MDHHS issues contract cancellation notice to Lakeshore Regional Entity, seeks to establish new PIHP


CONTACT: Lynn Sutfin, 517-241-2112

LANSING, Mich. – To provide quality behavioral health services on a sustainable basis for West Michigan, the Michigan Department of Health and Human Services (MDHHS) is cancelling its contract with Lakeshore Regional Entity (LRE) and will establish a new pre-paid inpatient health plan (PIHP) in the region, building on recent work there with Beacon Health Options.

LRE is the PIHP for Allegan, Ottawa, Kent, Muskegon, Oceana, Mason and Lake counties. Medicaid behavioral health specialty services are administered through PIHPs, which are managed care entities required to provide all medically necessary services through community mental health authorities (CMHs).

MDHHS notified LRE of its intent to cancel the contract on April 25. MDHHS later received a response from LRE and met with multiple stakeholders in the region. After reviewing the response, MDHHS decided to terminate the contract based on many factors. Some were related to finances: five years of financial deficits, failure to address the deficits the lack of a current risk management strategy and the lack of a plan to cover their portion of a projected $16 million deficit. The termination also reflects performance issues despite multiple years of corrective action plans and weaker member outcomes relative to other regions on key metrics like inpatient hospitalization.

“Michigan residents deserve access to behavioral health services that are accessible, affordable and effective, and Michigan taxpayers deserve a system that manages our tax dollars efficiently,” said MDHHS Director Robert Gordon. “Following many years of poor performance and financial mismanagement that stands out among PIHPs, we believe it is clear that LRE is not the right entity to deliver services for West Michigan residents in need. The success of our public system depends on effective management. With a new approach, building on LRE’s recent work with Beacon, the region can achieve better outcomes for people while operating on a sustainable basis.”

LRE has consistently overspent its budget since 2015, and the state has had to provide supplemental funding to cover LRE’s shortfalls in the last two years. This year’s projected shortfall would require additional financial assistance from the state for a third year.

Recognizing projected shortfalls in a number of PIHP regions, MDHHS has requested supplemental funding from the legislature for all PIHPs for 2019, consistent with actuarial soundness. However, that funding will not fully address LRE’s funding shortfall nor its management challenges.

MDHHS intends to keep the region intact and will initiate temporary state management when the contract with LRE ends. The state will seek to establish a new PIHP to serve beneficiaries.

Over the last few months, Beacon Health Options has been operating with LRE to provide managed care support to the CMHs. Due to the progress being made by the work with Beacon Health Options and the value of this partnership reported by CMHs, MDHHS will seek to establish a temporary contract with Beacon that will allow this work to continue until such time as a PIHP contract may be formally procured.

The new, temporary contract would include all public policy requirements currently in place for PIHPs, including consumer protections, and preserve public oversight. MDHHS will establish a public board to oversee Beacon's contract and ensure compliance and service delivery, in conjunction with MDHHS, which will hold the contract. Board membership will include representation from the CMHs, the counties, advocates and individuals receiving services.

Individuals receiving services from community mental health service providers in this region will continue to receive the medically necessary services authorized in their person-centered plans of care and retain access to their existing providers.

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