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The state will not be required to repay $1.1 million in Medicaid payments allegedly misused by the Timpanogos Community Mental Health Center in the 1980s, federal officials have ruled.

The Health Care Financing Administration had claimed it overpaid for mental-health services provided by Timpanogos from 1985 through 1987.The center, now known as Wasatch Mental Health, filed for bankruptcy protection under Chapter 9 of the Federal Bankruptcy Code on Jan. 29, 1990. HCFA said the disputed Medicaid payments amounted to $1.6 million.

The Utah Department of Mental Health, however, appealed the disallowance.

It argued the state was not required to reimburse the federal government for Medicaid overpayments that are uncollectable due to the bankruptcy of the provider.

The Feb. 26 reversal of the disallowance avoids what would have been a devastating loss to the State Medicaid Budget, said Utah Attorney General Paul Van Dam.

In accordance with federal law, the Utah Department of Health has already refunded most of the $600,000 it received from the Timpanogos bankruptcy plan.