Yes, the story was proposed by Sally Sussman Morina when she was writing the show. It was her idea to bring Dina back after so many years, since the Abbotts had been neglected so much by the previous regimes. Even after SSM departed, they kept the story since it had been set up so well and provided so much story for the Abbotts*.
Unlike the "mystery soap ailments" we see so often, she chose Alzheimer's because everyone knew how it would all end up, and there would be no way for the network to come back later and say "Hey, any way you could change the story and have her survive?". I think Marla Adams (who is around 80) probably wanted a limited return, and if not for the Covid shutdown it likely would have ended in May Sweeps.
*I'm sure it helped that Anthony Morina, the current Executive Producer, is SSM's real-life husband.