LANSING, Mich. (Michigan News Source) – The Michigan Federation for Children and Families is taking the state’s Department of Health and Human Services (MDHHS) to court over what they call an illegal pay cut disguised as an incentive program.

The Michigan Federation for Children and Families, a nonprofit representing nearly 60 member organizations, claims to serve around 55% of children placed in foster care throughout Michigan. Additional plaintiffs include various religious and community-based foster care organizations.

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Legislators in 2024 approved raising the daily compensation rate per foster child from $55.20 to $60.20, but the contract that agencies received instead offered $54.18 with the possibility of earning a $6.02 bonus for meeting certain benchmarks.

The agencies argue the state’s incentive structure circumvents the legislature’s intent and leaves them with financial instability. MDHHS, however, says the benchmarks, like ensuring sibling visits and face-to-face meetings with workers, align with existing laws and policies.

Nonprofits under pressure.

For nonprofit organizations, the dispute isn’t just about the ability to meet benchmarks – it’s about survival and documenting compliance with the state’s requirements adds significant administrative work and delays cash flow.

The lawsuit says, “In an unprecedented attempt to coerce the Plaintiff Providers into capitulation with the illegal amended contracts, in or about the beginning part of October 2024, the plaintiff providers received communication from the MDHHS indicating the agency would potentially remove foster care placement cases from plaintiff providers who refused to sign the amended contracts, which would ultimately lead to contract termination – further jeopardizing the safety and welfare of those served by the plaintiff providers.”

They further argue that the DHHS made the “threat knowing that there are likely no other viable placement options available for those vulnerable populations if the MDHHS were to start cancelling the plaintiff providers’ contracts if they did not capitulate to the illegal amended contracts.”

A broken system or necessary reform?

While the state insists its terms are fair, agencies claim the changes jeopardize their ability to serve foster children effectively. With added administrative burdens and unpredictable funding, nonprofits feel they’re being set up to fail in an already challenging system.