Judge: Michigan bid to rebuild mental health care has ‘significant conflicts’

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.

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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.