LANSING — A judge in the State of Michigan Court of Claims spent a day hearing competing legal and operational arguments over an MDHHS/DTMB request for proposals (RFP) that would move the state’s Medicaid behavioral‑health system from a largely single‑source model to a competitive procurement covering three large regions.

Presiding Judge Christopher P. Yates began the consolidated hearing by summarizing prior rulings, including an October 14, 2025 decision that the Michigan Department of Health and Human Services (MDHHS) has discretion to change procurement approaches and reduce regional PIHPs from 10 to three. But the judge said he remained concerned that specific RFP language could conflict with the mental health code and said the court’s job is to decide whether the written RFP conforms with state law.

Assistant Attorney General Stephanie Servais, representing the state and the Michigan Department of Technology, Management and Budget (DTMB), said the move toward competitive procurement followed the failure of several PIHPs to accept proposed contracts and that the new approach aligns Michigan with standard federal procurement expectations. “Competitive procurement is the rule,” she told the court, while acknowledging the department would revise or strike illegal provisions if a court found them inconsistent with state law.

Plaintiffs — a coalition of existing PIHPs and CMHSPs — argued the RFP’s structure goes beyond administrative change and would, in practice, convert PIHPs into payers that could route Medicaid funds without requiring those funds to flow through local CMHSPs. CMHSP witnesses warned that could “starve” county mental‑health agencies of the Medicaid dollars they use to meet statutory duties.

Sandra Lindsey, chief executive of Saginaw County Community Mental Health Authority, testified that Saginaw’s budget is roughly $130 million and that about 95% of its revenue comes from Medicaid. She told the court that CMHSPs hold extensive provider networks, run recipient‑rights offices and handle urgent responsibilities such as pre‑admission psychiatric screening, hospital coordination, and arranging specialized residential and inpatient placements. “If the money can stop at the PIHPs and they can do whatever they want with it, they can essentially starve the CMHSPs of funds,” Lindsey said.

Raymi Postema, director of the State Office of Recipient Rights, told the court she reviewed RFP language related to recipient‑rights protections and flagged a possible gap if PIHPs contract with non‑CMH providers. Postema said recipient‑rights offices now rely on contractual leverage to compel cooperation by providers during investigations and corrective actions; she warned the RFP as written left that enforcement mechanism unclear.

On the other side, Joseph Sedlock, CEO of Midstate Health Network (a PIHP), and MDHHS SUD expert Angela Smith Butterwick testified about operational realities of substance‑use disorder (SUD) funding, including federal block grants and regional SUD oversight structures. Sedlock and other state witnesses said some changes in who holds contracts are technically feasible and that MDHHS and DTMB can and do revise procurement documents — through addenda, notices of deficiency after the bid deadline, and change notices after award — so the RFP is not a frozen document.

DTMB solicitation manager Marissa Gove explained the procurement mechanics: soliciting requirements with the agency, posting on the SIGMA procurement site, a question‑and‑answer period and bidders’ conference, evaluation and negotiation, and finally contract integration. Gove confirmed the RFP already has been amended multiple times and that DTMB may issue pre‑deadline amendments, post‑deadline notices of deficiency, or, in serious cases, pull and reissue an RFP.

Judge Yates focused the parties on procedural issues as well. The court identified three state witnesses who had not yet been deposed, and ordered depositions to proceed: Timothy Becker (Hope Network) at 1:30 p.m. the next day and the witness identified as Haberman at 9:00 a.m. Wednesday; the court agreed to move segments of the hearing so depositions would occur before testimony. The court also ordered a blanket sequestration rule: witnesses should not watch the live stream or be in the gallery while openings are heard, although client representatives and experts may be exempted.

State and plaintiffs’ counsel pressed competing policy and legal frames. Plaintiffs argued the RFP’s statutory incompatibilities are not mere process disputes but could undermine mandatory CMHSP duties — from recipient rights and civil‑admission screening to maintaining specialized residential services in rural counties — and could not be cured by later contract language. The state argued the court’s remedy for an unlawful clause is severance of offending terms, not wholesale invalidation, and emphasized the procurement’s multiple opportunities for amendment and negotiation.

Judge Yates repeatedly told counsel he wanted the parties to cooperate on deposition scheduling and witness logistics. He also emphasized that, while the court will respect the parties’ negotiated schedule, its task is limited to determining whether the RFP’s text complies with Michigan law; factual testimony is relevant, he said, but the statutory question remains a legal one.

What happens next: the court memorialized deposition dates and signaled it will issue an order on witness sequestration. The hearing continues in subsequent sessions; the judge said he intends to read materials in the evenings and hopes to issue opinions promptly once the record is complete.

Speakers quoted in this report spoke from the hearing record. Quotes come from the official transcript of the State of Michigan Court of Claims hearing.