Planned Parenthood of Indiana can end a dispute over a law that would cut some of its public funding if it became two separate entities, with one offering abortion services and the other offering general health services, an attorney for the state told a federal appeals court Thursday.

Solicitor General Thomas Fisher said during oral arguments before the 7th Circuit Court of Appeals in Chicago that Indiana's new law is aimed at keeping taxpayer dollars "from indirectly subsidizing abortions."

He told the appeals court that Planned Parenthood of Indiana could ensure that wouldn't happen by separating its operations into two entities.

"Only by separating the two can we be sure that there's no cross-subsidy," Fisher said.

Planned Parenthood's attorney, Ken Falk of the American Civil Liberties Union, told the appeals court during the 45-minute hearing that Indiana's own Medicaid agency warned state lawmakers while they were weighing the legislation that it would violate Medicaid recipients' "freedom of choice" by targeting the abortion provider.