RICHMOND, MARCH 4 -- The 4th U.S. Circuit Court of Appeals, reversing a lower court decision, has ruled that Virginia's Medicaid program must pay for liver transplant operations performed on a 4-year-old Arlington girl who died early last year after the treatment failed.

The ruling comes at a time when various states are grappling with who should be covered under Medicaid for expensive and often life-saving organ transplant surgery, but state officials said the ultimate effect of the appeals court decision on state policy is not yet clear.

The U.S. District Court in Alexandria had refused to order the state to pay for the operation while the merits of the case were being debated in court. The lower court had said the state used reasonable criteria in denying Medicaid money for Michelle Todd's transplant.

The appeals court ruling was made a year to the day after the girl received a liver transplant. Michelle, who had record-long surgery at Children's Hospital in Pittsburgh, died at the hospital after a second transplant attempt.

Virginia officials declined to comment on the ruling, saying they had not seen the published decision, dated yesterday, and lawyers familiar with the case said the extent of its impact is unclear.

"The law is evolving right now, and it's hard to know what the impact is going to be," said Susanna B. Ehrlich, a lawyer with Legal Services of Northern Virginia who represented Michelle's parents, Loretta and Michael Todd. "It's an important decision. It's also, of course, a bittersweet decision for us."

Michelle's liver had been destroyed by cancer and secondary biliary cirrhosis. At the time the case was brought, a White House official said Michelle would have been covered under the Medicaid rules in about 40 states.

Virginia regulations specified that Medicaid, the joint federal-state health care program for low-income people, would finance life-saving liver transplants for a child under 18 if that patient suffered from extrahepatic biliary atresia, the most common liver disease requiring transplants for children.

Attorneys argued that Michelle's disease was not different enough to disqualify her for Medicaid money, which under federal law must be applied so as to treat "similarly situated individuals" alike. Appeals court Judges Emory Widener Jr., James M. Sprouse and Clement F. Haynsworth Jr. agreed.

"Michelle met seven of the eight {state} criteria plainly, and the effect of her cirrhosis on her liver is 'virtually indistinguishable' from that which the effect of biliary atresia would be," the court decision said. "We hold, then, that a transplant candidate such as Michelle, who substantially complies with Virginia's liver transplant criteria, qualifies for funding."

Further, the court held that the federal court in Alexandria had erred in refusing to grant a preliminary injunction to require the state to pay for the operation, pending the final outcome of the Todds' suit. The injunction that was granted, enabling the operation to proceed, came from Widener after the lower court denied it.

Michael Todd, Michelle's father, informed of the ruling, said it took a great weight off his shoulders. He said he had feared that if required to reimburse the state for Michelle's operation, he and his wife would have had to declare bankruptcy.

"We're trying to get our family life back together," said Todd.