Federal investigators said the Mendota Mental Health Institute in Madison is failing to provide adequate treatment for its patients.
A state Department of Health Services spokesman said the institute voluntarily surrendered its certification for its adult intake unit in June.
The Department of Health Services said the loss of federal certification also comes with a loss of nearly $1 million in federal funding.
"We are very unhappy about this," said Dane County Executive Kathleen Falk.
Falk said the county doesn't have the money to pay for the state's mistake.
"The state's failure to receive the proper federal certification means that Dane County taxpayers will pay about $400,000 more a year for patients that are sent by courts to the state facility," Falk said.
The Department of Health Services said the facility only lost certification in its intake unit, which is also known as the adult assessment treatment unit.
Department of Health Services spokesman Seth Boffeli said the federal government wants patients to attend group therapy even though it's not required by state law.
"A patient even at a facility like Mendota, where they are there voluntarily, they have a right to refuse treatment," Boffeli said. "This is a discussion we have been having with them. What do we do with someone that doesn't want to go to group therapy and (the U.S. Centers for Medicare and Medicaid Services) says we have to find a way to make them go?"
It costs about $900 a day for treatment at the state hospital's adult assessment treatment unit. Before, counties only had to pay 40 percent of that, but now they are responsible for the entire amount.
Boffeli said shortening patients' stays could lighten the county's load.
"To the extent that we can, we'll transfer patients from that intake unit to another part of the facility that is certified. We can minimize the impact on the counties," Boffeli said.
Falk said she plans to meet with the state secretary of the Department of Health Services to find out where the money will come from.