Pen Bay Healthcare has cut jobs as it works to deal with a worsening financial crunch.

The local health care organization suffered a $1.5 million operating loss during the final three months of 2009, a situation the administration acknowledged three weeks ago was not sustainable.

Ten positions were eliminated, including three vacant positions. Seven other employees will have their hours cut. The departments affected include cardiology, cancer care, the nursing staffing office, the medical/surgery unit, utilization review, Health Connections, administration, information technology, and development.

“We do not take these reductions lightly,” a Feb. 11 letter to the staff from Pen Bay Healthcare Chief Executive Officer Roy Hitchings stated. “But the challenges we face are daunting and the severity of our economic situation requires us to take difficult steps now in order to maintain access to health care in our community.”

The $1.5 million operating loss from Oct. 1 through Dec. 31 was the result of reduced revenues from fewer patients being admitted to the hospital, fewer people getting elective tests and procedures, less usage of Kno-Wal-Lin Home Care and Hospice, reduced reimbursement from the state for low-income patients, and more people unable to pay for care.

“We believe that many of these problems are caused by the continued impact of the national recession and the growing realization that health care in the United States has simply become too expensive for many people to afford,” a Jan. 27 letter from Hitchings to the staff stated. “We do not expect these problems to go away in the next several months or even years. Therefore, we must take action now to balance our budget, live within our means and support our primary mission to care for the sick and injured in our community.”

Pen Bay Healthcare is working on a budget for the fiscal year that runs from April 1, 2010 through March 31, 2011. The board typically approves the annual budget in late March.

“We must remain open to the possibility of additional restructuring,” Hitchings said in the Feb. 11 letter. “The reality is we must repeat the message from January – given the seriousness of the financial situation we face, we cannot rule out the possibility of additional layoffs, reduction in work hours, wage freezes and even benefit reductions.”

Last year, the Pen Bay Healthcare Board of Trustees approved a budget for 2009-2010 that froze employees’ pay, reduced the number of paid days off for workers, and suspended half the match to employees’ retirement accounts. The budget was adopted, however, with no layoffs.

Pen Bay Healthcare is the parent corporation of Penobscot Bay Medical Center in Rockport, Quarry Hill in Camden, Kno-Wal-Lin Home Care and Hospice, the Knox Center for Long Term Care in Rockland, the Mid-Coast Mental Health Center, and about half the physician offices in the region.

The 2008-2009 budget was $152 million. The organization employs about 1,700 people and is the region’s largest employer.

Hitchings informed employees that Pen Bay Healthcare expects further reductions in MaineCare reimbursement of between $2.5 million and $3.5 million in the upcoming budget year as the state looks to cut its expenses because of declining tax revenues. MaineCare reimburses for care for low-income Mainers.

The Pen Bay Healthcare administration has already asked all departments to reduce expenses during the final few months of the current budget year.

The Human Resources Department is working with affected employees to determine if there are any other appropriate positions within Pen Bay Healthcare. Employees who are not successful in getting another position within Pen Bay Healthcare will be eligible for displaced worker benefits, severance pay and outplacement services.

The chief executive officer said Pen Bay Healthcare is not alone and similar actions are being taken across Maine and the country.

The December unemployment rate in Knox County was 8 percent.