Judge finds illegal language in Michigan health department's proposal to restructure state mental health services

Kara Berg, The Detroit News on Jan 9, 2026

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DETROIT — A Michigan Court of Claims judge has found that the language in the state health department's attempt to possibly privatize community health agencies violates Michigan's mental health code.

Two lawsuits were filed in August by three regional entities that manage mental health, substance abuse and disability care — called Prepaid Inpatient Health Plans, or PIHPs — along with seven Community Mental Health agencies over a plan to possibly privatize some community mental health services. The lawsuits were filed after the Michigan Department of Health and Human Services issued a request for proposals seeking bids from both private and public entities to apply to take over handling of the state's PIHPs and mental health services.

But Judge Christopher Yates wrote in an opinion issued Thursday that the language in the request for proposals the state issued violates Michigan law because it prevents Community Mental Health agencies from fulfilling their statutory requirements to use Medicaid funds to provide services to people who could not otherwise pay for them by having financial contracts with providers.

But Yates said MDHHS's plan to select PIHPs through a competitive bidding process is legal and can continue, once MDHHS brings the request for proposals into compliance with Michigan law.

MDHHS spokesperson Lynn Sutfin said the state is reviewing Yates' decision to determine next steps.

Community Mental Health CEO Robert Sheehan and incoming CEO Alan Bolter said in a joint statement that they were pleased with Yates' decision and are ready to work with MDHHS and mental health stakeholders to design and implement "bold system improvements and reforms" to strengthen the system.

“We appreciate the Court’s careful review and its acknowledgment that the bid out requirements raised serious legal and operational violations of the Michigan Mental Health Code — particularly those which would have prohibited the state’s public Community Mental Health centers from carrying out their statutory responsibilities, from providing a comprehensive set of services, from ensuring the rights of persons served, and the administration of essential mental health and substance use disorder services," Sheehan and Bolter said in the statement.

Community Mental Health agencies fear allowing for private PIHPs will severely restrict their ability to function, but MDHHS says it could boost efficiencies.

Christopher Cooke, one of the attorneys for four community mental health agencies, said if a bid is granted to privatize some of these services, it will "essentially destroy" the ability of community mental health agencies to comply with statutory requirements in the mental health code.

"The lack of Medicaid funding will decimate our organizations," Cooke said. "Even if it is allowed to survive, it will be a very minimalist organization that won't be able to comply with the statute."

Since 2014, the state has had 10 regional entities that manage mental health, substance abuse and disability care, or Prepaid Inpatient Health Plans, divided up by regions of the state, to distribute millions of dollars in Medicaid funds. They offer a range of services for everything from those battling substance abuse disorders to those with developmental disabilities.

But state officials say expanding these regional care plan providers to include outside private providers to deliver care could improve services. Officials said whichever organizations end up as PIHPs must contract with Community Mental Health agencies to provide specialty services and support.

"The state’s intent here was to strengthen (Community Mental Health Service Programs') statutory functions," said Assistant Attorney General Stephanie Service, who is representing MDHHS, during a hearing before Yates in December. "(The issues) are all hypothetical at this point. We don’t know who will win the bids."

Yates, who heard three days of attorney arguments and witness testimony in December, said during the December hearing he doesn't run MDHHS but called the plan to accept public and private bids to run these plans and agencies "crazy from a policy standpoint."

But "I am not here to determine what good policy is," Yates said. "All I have to do is determine if the (request for proposals) is in violation of state law."

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