The 5th U.S. Circuit Court of Appeals in New Orleans issued the ruling that removes the preliminary injunction U.S. District Judge Sam Sparks of Austin imposed on the state of Texas in February 2017.
The three appeals judges agreed that Sparks didn't follow proper standard in deciding to impose the ban sought by five Planned Parenthood affiliates and seven individuals.
The appeals court returned the case to Sparks to determine if the state has cause to end Planned Parenthood's Medicaid participation under the program's rules or if its actions were "arbitrary and capricious."
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 are "qualified" under Medicaid's medical and ethical standards.
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.
Meanwhile, Planned Parenthood officials pledged to keep fighting the state's ouster effort.
"We're in court to protect our patients' right to choose their healthcare, rather than let politicians decide where Texans can go for healthcare," said Ken Lambrecht, president of Planned Parenthood of Greater Texas. "We'll continue to stand up for our patients and their ability to choose their healthcare provider."