A judge in the Michigan Court of Claims heard argument and testimony over a challenge to the Michigan Department of Health and Human Services' (MDHHS) new request for proposals (RFP) to competitively procure prepaid inpatient health plan (PIHP) contracts, an effort the state says is intended to reduce administrative fragmentation and increase accountability.

At the hearing, lawyers for Region 10 PIHP and other plaintiffs urged the court to block the RFP and related actions, saying the procurement conflicts with the Mental Health Code and strips statutorily authorized community mental health entities of their role. State lawyers defended the RFP as a lawful, policy-driven reorganization that aims to streamline managed-care functions and improve oversight.

The proceedings opened with the judge reading a controlling standard for injunctive relief, quoting the Court of Appeals that “an injunction represents an extraordinary and drastic use of judicial power that should be employed sparingly and only with full conviction of its urgent necessity.” The judge said he had “in effect granted” the plaintiffs’ ex parte motion for expedited consideration and that he would consider the preliminary-injunction motion along with declaratory-judgment and summary-disposition matters so the court could rule promptly if appropriate.

Why this matters

The procurement at issue would change who may serve as a PIHP and how regions are structured for delivery of specialty behavioral-health services paid through Medicaid. Plaintiffs — which include existing PIHP regional entities and some community mental health providers — told the court the RFP effectively precludes many current public regional PIHPs and community mental health service programs (CMHSPs) from bidding and therefore threatens continuity of care, local safety‑net functions and the institutional relationships between PIHPs, county CMHSPs and local partners such as law enforcement and hospitals.

Key testimony and claims

- Jeffrey Patton, CEO of Integrated Services of Kalamazoo (Kalamazoo ISK), described the original federal 1915(b)/(c) combined waiver and the state’s revised procurement plan after 1998. Patton testified the state once secured CMS approval to maintain a sole‑source relationship with the public county‑based community mental health system and said, “The state's conclusion was that it was in the best interest of the state to maintain the sole source contractual arrangement with the public community mental health system.” He said the most recent procurement documents impose organizational restrictions that limit which entities are eligible to be PIHPs.

- Sandra Lindsey, CEO of Saginaw County Community Mental Health Authority, described local operational arrangements and the county’s role as a safety-net provider. Lindsey testified that Saginaw “has about 350 staff of our own, and we do provide direct services ourselves” and warned that losing contract authority would reduce the authority the county uses to support local partnerships and to fill immediate gaps (for example, housing or emergency responses) that are not reimbursable directly through Medicaid.

- Kristen Morningstar, Bureau Administrator for Specialty Behavioral Health Services at MDHHS, testified about MDHHS' decisionmaking and timelines. She confirmed the department issued a public press release and an online survey in late February but said the department had not received written CMS permission to alter the earlier CMS‑approved revised plan for procurement. Morningstar also described operational constraints if existing contracts lapse: “We would have to find another mechanism to flow the Medicaid dollars to those individuals,” and warned that absent signed contracts the state would face practical and federal‑funding complications.

- Joseph Sedlock, CEO of Mid State Health Network (a multicounty PIHP), described PIHP compliance and monitoring processes and said that PIHPs routinely use corrective-action plans when providers are noncompliant: “If we find an issue of noncompliance, it’s mostly addressed through a requirement that the entity develop a corrective action plan.” He also said PIHPs perform provider performance monitoring and that existing PIHP/CMHSP relationships are built around local trust and service networks.

Plaintiffs’ legal argument

Plaintiffs told the court the RFP violates the Mental Health Code in at least two ways: (1) the RFP would reassign managed‑care functions (including recipient‑rights responsibilities) away from CMHSPs in ways the statute does not permit, and (2) the RFP redesigns regional boundaries and bidder eligibility in ways that eliminate or disenfranchise existing regional PIHP entities that the legislature authorized. Plaintiffs pointed to specific statutory provisions discussed at the hearing (including provisions in the Mental Health Code authorizing regional entities and CMHSP duties) and urged the court to declare the RFP unlawful and to halt contract awards.

State’s position

MDHHS lawyers said the department has authority to redesign procurement to address perceived fragmentation and accountability concerns, and to require organizational and governance changes for entities that will hold PIHP contracts. The state emphasized that the RFP is intended to create fewer, larger regional PIHPs with centralized contracting and administrative oversight, and that MDHHS must balance federal requirements, actuarial rate setting and practical implementation timelines.

Court procedure and next steps

The judge repeatedly noted the high standard for injunctive relief against public officials, and said he intended to issue a written decision on the injunction, related summary‑disposition issues and any declaratory relief on an expedited timetable. The judge told counsel, “I promise, you will get an answer no later than Tuesday,” and said he was reluctant to issue an injunction without first giving the state the opportunity to comply with any declaration of law the court might issue.

What the hearing did not resolve

No final judicial decision was announced at the hearing. The court has not yet ruled on the preliminary‑injunction motion or any declaratory relief; those motions remain under advisement. The record includes testimony and documents about procurement history, federal waivers, recent MDHHS press materials and the department’s timeline for contract transitions (testimony referenced existing contract language that extends only to Sept. 30, 2026, for certain PIHPs), but the court did not make a final factual finding at the hearing.

Outlook

If the court issues declaratory relief finding the RFP inconsistent with the Mental Health Code, MDHHS would likely need to revise its procurement approach or seek legislative change; if the court denies relief, the RFP process could proceed and incumbents would face a compressed timeline to reconstitute to meet bidder requirements. The judge’s forthcoming written decision will clarify whether the court finds a statutory violation and whether injunctive relief is appropriate.

Reporting note: All quotes and attributions in this article are taken from the hearing transcript and are attributed only to speakers identified in the proceedings.