(Reuters) - A federal appeals court has blocked Indiana from enforcing a law to cut off Medicaid funds for Planned Parenthood, a law that critics said would deprive thousands of low-income people of medical services.
The 7th U.S. Circuit Court of Appeals on Tuesday ruled that Indiana had broad authority to exclude unqualified providers from its Medicaid program for the poor, but could not deny funding to a class of providers for an unrelated reason -- in this case, because Planned Parenthood clinics perform abortions.
It said doing so deprives Medicaid recipients of their legal right to obtain care from qualified providers of their choosing.
"Indiana maintains that any harm to Planned Parenthood's Medicaid patients is superficial because they have many other qualified Medicaid providers to choose from," Circuit Judge Diane Sykes wrote for a three-judge panel. "This argument misses the mark."
States cannot use federal funds to pay for most abortions, and Indiana has a similar ban for state funds. But the 7th Circuit said Indiana went farther by banning abortion services providers from using state-administered funds on other services.
While the 7th Circuit decision applies in Illinois, Indiana and Wisconsin, it could have wider significance.
Lawmakers in more than a dozen U.S. states have in the last few years taken steps to cut off funding for Planned Parenthood, prompting it to file several lawsuits.
Planned Parenthood is the country's largest provider of abortions, conducting about one-fourth of those performed in the United States. Last year, Republicans unsuccessfully tried to end federal funding for Planned Parenthood.
Indiana Governor Mitch Daniels, a Republican, had signed the law banning funding in May 2011, but U.S. District Judge Tanya Walton Pratt in Indianapolis put it on hold the following month.
Tuesday's decision upheld much of Pratt's preliminary injunction and returned the case to her court.
Indiana Attorney General Greg Zoeller said his office, which argued the state's appeal, will review the decision before deciding how best to continue defending the law.
"The people's elected representatives in the legislature decided they did not want an indirect subsidy of abortion services, such as payroll and overhead, to be paid with taxpayers' dollars," Zoeller said in a statement.
In court papers, Planned Parenthood had said that the loss of Medicaid funding in Indiana would force it to close seven of its 28 health centers in that state, forcing nearly 21,000 patients to look elsewhere for medical care.
Dawn Laguens, executive vice president of the Planned Parenthood Action Fund, said in a statement that denying funding for basic health care services was "badly out of touch with the needs of American women and families."
The federal government had supported Planned Parenthood's appeal. Medicaid is jointly funded by the federal and state governments.
"This is a total victory," said Ken Falk, legal director for the American Civil Liberties Union of Indiana, which handled Planned Parenthood's appeal.
"It is significant because, around the country, there are hundreds of thousands of people who get services through Planned Parenthood that are reimbursed by Medicaid," he said. "To allow those services to be denied solely because a state does not like other things that Planned Parenthood does can cause serious harm to people who depend on it for basic medical needs."
Among Planned Parenthood's other services are cancer and HIV screenings, contraception and family planning. Three percent of its services relate to abortion, according to its website.
Half of Planned Parenthood's $970 million of revenue in the year ended June 30, 2010 came from government health services grants and reimbursements, its annual report shows. It said it performed more than 329,000 abortion procedures that year.
The case is Planned Parenthood of Indiana Inc et al v. Commissioner of the Indiana State Department of Health et al, 7th U.S. Circuit Court of Appeals, No. 11-2464.
Reporting by Jonathan Stempel in New York; Editing by Howard Goller and Paul Simao