MDHHS RFPs Behavioral Health Prepaid Inpatient Health Plans (PIHPs)

Michigan Court of Claims Judge Christopher P. Yates ruled that MDHHS’s request for proposals on Pre-Paid Inpatient Health Plans (PIHPs) violates the state’s mental health code.  The Michigan Department of Health and Human Services announced in February 2025 that it will privatize PIHPs and cut the number of PIHPs from 5 to 3.  There has been a significant adverse reaction to the proposal across the state:

https://bridgemi.com/michigan-health-watch/judge-michigan-bid-to-rebuild-mental-health-care-has-significant-conflicts/

Judge: Michigan bid to rebuild mental health care has ‘significant conflicts’
By Eli Newman - January 9, 2026

• The Michigan Department of Health and Human Services is proposing an overhaul of its mental health system, which oversees $4.9 billion in programs
• The Michigan Court of Claims ruled that the department’s request for proposals conflicts with the state’s mental health code
• The state says the restructuring is necessary to improve Michigan’s health care system. Critics believe the efforts would water down local oversight and expertise

Michigan wants to restructure how the state administers Medicaid funds for mental health care, but its planned overhaul of the system hit a legal hurdle this week.

The state has offered organizations a chance to submit proposals to manage the money, but a judge says the bid-out process violates state law.

The decision adds a wrinkle to enacting the state’s new vision for how regional health agencies facilitate programs that cover over 300,000 Michiganders.

Several of the regional agencies filed suit in August after the Michigan Department of Health and Human Services unveiled proposals for a “competitive procurement process” to contract out the administration of $4.9 billion in behavioral health programs.

MDHHS says the reforms are necessary to improve access and introduce consumer choice. Critics say the state’s efforts are tantamount to privatization that would water down local oversight and expertise.

Judge Christopher Yates of the Michigan Court of Claims determined last year that MDHHS had the authority to restructure its systems, but deferred judgment on the legality of its bid process.

On Thursday, Yates ruled the state’s request for proposals “impermissibly conflicts with Michigan law in numerous respects,” but stopped short of forcing the health department to withdraw the bid. He said any modifications of the plan would need to ensure Medicaid-funded Community Mental Health Service Programs receive enough funding to perform their legally required obligations as they contract with providers.

Officials with MDHHS told Bridge Michigan the agency is reviewing the decision.

Those representing plaintiffs in the case say Judge Yates’ decision was correct in noting the legal flaws in the state’s proposal and forcing the health department to redress those deficiencies.

“We’re really very pleased with the judge’s opinion,” said Robert Sheehan, chief executive officer of the Community Mental Health Association of Michigan. “That bid-out is not the way to build something collaboratively.”

Sheehan said that as a result of the ruling, more applicants should be eligible to bid.

The MI Care Council, a coalition of behavioral health and substance-use treatment providers across the state, also welcomed the court’s decision, saying the reorganization of mental health care in Michigan is a “necessary step toward simplifying oversight” and creating a more efficient structure.

“We believe this decision will help create a clearer pathway for providers to deliver consistent, high quality care and strengthen a system that too often leaves people waiting for services,” said MI Care Council executive director Daniel Cherrin in an email. “As the process continues, we remain committed to working with the state to ensure that the transition improves access, protects community based providers, and keeps the focus on the people we serve.”

A ‘damaging shift’ or necessary reform?

Ten Prepaid Inpatient Health Plans, or PIHPs, operate regionally to manage the state’s Medicaid funding for individuals with intellectual and developmental disabilities, substance use disorder and those experiencing other serious mental illness or emotional disturbances. Each agency oversees a network of mental health service providers that work directly with Michigan’s patient population.

Under MDHHS’s new initiative, the number of PIHPs would be reduced to three. New organizations that contract with the state would need to be a nonprofit, governmental entity or a public university, and be subject to the Open Meetings Act and the Freedom of Information Act. The changes are slated to take effect in October.

In his ruling, Judge Yates said the state’s proposal contained “several significant conflicts” with the Mental Health Code. He said the state’s request for proposals is structured in a way that unlawfully limits how regional health entities pay Community Mental Health Service Programs.

Community Mental Health Service Programs are the local groups that coordinate care with providers.

“Medicaid funding is such a significant portion of the budgets of CMHSPs that it is impractical, if not impossible, for CMHSPs to differentiate Medicaid beneficiaries from others to whom they are statutorily obligated to provide mental-health services,” Yates wrote in his decision. “Medicaid funding is crucial to the CMHSPs’ ability to carry out those statutory mandates because it depends on the maintenance of a provider network.”

A coalition of leaders representing mental health service providers and their related advocacy groups signed on to decry the disputed MDHHS proposal. In an open letter released in September, the coalition called the plan a “damaging shift” in the way behavioral health services are structured and delivered in Michigan — taking management out of the hands of agencies that are held accountable by locally elected officials.

“This bid-out process seeks to move this management role to other organizations – through a bid process that heavily favors private health insurance companies,” the letter reads.

The Community Mental Health Association of Michigan estimates higher overhead costs associated with the state’s new plan will result in an immediate loss of $500 million in mental health services.

Those representing many of Michigan’s health insurance companies say Judge Yates’ decision jeopardizes the state’s mental health system. Michigan Association of Health Plans Executive Director Dominick Pallone called it a “travesty” that blocks choice and competition.

“Michigan’s Court of Claims just put thousands of Michiganders who desperately desire an improved public mental health system in limbo,” Pallone said in a statement.

How it started

Michigan’s managed care model has been in place since the 1990s, when state officials opted to “carve out” Medicaid dollars for behavioral health care.

The PIHPs were first downsized to 10 from 18 in 2014 under the Snyder administration.

Critics of that restructuring believe it created a conflict of interest within the regional groups, allowing them to both manage federal dollars and act as a direct provider of Medicaid-funded services. The community mental health groups argue the concern is misdirected, as they exist as governmental entities with proper safeguards in place.

Gov. Gretchen Whitmer has seen other managed care system reforms floated in her term. Plans to eliminate the PIHP system set forth by former Senate Majority Leader Mike Shirkey and another Republican state lawmaker failed to materialize.

The Michigan Department of Health and Human Services has terminated their plan to reduce the number of regional mental health agencies to three and create public private partnerships (PPPs):

https://bridgemi.com/michigan-health-watch/michigan-quietly-kills-effort-to-restructure-mental-health-care-system/

Michigan quietly kills effort to restructure mental health care system
By Eli Newman - January 30, 2026

• Michigan is pulling a request to bid out the administration of $4.9 billion in Medicaid funds for mental health care
• The decision caps a month-long feud between the state health department and regional health agencies who disagree on the proposed reform
• Officials say the state still plans to strengthen ‘consumer choice’ in the Medicaid-backed behavioral health space

Michigan has quietly halted efforts to shake up the way public funds for mental health care in the state are managed. The retreat ends a months-long effort to introduce “consumer choice” reforms to a Medicaid-supported system that serves 300,000 residents.

The decision, which impacts who manages $4.9 billion in care services for behavioral health, was announced Thursday through a “cancelation of request for proposal” announcement on the state’s procurement website.

The notice marked an unceremonious end to a simmering dispute between the Michigan Department of Health and Human Services and the various regional health agencies. Some of the entities, known as Prepaid Inpatient Health Plans, filed lawsuits against the state last August after MDHHS revealed how it would bid out the contracts.

The proposal would have reduced the number of regional agencies from 10 to three, and introduced public-private partnerships to the system, which currently operates under local government oversight.

A Court of Claims judge ruled on Jan. 8 that the state’s request for proposals violated state law by undercutting funding for Community Mental Health Service Programs, and would need to be amended in order to proceed. Community Mental Health Service Programs are the local groups that coordinate care with regional health providers.

The state health department said it rescinded the RFP “to evaluate next steps and available options in alignment with our commitment to ensuring Michigan’s behavioral health system is structured in a way that best serves beneficiaries” while aligning with federal and state requirements.

MDHHS points to “significant changes in health care delivery, financing, integration expectations and federal oversight” as reasons to review the system.

“At the center of this work is a focus on improving access to care, strengthening consumer choice and ensuring Medicaid resources are used efficiently toward direct services rather than duplicative administrative functions,” agency spokesperson Lynn Sutfin said in an email.

“MDHHS looks forward to continued engagement with community partners as it evaluates paths forward that strengthen Michigan’s behavioral health system and better serve individuals and families.”

Michigan had intended to launch the new service contracts this October.

Those representing the local mental health agencies who sued the state told Bridge Michigan they are “encouraged” by the formal end of the bid-out.

“However, it doesn’t mean the department isn’t still thinking about another RFP,” said Robert Sheehan, chief executive officer of the Community Mental Health Association of Michigan. “We are reaching out to them now … we want to do a collaborative approach.”

The MI Care Council, an advocacy organization representing health care and social support providers across the state which supported the restructuring, noted their disappointment with the state’s decision.

“The redesign RFP was canceled, but the problems facing Michigan’s behavioral health system were not,” MI Care Council executive director Daniel Cherrin said in an email. “Providers are still operating in a fragmented structure with delayed payments, inconsistent oversight, and growing workforce strain, and people across the state still need access to care. The mechanism changed, but the responsibility to fix what isn’t working did not.”

Michigan is navigating turbulent headwinds in federal mental health care funding as it boosts in-state support. Earlier this month, the Trump administration issued – and then reversed – a sweeping decision to cut $2 billion in mental health and addiction programs. Nationally, cuts to Medicaid outlined by the One Big Beautiful Bill Act are expected to cost about $900 billion over the next decade.

MDHHS paid McKinsey & Co. $ 2.9 million to redesign the state’s Prepaid Inpatient Health Plans (PIHP).  The payments were made through the Michigan Public Health Institute (MPHI), a 1992 cutout devised to skirt Michigan's government  transparency laws.  The use of the MPHI cutout and outside consultant McKinsey & Company is why the MDHHS 2025 PIHP rework was such a surprise to the mental health community:

https://bridgemi.com/michigan-health-watch/michigan-paid-consultants-2-9m-for-failed-mental-health-redesign/

Michigan paid consultants $2.9M for failed mental health redesign
By Eli Newman - March 2, 2026

• Michigan paid McKinsey & Co. about $2.9 million to design a restructuring of its Medicaid-backed behavioral health system
• A judge ruled the resulting bid conflicted with Michigan law, and the state pulled it
• The state maintains about $39 million in active contracts with McKinsey, which the state had previously sued for its role in the opioid crisis

Michigan public health officials paid nearly $2.9 million to an outside consulting firm for the failed redesign of the state’s behavioral health management system.

In late January, the state withdrew a request for proposal to contract out the administration of about $4.9 billion in Medicaid-backed mental health services after a judge deemed the bid to be in conflict with Michigan law.

The Michigan Department of Health and Human Services hired the global management consulting firm McKinsey & Co. to support its efforts to draft the now-cancelled request for proposal.

McKinsey was awarded last year a $2.45 million contract with the state to support its efforts “to design and implement a new procurement process for behavioral health contracts,” according to a Bridge review of health department financial reports.

The money was paid through the Okemos-based Michigan Public Health Institute, a state-created nonprofit that works with various government agencies, universities and local health organizations in its goal to address the state’s health disparities. MDHHS contracts with the nonprofit to support “public health projects and related activities.”

The Michigan Public Health Institute was selected by the state health department to work on the bid project, according to the nonprofit’s leadership.

“McKinsey was selected prior to us being asked, which is typical,” Michigan Public Health Institute chief strategy officer Paul Elam told Bridge. “We just facilitate procurement projects for the state.”

The state’s request for proposal went live in August and outlined a plan to reduce and effectively shut out the current slate of regional entities managing behavioral health in Michigan. Ten Prepaid Inpatient Health Plans, or PIHPs, collectively manage the funding of some 300,000 Medicaid members to support intellectual and developmental disabilities, substance use disorders and serious mental illnesses.

McKinsey received another $447,000 in October 2025 as some PIHPs sued the state following the release of the new framework. The consulting firm’s funding for the project is expected to continue through this September.

Neither MDHHS, state agencies that oversee government contracts, nor McKinsey responded to Bridge Michigan’s requests for comment in time for publication.

Community mental health leaders worry the state will submit a new bid before the end of the year and disrupt the current system. Some providers who contract with the regional entities to provide mental health services believe the structure needs major reform and support the state’s intervention.

Following the money

McKinsey, which operates in over 130 cities, has faced conflict of interest criticism for working with both governments and private companies, and for its role in the American opioid crisis.

After advising pharmaceutical companies, McKinsey paid over $600 million to settle federal investigations into its efforts to “turbocharge” sales of OxyContin. Michigan has received more than $19.5 million in opioid settlement funds from the firm.

The state maintains about $39 million in active contracts with the firm to support “human centered design,” grant consulting, digital tools and operational consulting services.

The $2.9 million McKinsey received for the PIHP bid design is not reflected in state contracts as it was allocated through the Michigan Public Health Institute. McKinsey has received millions of dollars through the nonprofit for various efforts in recent years, including the analysis of food benefits and “strategic support” across multiple Medicaid mental health services.

The nonprofit has received more than $200 million from the state in the current fiscal year as its revenue has doubled since 2019, according to IRS records.

The Michigan Public Health Institute’s role as a financial intermediary for the McKinsey contracts comes as state Republicans seek to investigate the nonprofit.

Michigan House Speaker Matt Hall has called the Michigan Public Health Institute a “government scam to work around transparency laws” whose funding he scrutinized during the COVID-19 emergency.

“We’re coming back and we’re investigating this,” Hall said in a Feb. 4 press conference. “And we’re going to get to the bottom of what’s going on there.”