Washington (CNN) -- The Obama administration is attempting to block Indiana from enforcing a new law that would keep low-income women from using federal Medicaid benefits to receive any kind of reproductive medical care from Planned Parenthood.
The Department of Health and Human Services notified state officials of its decision by letter on Wednesday. The restrictive state law signed last month by Republican Gov. Mitch Daniels was designed to keep clinics run by the private group from performing abortions, because any that did so would lose virtually all Medicaid-funded business.
"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," wrote Dr. Donald Berwick, administrator of the federal Centers for Medicare and Medicaid Services.
Berwick said freedom of choice for Medicaid recipients is a key hallmark of the Medicare law.
"We are working with Indiana and fully expect the state will follow federal law that sets conditions for its receipt of over $4 billion in federal Medicaid funds," a Medicare and Medicaid Services official told CNN. The official asked not to be identified by name.
But Indiana officials indicated they will continue enforcing the law, despite the Health and Human Services action.
The controversial law was allowed to go into effect last month by a federal judge hours after it was approved by Daniels.
Planned Parenthood had sought an injunction at the time to block enforcement until appeals could be filed.
In addition to the Medicare restrictions, the bill also bans abortions after the 20th week of pregnancy, with exceptions for the life or health of the mother.
Because of the law, the state would potentially forfeit the portion of the federal Medicaid money it receives for various family planning services, about $4 million annually. Daniels had said non-abortion women's services would still be available in the state.
Federal law already bans Medicaid funds to pay for abortions in most instances. But Indiana's law is more restrictive. The measure specifically blocks the Indiana Department of Health from signing contracts with any group performing abortions, with the exception of hospitals and ambulatory surgical centers.
The Obama administration said that goes too far. The state law "would eliminate the ability of Medicaid beneficiaries to receive services from specific providers for reasons not related to their qualifications to provide such services."
Planned Parenthood said that under the law, women who rely on Medicaid coverage could no longer receive services at any of the group's 28 centers throughout Indiana. The group said it served 85,000 patients statewide last year. Of those, 5,580 received abortions, but most were given basic reproductive health care, including contraceptives and health screenings.
Medicaid is a nationwide health program for low-income patients, funded primarily by federal money but administered by the states. Opponents of the new law, HEA 1210, say it violates federal law by depriving Medicaid patients of their choice of health care provider.
In signing the bill, Daniels and other state officials said readily available options exist for Medicaid patients seeking reproductive health care.
"I supported this bill from the outset, and the recent addition of language guarding against the spending of tax dollars to support abortions creates no reason to alter my position," Daniels said recently. "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.
"In addition, I have ordered the Family and Social Services Administration to see that Medicaid recipients receive prompt notice of nearby care options."
Roughly half of all births in Indiana are covered by Medicaid.
The law also requires doctors in the state to inform patients that life begins at fertilization and that a fetus can feel pain at or before 20 weeks. Several physician groups complain that provision violates the free speech rights of health care providers.
Planned Parenthood has also been at the center of a budget fight on Capitol Hill, one that nearly led to a federal government shutdown. The administration had opposed congressional Republican efforts to cut off federal funding to the group over the abortion issue.
CNN's White House Producer Lesa Jansen contributed to this report.