—Indiana’s attempt to block Medicaid dollars from going to Planned Parenthood is against federal law, U.S. Department of Health and Human Services officials have told the state.

President Barack Obama’s top Medicaid official sent a letter to the Indiana Family and Social Services Administration on Wednesday to say he would not approve the changes that state lawmakers approved and Gov. Mitch Daniels signed a month ago.

The state can’t disqualify certain health care providers from the low-income insurance program, which is funded through a mix of state and federal dollars, just because they offer abortions, said Donald Berwick, the administrator for the Centers for Medicare and Medicaid Services.

The letter didn’t lay out the range of penalties if Berwick’s decision isn’t followed, but the implication was clear: Indiana would jeopardize its receipt of nearly $4 billion in Medicaid dollars that the state receives from the federal government each year.

“As you know, federal Medicaid funding of abortion services is not permitted under federal law except in extraordinary circumstances (such as in cases of rape or incest),” the letter from Berwick to Indiana officials says.

“At the same time, Medicaid programs may not exclude qualified health care providers from providing services that are funded under the program because of a provider’s scope of practice. Such a restriction would have a particular effect on beneficiaries’ ability to access family planning providers, who are subject to additional protections.”

That letter came the same day Cindy Mann, the Center for Medicaid director, released a bulletin saying that efforts such as Indiana’s to defund Planned Parenthood are illegal.

“Medicaid programs may not exclude qualified health care providers — whether an individual provider, a physician group, an outpatient clinic, or a hospital — from providing services under the program because they separately provide abortion services,” it said.

Now, the state has 60 days to ask for reconsideration. The stage is set for a battle between Obama’s Democratic administration and Daniels’ Republican one.

“For now, our lawyers advise us that we must continue to follow the law the Indiana General Assembly passed. We will seek guidance from the attorney general on how to proceed going forward,” said Marcus Barlow, an FSSA spokesman.

Indiana Attorney General Greg Zoeller’s office said it is looking into the letter from Berwick before determining what the state’s next step should be.

“We are reviewing the CMS letter with our client, FSSA, to determine our client’s options, but we will continue to defend the (Indiana) statute,” said Bryan Corbin, a spokesman for Zoeller.

Opponents of Indiana’s new law, which the Republican-controlled General Assembly approved this year, applauded the Obama administration’s position.

“It is incredibly gratifying to have the federal government confirm what we’ve been saying all along,” said Betty Cockrum, the president and chief executive of Planned Parenthood of Indiana.

So far, the organization has used an influx of private donations to pay for health care for Medicaid patients. But that’s no long-term solution, Cockrum said.

She said if Indiana’s law is allowed to remain in place, the 9,300 Medicaid patients who are served by Planned Parenthood would have to find other providers for Pap tests, sexually transmitted disease screenings, birth control and more.

Of those, about 400 visit the Planned Parenthood clinic in Evansville.

“Every day a woman is left without birth control increases the chances of an unintended pregnancy,” she said.

Planned Parenthood of Indiana, represented by the American Civil Liberties Union of Indiana, has a lawsuit pending before U.S. District Court Judge Tonya Walton Pratt. The groups are arguing that Indiana’s new measure violates federal law.

The judge has scheduled a hearing for Monday. She said she will rule by the end of June.

Indiana’s measure affects 34 facilities, 28 of which are operated by Planned Parenthood of Indiana. Those facilities are located in 21 counties. A total of four of Planned Parenthood’s Indiana clinics perform abortions.

According to the Daniels administration, there are 800 other health care providers that take Medicaid patients in those counties.

“I commissioned a careful review of access to services across the state and can confirm that all non-abortion services, whether family planning or basic women’s health, will remain readily available in every one of our 92 counties,” Daniels said then.

“Any organization affected by this provision can resume receiving taxpayer dollars immediately by ceasing or separating its operations that perform abortions.”

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