U.S. District Judge Sam Sparks of Austin issued a preliminary injunction against the Texas Health and Human Services Commission in February 2017 imposing the ban sought by five Planned Parenthood affiliates and seven individuals.
However, the 5th Circuit Court of Appeals in New Orleans ruled Sparks did not follow proper standards in issuing the order and returned the case to him to determine if the state had cause to end Planned Parenthood's Medicaid participation under the program's rules or if its actions were "arbitrary and capricious."
Texas health officials had accused Planned Parenthood officials of making a misrepresentation to investigators after the release of secretly recorded videos by an anti-abortion group in 2015. An inspector general said the video appeared to show Planned Parenthood had changed how abortions were performed so better specimens could be preserved for medical research.
Sparks ruled that Texas officials had provided no evidence of wrongdoing and that the videos that launched Republican efforts across the U.S. to defund the nation's largest abortion provider were insufficient as evidence. Investigations by 13 states into those videos have concluded without criminal charges, and Planned Parenthood officials have denied any wrongdoing.
The appeals court ruled, however, that Sparks should give greater weight to state findings on whether Planned Parenthood clinic staff members were "qualified" under Medicaid's medical and ethical standards. The ruling noted that the inspector general "concluded, based on the videos, that [Planned Parenthood] at a minimum violated federal standards regarding fetal tissue research and standards of medical ethics by allowing doctors to alter abortion procedures to retrieve tissue for research purposes or allowing the researchers themselves to perform the procedures.
"[Planned Parenthood's] briefing with regard to the substance of the discussions contained in the videos ... is curiously silent," the ruling added.
Texas Attorney General Ken Paxton hailed the ruling.
"Planned Parenthood's reprehensible conduct, captured in undercover videos, proves that it is not a 'qualified' provider under the Medicaid Act, so we are confident we will ultimately prevail," the Republican attorney general said in a statement.
A Planned Parenthood spokeswoman had no immediate comment.
The Associated Press contributed to this report.