The 9th U.S. Circuit Court of Appeals ruled Thursday that trial courts cannot block the state from making the cuts, which were approved by the U.S. Department of Health and Human Services.
State lawmakers made the cuts last year to save money from the state's version of Medicaid, but a district court blocked the move.
Gov. Jerry Brown's spokesman, Gareth Lacy, says the decision will save "the state millions of dollars in unnecessary costs."
Dr. Paul Phinney, president of the California Medical Association, says the cuts will tragically hurt the access to care for millions of patients.
Doctors, pharmacists and other health providers sued to try to block the cuts.