Planned Parenthood of Indiana was to present that argument Monday while challenging the state law in federal court, The (Muncie) Star Press reported.
The organization was expected to ask U.S. District Judge Tanya Walton Pratt to halt enforcement of the defunding provision; she has said she would issue a decision by July 1.
Indiana Gov. Mitch Daniels, a Republican once considered a potential presidential candidate, signed a bill cutting Planned Parenthood's Medicaid funding in May, saying the organization could keep the funds if it gave up providing abortions. However, federal Medicaid officials, in a letter last week, rejected Indiana's Medicaid plan, saying its provision to strip funding from Planned Parenthood violates federal law.
The federal response leaves the funding issue in limbo and bolsters Planned Parenthood's case, The Star Press reported.
"I like June a lot better than I liked May," said Betty Cockrum, president of Planned Parenthood of Indiana. "It's really great that the federal agency that is in charge of this Medicaid funding validated our legal argument going into court … ."
As other states follow the case -- no state has done what Indiana is doing concerning Medicaid funding to providers that offer abortions -- the federal government may take a strong stance, Timothy Jost, a professor of health law at Washington and Lee University in Virginia, told the Muncie newspaper.
"I would be surprised," Jost said, "if the federal government backs down on this one."
Besides mailing the letter to Indiana officials, the Centers for Medicare and Medicaid Services, an agency within the U.S. Department of Health and Human Services, circulated an informational bulletin warning other states against cutting off Medicaid to providers that offer abortions.
The Indiana attorney general's office and the Family and Social Services Administration, which administers the state's Medicaid program, said they would enforce the state law for now.
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