This week’s newsletter highlights the tension around Michigan’s behavioral health rebid, where long-standing community providers fear being sidelined as the state moves toward a streamlined, three-region model. The takeaway: reform is necessary and change is hard but necessary. Pull Up Your Chair & Let’s Start the Conversation.

Behavioral Health Evidentiary Hearing

The Michigan Court of Claims heard arguments last week, over whether the Michigan Department of Health and Human Services (MDHHS) has the legal authority to restructure the state’s public behavioral health system. At issue is an RFP that reduces Michigan’s ten regional Prepaid Inpatient Health Plans (PIHPs) to three “mega-regions” and prevents current regional entities from bidding in their present form. MDHHS maintains that it has broad statutory authority to select and redesign PIHPs to improve efficiency, ensure accountability, and comply with federal Medicaid rules. Officials said the new structure would eliminate conflicts of interest, streamline administration, and protect billions in federal funds. They testified that no one would lose services or their safety net under the new model.

Community mental health leaders countered that the plan would dismantle the existing system of care, destroy trusted local networks, and create confusion for people relying on services for serious mental illness, developmental disabilities, and substance use disorders. They said the timeline for reorganization is unrealistic and warned that beneficiaries could “fall through the cracks” during the transition.

Judge Christopher Yates indicated he found the state’s approach “terribly unwise but quite probably legal” and will issue a declaratory ruling rather than an injunction. His decision, expected by October 14, will determine whether MDHHS acted within its authority. The outcome will shape not only the legality of the procurement but the future of Michigan’s public behavioral health system, testing whether efforts to streamline government can coexist with preserving the community-based safety net that defines it. Source MIRS.

Michigan’s Behavioral Health Rebid Heads to Court -- The case, Region 10 PIHP v. State of Michigan 

A legal challenge now before the Michigan Court of Claims will determine whether the state can move forward with its plan to restructure the public behavioral health system. The case, Region 10 PIHP v. Michigan Department of Health and Human Services, centers on whether the department has the authority to replace Michigan’s current 10 Prepaid Inpatient Health Plan (PIHP) regions with three larger “mega-regions” through a competitive procurement process.

Statutory Authority and Administrative Discretion

Assistant Attorney General Stephanie Service, representing MDHHS, told the court the department acted within its statutory powers under MCL 400.109f and MCL 330.1116. Those laws, she said, give MDHHS discretion to select PIHPs and define regional boundaries to improve efficiency, ensure accountability, and comply with federal Medicaid requirements.

Attorney Chris Ryan, representing Region 10 PIHP and several community mental health authorities, argued that the state’s plan violates the Michigan Mental Health Code, specifically MCL 330.1204b, which gives Community Mental Health Services Programs (CMHSPs) and regional entities the right to contract as PIHPs. He said the RFP “excluded the very entities the Legislature said have the power to serve as the PIHP.”

Judge Christopher Yates noted the competing statutory interpretations and said he would consider issuing a declaratory ruling to clarify the department’s authority.

Exclusion of Existing Regional Entities

Testimony from Kristen Morningstar, Bureau Administrator for Specialty Behavioral Health Services at MDHHS, confirmed that existing PIHPs cannot bid “in their present form” under the new RFP because it requires bidders to cover entire mega-regions and comply with new governance standards. She said PIHPs could reorganize and submit a resolution outlining their intent to form new entities.

Joseph Sedlock, CEO of Mid-State Health Network, which serves 21 counties and about 65,000 Medicaid beneficiaries, testified that reorganizing before the October 7 bid deadline was “impossible within the timeline.” He said implementation would dismantle established provider relationships and disrupt service coordination. Jeffrey Patton, CEO of Integrated Services of Kalamazoo, testified that the new process “departs from CMS-approved procurement plans” that historically gave local entities initial consideration. 

Conflict of Interest and Oversight

Service and Morningstar testified that one purpose of the restructuring is to separate the payer (PIHP) from the provider (CMHSP) to resolve potential conflicts of interest cited by federal officials. Morningstar said the new structure would “create clearer accountability.”

Sandra Lindsey, CEO of the Saginaw County Community Mental Health Authority, acknowledged that two members of her board also sit on the PIHP board, but said that overlap “has not interfered with accountability or trust.” She testified that removing these connections could affect cooperation among law enforcement and local partners. Sedlock said that while recusal policies exist, “the dual structure inherently blurs oversight.” 

Federal Compliance and Medicaid Funding

Service testified that CMS has withheld renewal of Michigan’s sole-source contracting waiver because of conflict-of-interest concerns. She said competitive procurement is necessary to maintain federal Medicaid funding.

Patton testified that MDHHS has not yet received CMS approval for the new model and that proceeding without it could conflict with the state’s 2001 federally approved plan, which remains in effect.

Continuity of Care and Beneficiary Impact

Morningstar told the court that services would remain available through local CMHSPs even if new PIHPs are selected, and that beneficiaries “will not lose services” or their “safety net.”

Sedlock testified that the reorganization could cause individuals “to fall through the cracks” during transition. Lindsey said that changes in contracting could affect “recipient-rights oversight and interagency collaboration.”

Process and Timeline

Patton testified that earlier system reorganizations, such as the 2013 reduction from 18 to 10 regions, were developed collaboratively with local input. He said the current process lacked similar consultation. Lindsey described the current timeline as “unrealistic” for forming new entities. Morningstar testified that the schedule aligns with current contract expirations in September 2026 and provides a year for readiness reviews.

Judicial and Legislative Context

Judge Yates indicated he would issue a declaratory judgment by October 14, 2025, to determine whether MDHHS acted within its authority. He said he did not plan to rule on a preliminary injunction before bids are due.

During the hearing, Assistant Attorney General Brian Beach objected to the plaintiffs’ introduction of a 26-minute audio recording of MDHHS Director Elizabeth Hertel, calling it “trial by ambush.” The judge reserved ruling on its admissibility.

The Legislature has also weighed in indirectly. The state’s FY 2026 budget reaffirms that PIHPs must be operated by CMHSPs or regional entities, language that may conflict with the broader eligibility criteria in the new RFP. 

What Comes Next

Bids are due October 13, 2025, at 11:50 a.m., while the court’s ruling is pending. Current PIHP contracts expire September 30, 2026, with limited continuation clauses. If Judge Yates rules in favor of the plaintiffs, the RFP could be voided or revised to allow existing entities to compete. If the court rules for MDHHS, the procurement will proceed as planned, though either side may appeal to the Michigan Court of Appeals. Regardless of the outcome, MDHHS must still obtain CMS approval for the new structure before implementation in October 2026. The decision will determine how Michigan organizes and oversees its behavioral health system for years ahead.

To listen to the evidentiary hearing in two episodes AM Session - https://www.youtube.com/watch?v=ZI_YyzXswNg, PM Session - https://www.youtube.com/watch?v=XFNYkDDY2Bc

Read more,

Keeping Score - Anticipated Applicants

The following information is provided for general informational purposes only. It reflects our current understanding of entities that may have submitted proposals, earlier today in response to the state’s behavioral health rebid. This list is preliminary, non-exhaustive, and based solely on publicly available information and informal communications. It has not been independently verified, and inclusion or omission should not be interpreted as confirmation, endorsement, or exclusion of any organization’s intent or participation. Circumstances may change as proposals submitted could be withdrawn.

Northern Region

Central Region

Metro Region

MDHHS Director Elizabeth Hertel issues statement on passage of FY26 budget

MDHHS Director Elizabeth Hertel celebrated the passage of Michigan’s balanced and bipartisan FY2026 budget, saying it will allow the department to continue protecting the health, safety, and prosperity of Michigan families. Hertel thanked Governor Whitmer and the Legislature for supporting a budget that sustains vital Medicaid services, enhances security for EBT cards, and expands Family Impact Teams statewide—embedding resource specialists with child protective services to connect families to food, housing, and health care assistance. The FY26 MDHHS budget includes $131.75 million for opioid prevention, treatment, and recovery services; $9.3 billion to sustain Medicaid programs; $30 million to reduce SNAP payment errors; $26.2 million to expand Family Impact Teams; $16 million to transition to EBT chip cards; $3.1 million to reduce community violence; and $5.1 million to stabilize behavioral health services across Michigan communities. Source MDHHS.

Michigan lawmakers cut funding for autism program amid push for road projects

The budget that Michigan lawmakers approved last week eliminated a $2 million program that's been helping families and adults dealing with autism in the state for a decade. Members of the Legislature argued the move was part of a larger effort to reduce spending and direct more money to road projects. However, supporters of the Autism Alliance of Michigan's navigators program said the decision would likely leave parents facing a child's autism diagnosis without guidance from specialists to whom the state has provided access for years. “How do you decide families with autism are less important than roads?” asked Colleen Allen, president and CEO of the Autism Alliance of Michigan. Source The Detroit News.

State grants to spur emergency department expansion at McLaren's Cheboygan campus, Blue Water Health Living

Members appointed for Isabella County opioid advisory committee, The Morning Sun                      
ICYMI: Cinnaire: Grand Opening Celebration for The McDaniel Apartments at Andy’s Place II, The Michigan Business Network

University of Michigan Health reports increase in mental health issues among children, WEMU 989.1 FM

VanWoerkom-Wendzel To Tie The Knot

Fourth-term Reps. Greg VANWOERKOM (R-Norton Shores), 45, and Pauline WENDZEL (R-Watervliet), 35, are engaged to be married, making the couple only the second duo of Michigan legislators to be married to each other while serving, and the first in 50 years. Source MIRS.

The Mental Health Association of Michigan is hosting its annual Tribute Dinner, October 16, 2025, at 5:30 PM at Motor City Casino, in which the Association honors an individual or individuals who have made positive contributions to mental health public policy in the state of Michigan.  This includes: Andrea Cole, CEO, Flinn Foundation; Ross Jones, WXYZ TV; Heather Catallo, WXYZ-TV and Robin Erb, Bridge Magazine. A mental health comedian named Horace who will provide us with some entertainment. Tickets are 100 for members and 150 for non members.  Source MHA, https://www.mha-mi.com/ 

Eleos Update

Join Eleos Health for their latest webinar “Your Guide to a Seamless AI Implementation.” The session is designed to help behavioral health organizations overcome their biggest fears around AI rollout. Eleos experts, along with Tracie Del Torto, CCO of Lighthouse Behavioral Wellness Center, will share practical strategies for preparing staff, designing effective training, and keeping adoption strong long after launch. Click here for the copy .