Mental health advocates protest in opposition to a proposal from the Michigan Department of Health and Human Services they argue would privatize management of public mental health services during a rally Sept. 17 at the state capitol in Lansing. (Kyle Davidson/Michigan Advance)

A Michigan court has ruled that the state’s plan to overhaul its mental health service delivery system violates state law, citing conflicts with the Michigan Mental Health Code.

The decision, issued Thursday by Judge Christopher P. Yates of the Michigan Court of Claims, declared that the state’s 2025 request for proposal for a competitive procurement system restricts Community Mental Health Service Programs, which serve as the state’s prepaid inpatient mental health plan providers, from fulfilling their statutory obligations.

While the court denied the state’s motion to dismiss the lawsuit, it stopped short of issuing an injunction to halt the transition process, instead ordering the state to address the legal conflicts identified in the ruling and bring the proposal into compliance with Michigan law. The court emphasized that sufficient Medicaid funds must be allocated to providers to allow them to perform their statutory duties.

The case stems from lawsuits filed by multiple inpatient providers and counties against the Michigan Department of Health and Human Services and the Department of Technology, Management, and Budget. The plaintiffs argued that the proposal, which aims to transition to a competitive procurement system by reducing from 10 to three the number of regions that prepaid inpatient health plans operate in, would impair their ability to provide mandated mental health services.

The proposal involves up to $6 billion in state-administered funding and is set to take effect in October.

In his ruling, Yates stated that the proposal would stop inpatient mental health plan providers from making contracts with service providers, even though those contracts are necessary to pay for services and to manage mental health care properly.

As those providers are required by law to offer many essential services, including crisis care, screening before hospital admission, protecting patients’ rights, and mental health advocacy, Yates ruled that the proposal conflicts with Michigan law, which requires community mental health agencies to coordinate care and protect patients’ rights by working through contracts with service providers.

After Thursday’s ruling, the Community Mental Health Association of Michigan released a joint statement from CEO Robert Sheehan and incoming CEO Alan Bolter.

“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,” the statement read. “Our members stand ready to work with the Department and stakeholders across the state in the design and implementation of bold system improvements and reforms to strengthen the system for the betterment of the people we serve. We remain committed to constructive collaboration that ensures any future changes comply with Michigan law and uphold the quality of mental health, intellectual and developmental, and substance use disorder services for individuals, families, and communities across the state.”

Meanwhile, the MI Care Council, a coalition of nonprofit behavioral health and substance use disorder providers that supports the proposed changes, said it welcomed the decision.

“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. 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,” the council said in a statement.

Thursday’s ruling is not final and does not resolve all pending claims in the case, with Yates indicating that the court would consider injunctive relief if the state fails to address the legal issues raised in the ruling.

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