(a) The department, in consultation with the designated public hospitals, shall determine the mix of sources of federal funds for payments to the designated public hospitals in a manner that provides baseline funding to hospitals as applicable during the demonstration project term and maximizes federal Medicaid funding to the state during the terms of the demonstration project and successor demonstration project.

1. (1) During the demonstration project term through October 31, 2010, federal funds shall be claimed according to the following priorities:

   1. (A) The certified public expenditures of the designated public hospitals for inpatient hospital services and physician and nonphysician practitioner services, as identified in subdivision (e) of Section 14166.4, rendered to Medi-Cal beneficiaries.

   2. (B) Federal disproportionate share hospital allotment, subject to the federal hospital-specific limit, in the following order:

      1. (i) Those hospital expenditures that are eligible for federal financial participation only from the federal disproportionate share hospital allotment.
      2. (ii) Payments funded with intergovernmental transfers, consistent with the requirements of the demonstration project, up to the hospital’s baseline funding amount or adjusted baseline funding amount, as appropriate, for the project year.
      3. (iii) Any other certified public expenditures for hospital services that are eligible for federal financial participation from the federal disproportionate share hospital allotment.
   3. (C) Safety net care pool funds, using the optimal combination of hospital-certified public expenditures and certified public expenditures of a hospital, or governmental entity with which the hospital is affiliated, that operates nonhospital clinics or provides physician, nonphysician practitioner, or other health care services that are not identified as hospital services under the Special Terms and Conditions for the demonstration project, except that certified public expenditures reported by the County of Los Angeles or its designated public hospitals shall be the exclusive source of certified public expenditures for claiming those federal funds deposited in the South Los Angeles Medical Services Preservation Fund under Section 14166.25.
   4. (D) Health care expenditures of the state that represent alternate state funding mechanisms approved by the federal Centers for Medicare and Medicaid Services under the demonstration project as set forth in Section 14166.22.

2. (2) During each successor demonstration year, federal funds for payments to the designated public hospitals pursuant to Sections 14166.61 and 14166.71 shall be claimed according to the following priorities:

   1. (A) With respect to the applicable federal disproportionate share hospital allotment, subject to the federal hospital-specific limit, in the following order:

      1. (i) Payments funded with intergovernmental transfers, as determined pursuant to subdivision (d) of Section 14166.61.
      2. (ii) Those hospital expenditures that are eligible for federal financial participation only from the federal disproportionate share hospital allotment.
      3. (iii) Any other certified public expenditures for hospital services that are eligible for federal financial participation from the federal disproportionate share hospital allotment.

   2. (B) With respect to safety net care pool payments for uncompensated care, in the following order:

      1. (i) The certified public expenditures of the designated public hospitals, or the governmental entities with which they are affiliated that operate nonhospital clinics or provide physician, nonphysician practitioner, or other health care services, that are not identified as hospital services under the Special Terms and Conditions for the successor demonstration project and eligible for federal financial participation from the safety net care pool for uncompensated care.
      2. (ii) The available certified public expenditures of designated public hospitals for hospital services that are eligible for federal financial participation from either the federal disproportionate share hospital allotment or safety net care pool for uncompensated care, that were not otherwise claimed for purposes of subparagraph (A).

(e)

1. (1) Except as provided in Section 14166.25, all federal safety net care pool funds claimed and received by the department based on health care expenditures incurred by the designated public hospitals, or other governmental entities, shall be transferred to the Health Care Support Fund, established pursuant to Section 14166.21.
2. (2) The department shall separately identify and account for federal safety net care pool funds claimed and received by the department under the health care coverage initiative program authorized under Part 3.5 (commencing with Section 15900) and under paragraphs 43 and 44 of the Special Terms and Conditions for the demonstration project.
3. (3) With respect to those funds identified under paragraph (2), the department shall separately identify and account for federal safety net care pool funds claimed and received for inpatient hospital services rendered under the health care coverage initiative, including services rendered to enrollees of a managed care organization, by designated public hospitals, nondesignated public hospitals, and project year private DSH hospitals.