Michigan has ended an effort to bid out administration of the state’s $4.9 billion in Medicaid funds for mental health care. (Bridge photo by Robin Erb)

(This story was originally published by Bridge Michigan, a nonprofit and nonpartisan news organization. Visit the newsroom online: bridgemi.com.)

Michigan has quietly halted efforts to shake up the way public funds for mental health care in the state are managed. The retreat ends a months-long effort to introduce “consumer choice” reforms to a Medicaid-supported system that serves 300,000 residents.

The decision, which impacts who manages $4.9 billion in care services for behavioral health, was announced Thursday through a “cancelation of request for proposal” announcement on the state’s procurement website.

The notice marked an unceremonious end to a simmering dispute between the Michigan Department of Health and Human Services and the various regional health agencies. Some of the entities, known as Prepaid Inpatient Health Plans, filed lawsuits against the state last August after MDHHS revealed how it would bid out the contracts.

The proposal would have reduced the number of regional agencies from 10 to three, and introduced public-private partnerships to the system, which currently operates under local government oversight.

A Court of Claims judge ruled Jan. 8 that the state’s request for proposals violated state law by undercutting funding for Community Mental Health Service Programs, and would need to be amended in order to proceed. Community Mental Health Service Programs are the local groups that coordinate care with regional health providers.

The state health department said it rescinded the RFP “to evaluate next steps and available options in alignment with our commitment to ensuring Michigan’s behavioral health system is structured in a way that best serves beneficiaries” while aligning with federal and state requirements.

MDHHS points to “significant changes in health care delivery, financing, integration expectations and federal oversight” as reasons to review the system.

“At the center of this work is a focus on improving access to care, strengthening consumer choice and ensuring Medicaid resources are used efficiently toward direct services rather than duplicative administrative functions,” agency spokesperson Lynn Sutfin said in an email.

“MDHHS looks forward to continued engagement with community partners as it evaluates paths forward that strengthen Michigan’s behavioral health system and better serve individuals and families.”

Michigan had intended to launch the new service contracts this October.

Those representing the local mental health agencies who sued the state told Bridge Michigan they are “encouraged” by the formal end of the bid-out.

“However, it doesn’t mean the department isn’t still thinking about another RFP,” said Robert Sheehan, CEO of the Community Mental Health Association of Michigan. “We are reaching out to them now … we want to do a collaborative approach.”

The MI Care Council, an advocacy organization representing health care and social support providers across the state that supported the restructuring, noted their disappointment with the state’s decision.

“The redesign RFP was canceled, but the problems facing Michigan’s behavioral health system were not,” MI Care Council Executive Director Daniel Cherrin said in an email. “Providers are still operating in a fragmented structure with delayed payments, inconsistent oversight, and growing workforce strain, and people across the state still need access to care. The mechanism changed, but the responsibility to fix what isn’t working did not.”

Michigan is navigating turbulent headwinds in federal mental health care funding as it boosts in-state support. Earlier this month, the Trump administration issued – and then reversed – a sweeping decision to cut $2 billion in mental health and addiction programs. Nationally, cuts to Medicaid outlined by the One Big Beautiful Bill Act are expected to cost about $900 billion over the next decade.