The Health and Human Services Department rejected changes in Indiana's Medicaid plan Wednesday, saying it illegally bans funding for Planned Parenthood, and sought to make clear that a similar fate awaits other states that pass legislation barring any qualified health care provider.
State officials signaled they would not accept HHS' decision.
In a letter sent to Indiana's Medicaid director, Medicaid Administrator Donald M. Berwick said Indiana's plan will improperly bar beneficiaries from receiving services. Federal law requires Medicaid beneficiaries to be able to obtain services from any qualified provider.
"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," Berwick wrote in a letter to Patricia Cassanova, the director of Indiana's office of Medicaid Policy and Planning. "Such a restriction would have a particular effect on beneficiaries' ability to access family planning providers."
Indiana's law bars Planned Parenthood offices in the state from receiving federal money because it provides abortions, among other services.
Marcus Barlow, a spokesman for Indiana's Family and Social Services Administration, said the state's attorneys have told his department that it must continue to comply with the law passed by the Indiana General Assembly.
"We will seek guidance from the Indiana attorney general on how to proceed forward," he said.
Bryan Corbin, a spokesman for Indiana Attorney General Greg Zoeller, said the letter was being reviewed to determine the state's options but that "we will continue to defend the statute."
Berwick writes in his letter that Indiana should change its plan to conform with federal law, noting that the state has 60 days to appeal. The letter does not state it explicitly, but Indiana could face penalties if it does not comply. In the past, state Medicaid plans that did not conform with federal law have been changed by states before HHS enforced any penalties.
In addition to Berwick's letter, HHS also posted a notice on Wednesday to other interested parties that sought to make clear that the department would take a dim view of similar efforts to ban specific providers from federal funds.
Indiana Republicans who worked to pass the ban were quick to denounce HHS' decision.
"Indiana's on solid legal ground," said state Sen. Scott Schneider, an Indianapolis Republican who sponsored the measure to strip Planned Parenthood's funding. "There's no reason for us to change course at this time. It's up to them to prove that this is not legal."
Schneider added, "I'm extremely disappointed. I would take issue at their interpretation of the law."
Indiana officials should have expected the proposed changes to the state's Medicaid plan would be rejected, Berwick wrote.
"We assume this decision is not unexpected," Berwick wrote. "As the Indiana Legislative Services Agency indicated in its April 19, 2011, fiscal impact statement, `While states are permitted to waive a recipient's freedom of choice of a provider to implement managed care, restricting freedom of choice with respect to providers of family planning services is prohibited.'"
The HHS notice, written by Cindy Mann, the director of the Center for Medicaid, CHIP and Survey & Certification, emphasizes that states may bar providers from participating in Medicaid in certain circumstances, such as if a provider is committing fraud or criminal acts.
"States are not, however, permitted to exclude providers from the program solely on the basis of the range of medical services they provide," Mann wrote.
Medicaid is a federal-state partnership that nationwide now covers more than 60 million low-income children and parents, seniors, including most nursing home residents, and disabled people of any age.
Federal law prohibits using any federal funds, including Medicaid funding, to provide abortions. While Planned Parenthood provides abortion services, it also provides other services such as preventative care, cancer screenings, and family planning and is eligible to receive Medicaid funding for its other services.
Planned Parenthood operates 28 clinics in Indiana, four of which perform abortions. The state chapter has said federal funding makes up about 20 percent of its annual budget.
Betty Cockrum, Planned Parenthood of Indiana's president and CEO, said HHS' letter was "gratifying."
"It is right that the federal government take action against Indiana and set an example for other states seeking to adopt this type of harmful legislation," she said. "This new law is already preventing Planned Parenthood of Indiana Medicaid patients from receiving some services."
In recent days, HHS has come under lobbying from both Democrats and Republicans on the issue. Last week, a group of Democratic senators called on HHS Secretary Kathleen Sebelius to inform Indiana that its ban didn't comply with federal law.
In response, eight Republican members of Indiana's congressional delegation sent Sebelius a letter calling on her to support the state's law.
Associated Press writers Tom Lobianco, Ken Kusmer and Deanna Martin in Indianapolis contributed to this report.