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For the most part, federal law will override state law. However, states have broader powers in the kinds of laws they can make, while the federal government is more limited. That's part of why the commerce clause comes up so much, it's frequently used to justify federal authority in things that would normally be handled at the state level, even if it means stretching the definition of commerce from time to time.
In this case, I'm guessing that this challenge is based on this being a program administered by the state, and partially funded by the federal government. Programs like that generally come with federal requirements that the state has to follow in order to get the funding. The federal government can exert significant influence over state policy this way, (for example, the drinking age went from 18 to 21 largely because states that didn't make the change would have lost federal funds for highways). But there have been cases where the requirements were thrown out for being too coercive and undermining constitutional authority delegated to the states.
Of course, I highly doubt that such a claim would have any merit in this case. But meritless lawsuits aren't a problem when they stir up support from your base while having no negative consequences for you if you lose. Sure, it costs the state a lot of money, but when the state's lawyers are your buddies, that's just doing them a favor.