MDHHS Restructuring Could Jeopardize Funding for Community Mental Health Agencies, Like LifeWays

The state's changes mean that contracts will be open to a wider variety of providers.

Hillsdale and Jackson Counties—The Michigan Department of Health and Human Services (MDHHS) has begun a reorganization of the state’s mental health authorities, which will open up the contract bid process to a variety of mental health service providers.

MDHHS’s move to a competitive procurement process for its contracts will largely replace its reliance on public entities known as Prepaid Inpatient Health Plans (PIHPs), which distribute Medicaid funds appropriated for mental health services.

Specifically, PIHPs distribute Medicaid monies to “Community Mental Health Service Programs,” like LifeWays.

But that process will soon be changing as the state searches for private entities to play the bid-awarding role, which is likely to open up the market through the seeking of competitive bids.

Under the new system, PIHPs will be largely replaced by private organizations, directing those Medicaid funds. This means that organizations will have to compete for bids, cutting away at the countywide monopolies granted under the old system.

At the Board of Commissioners’ meeting on 24 June, LifeWays CEO Maribeth Leonard told the commissioners that what the MDHHS is doing is illegal.

“What’s concerning about what’s being proposed is that it totally violates the current Mental Health Code,” Leonard argued.

But in a May press release, MDHHS Director Elizabeth Hertel promoted the changes.

“The department is changing to a competitive procurement process for the state’s Prepaid Inpatient Health Plan contracts to help create a more accessible and person-centered system of care dedicated to ensuring Michigan residents a healthier future.”

MDHHS says that the changes will improve the financial efficiency of the state’s mental health programs, and it noted that the competitive process will ensure better services.

The new “Request for Proposal” (RFP) approach is set to begin on 1 October 2026.

LifeWays, the current Hillsdale County Mental Health Authority, is hosting a public forum in opposition to the MDHHS changes on 25 July.

According to a LifeWays press release, the new process would “reduce [Community Mental Health Service Providers] to contractors” rather than organizations permanently funded by the state.

The news comes as the Hillsdale County Board of Commissioners is set to vote on a $15.5 million building bond for a LifeWays mental health facility in Hillsdale, even as the organization anticipates drastically reduced federal and state funding.

The commissioners will cast their final vote on the 30-year building bond tomorrow, Tuesday, 8 July.

In combination with the recent loss of federal DHHS funding, the MDHHS restructuring could spell financial trouble for the organization, some citizens have argued.

Ashley Risher, a Hillsdale County resident who coordinated petition efforts to put the building bond on the ballot, told the Hillsdalian that the MDHHS news makes the county’s efforts to secure a bond even riskier.

“With there being so much uncertainty in regards to how all of the MDHSS changes will affect LifeWays, it seems absolutely reckless to continue with this process,” she said.

“We aren't talking about a few thousand dollars, it's 15.5 MILLION. Issuing that massive of a bond to a company on shaky legs could have catastrophic effects on our community.”

Jacob Bruns

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