I thought I would give everyone an update. I traveled to Luce County on vacation and searched for my grandmother's death record myself since I never got a response from anyone. Luce Co courthouse couldn't find a death record and gave me no other information (very terse and acted annoyed that I had bothered them). I went to the townclerk in the Community Building and he suggested I go to the Beaulieu funeral home. (He even called them to make sure they were available). The funeral director searched his records and found my grandmother's funeral record for 4 Aug 1920. (she had died in the Newberry State Hospital on 2 Aug 1920 from TB) I then went to the Forest Home (Hill) Cemetery, but her name had been omitted in the records, even though her funeral record states interment was in the pottersfield in that Cemetery.
The funeral director told me that before 1940, death records were recorded in the township where the death occurred, not the county, and were still held by the townships. Apparently the Newberry State Hospital was in Pentland Township not in McMillan Township. So anyone searching for death records from the Newberry State Hospital before 1940, keep in mind that they probably will not be held in the Luce County Courthouse.
Now if anyone knows who the township clerk for Pentland Township is and how I could contact them, I would really appreciate the information. I couldn't stay in Newberry any longer so was unable to search in person any further. I will have to do the rest by phone.