) services are also implicated in the restructuring,
Northing is definitive. Although proposals have been submitted with various modifications to the original RFP. The selected PIHPs and the state can still negotiate contract language to address concerns, gaps and other issues.
Judge Yates noted that the issues raised relate more to the design of the managed care structure than to the actions of MDHHS itself, signaling that his decision will center on statutory consistency and the remedies available to the Court.
This could include asking the DMTB and MDHHS to clarify any conflicts of law in the RFP; and, because the RFP includes a severability clause, the Court could strike or revise only those provisions that conflict with Michigan law while allowing the rest of the redesign to move forward.
He also has several additional options: issuing a declaratory judgment that interprets the roles of PIHPs and CMHSPs without halting the procurement; issuing a declaratory judgment with continued Court oversight; granting partial, tailored injunctive relief to pause only the portions of the RFP that cannot legally operate; remanding the matter back to MDHHS for correction; or upholding the RFP in full if it is found to comply with state law.
The Plaintiffs representing the PIHPs and CMHSPs suggested mediation and an opportunity to bring all the parties together to resolve any issues. While the Judge supports mediation, in this case, he saw that would not be feasible to find a resolution. The same he said in issuing a Notice for Comment.
Judge Yates stated a few times that he believes it is unlikely he will issue an injunction, meaning the redesign will likely not be put on hold. The Court will instead clarify what must change, or what can stand, without stopping the RFP process or pausing the entire redesign while the case is resolved. He will most likely retain jurisdiction over this case which would allow him to continue to hear arguments that are in dispute as the process moves forward.
A livestream of the recorded proceedings is available here.
If you are a nonprofit behavioral health provider in Michigan, and not a member of the MI Care Council, MI Behavioral Health & Wellness Collaborative, or the Michigan Association of Substance Addiction Providers, or just interested in collaboration, please contact [email protected], for more information on the value of membership. If you know of someone who might find this content, please share this link to the newsletter.
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