A judge of the Michigan Court of Claims heard arguments on a dispute over a Michigan Department of Health and Human Services (MDHHS) request for proposals that would consolidate the state's prepaid inpatient health plan (PIHP) regions and launch competitive procurement for PIHP contracts.

The case, docketed as 25-000143-MB and brought by Region 10 PIHP and other PIHPs against the State of Michigan and state agencies, centers on whether MDHHS may use an RFP to reduce existing PIHP regions and require bidders to meet new, statewide minimums that current PIHPs say they cannot meet without reforming their governance or geography.

Why it matters: The dispute concerns how roughly $4–5 billion in federal and state Medicaid funds flow through Michigan's behavioral health system and how local community mental health service programs (CMHSPs) interact with state contracting. Plaintiffs told the court that the RFP, as written, would leave existing regional entities "categorically excluded" from the initial procurement process and would undermine local recipient-rights offices and wraparound services that serve Medicaid beneficiaries.

The hearing opened with the court noting the large public interest and promising a quick written decision. "You need a decision quickly. I'm gonna get you a decision quickly," the judge said. The judge allowed each side two rounds of argument on the summary-disposition motion and set an injunction hearing for the afternoon; the judge said an opinion would issue "by early next week at the very latest." The court also agreed to sequester witnesses during the evidentiary phase.

Defendants' position

Assistant Attorney General Stephanie Servais, representing the State and MDHHS, told the court the department has statutory authority to "choose which entities will serve as prepaid inpatient health plans," citing MCL 400.109(f). Servais described the RFP as a statutorily authorized exercise of MDHHS's administrative authority to administer Medicaid, arguing the procurement is intended to address conflict-of-interest concerns and strengthen contract oversight.

"What plaintiffs ask the court to do is to be the decider of how approximately $5,000,000,000 of federal and state funds flow through Michigan's Medicaid," Servais said, framing the dispute as an effort by plaintiffs to override the state's policymaking authority.

Servais told the court that MDHHS's design seeks bidders able to serve much larger "mega regions," that bidders may include nonprofit organizations or public entities, and that current PIHPs could bid if they reform and meet the RFP's minimum requirements. She emphasized federal oversight and readiness-review requirements and said the RFP requires PIHPs to contract with local CMHSPs so local direct services would continue to be delivered in communities.

Plaintiffs' position

Neil Marchand of Miller Johnson, speaking for Region 10 PIHP and multiple local CMHSPs, asked the court to deny the state's motion for summary disposition and to rule that existing CMHSPs and regional entities must be among the entities eligible to apply.

"At base, everything can be harmonized, and the motion for summary disposition needs to be denied because the CMHSPs and their regional entities have to be among the entities eligible to even apply," Marchand said.

Marchand argued the statutory scheme in the mental health code (including MCL 330.1204(b) and MCL 330.1232(b)) and the implementing federal approvals historically have given local CMHSPs initial consideration to serve as PIHPs. He told the court the RFP as drafted would foreclose those local entities from the "starting gate," would be impractical on the RFP's timeline, and would risk disrupting recipient-rights offices and the local, wraparound safety net for beneficiaries. Marchand also cited historical documents and prior enforcement mechanisms that, he said, were designed to preserve local accountability.

Procedural posture and court reaction

The hearing focused on statutory interpretation rather than disputed factual proof at this stage. The parties debated how to harmonize MCL 400.109(f) (language authorizing the department to "choose" PIHPs) with provisions in the mental health code describing CMHSP powers and the process for forming regional entities.

The court repeatedly pressed both sides on "harmonious reading" of the statutes and on whether allowing MDHHS broad discretion would render other statutory language "surplusage." The judge also sought practical clarifications about whether existing PIHPs could realistically reform and bid under the RFP and what immediate harms plaintiffs would suffer absent an injunction.

No disposition was reached in the hearing. The judge said he was "close on the merits" but that the irreparable-harm element had not yet been developed by the parties. The judge took the summary-disposition motion under advisement, scheduled the afternoon injunction hearing to resume at 1 p.m., and said he would issue an opinion by early next week. He also allowed the state's request to sequester witnesses during the evidentiary phase.

Background and history in the hearing

Both sides relied on legislative history and past procurement practice. Attorneys discussed the 2001–2002 federal approval that allowed sole-source procurement to continue in Michigan, the statutory provisions added after that period (including MCL 330.1204 and 330.1232), and a 2013 restructuring that reduced PIHP regions from a larger number to 10. The state said those precedents show the department can set region size and procurement approach; plaintiffs said the statutory framework and prior federal approvals create an expectation that CMHSPs receive initial consideration and that recipient rights and the local safety net be preserved.

What happens next

The court will reconvene for the injunction hearing at 1 p.m. and continue to evaluate testimony and evidence. The judge told counsel he intended to issue a written opinion "by early next week," and no final rulings were entered during the morning session.

Notes on what the parties did not decide

The court did not rule on whether the RFP, as written, is unlawful or on whether plaintiffs will obtain an injunction; those questions remain pending. The court also did not resolve factual disputes that will be litigated at the evidentiary hearing.

Ending

Counsel will return for the scheduled afternoon injunction hearing and evidentiary testimony. The Court of Claims judge said he would issue a written decision on the motions early next week.