PORTLAND, Maine — Maine Medical Center, the state’s largest hospital, has declared a hiring and travel freeze, among other things, in an attempt to plug a multimillion-dollar hole in the hospital’s operating budget.

Through the end of March, the hospital’s operating loss was $13.4 million, CEO Richard Petersen wrote April 24 in a memo to employees, which the hospital provided to the Bangor Daily News. The loss occurred in the first half of the hospital’s fiscal year, which runs from Oct. 1 to Sept. 30.

The hospital is in “a negative financial position that it has not witnessed in recent memory,” Petersen wrote. “This places us significantly behind budget.”

Maine Medical Center’s $13.4 million shortfall is in the hospital’s “net patient service revenue,” which in total is just shy of $900 million.

Several factors contributed to the operating loss, according to Petersen’s memo. Beginning in December, the hospital began to experience a drop in inpatient and outpatient volumes, he wrote.

“Some of these volume drops can be attributed to our work in reducing infections and reducing the number of readmissions, but this certainly cannot explain it all,” Petersen wrote.

Steven Michaud, president of the Maine Hospital Association, said Maine Medical Center is not the only hospital dealing with falling patient volumes.

“It’s a phenomenon happening all over the state,” Michaud said Monday. “We’re seeing significant impacts on large hospitals, as well as small, rural, urban, everything. It’s everywhere and it’s pretty significant.”

The economy is a major factor in falling patient volumes, Michaud said, noting that hospitals first started noticing the trend when the “economy really tanked.”

People losing their jobs and health insurance may be a factor, but more significant, Michaud said, is the fact that more health care costs are being shifted to employees.

“It’s not just an issue of employment,” Michaud said, “but higher co-pays, higher deductibles, more out-of-pocket expenses are slowing down consumers. We don’t think there’s any doubt about that.”

Another potential reason for falling patient volumes is self-inflicted. Hospitals are working hard to better manage patient care, Michaud said. Success in this case is to reduce readmissions.

“For patients it’s great,” Michaud said, “but it’s killing the hospitals right now.”

Mark Harris, Maine Medical Center’s vice president of planning and marketing, echoed those comments.

“You work hard to make sure somebody doesn’t have to come back to the hospital and that has a negative impact on your volume, but that’s a good thing,” Harris said.

Other factors leading to Maine Medical Center’s budget shortfall include an increase in the number of patients who need free care, declining payments from Medicare and MaineCare, and a glitch in the launch of the hospital’s Shared Electronic Health Record, which “has had some unintended financial consequences,” Petersen wrote.

The new electronic health record system has led in some cases to an inability to accurately charge for services, according to Harris. The system is expected to be rolled out to the whole MaineHealth system, but that will be put on hold until the bug can be fixed, Harris said.

“Regardless of whether our financial losses are due to charge capture issues, declining volumes, payment reductions, or an increase in bad debt and free care patients, we must do something immediately to remedy our current financial position,” Petersen wrote.

The hospital’s leadership team decided to implement the following initiatives, all effective immediately, to save $15 million:

• Selective travel and hiring freeze.

• Freezing the operating contingency budget.

• Reducing catering costs and overtime.

• “Marshaling resources to capture appropriate revenue.”

• “Reducing expenses and enhancing revenue opportunities at Maine Medical Partners,” which is a physician practice owned by Maine Medical Center.

Harris said patients will see “no appreciable difference in their care” as a result of these initiatives.

Going forward, this experience will alter how Maine Medical Center budgets for patient revenue, Harris said.

Hospitals everywhere are considering such measures, according to Michaud.

“When you usually experience dips in volume, you usually chalk it up to an aberration,” Michaud said. “What most hospitals are telling me now is they think it’s the new normal, so they’re adjusting their budgets, assuming this volume is never coming back.”

Hospitals are attempting to shift to that new reality, he said.

“Right now volume means revenue, it goes without saying,” Michaud said. “Hospitals are cutting costs like mad. They either have salary freezes or layoffs … but when volume drops that quickly you can’t cut your costs fast enough. It’s a good thing as long as people aren’t going without care, but it’s a traumatic thing for hospitals until they can realign and absorb all that.”

Petersen ended his memo with a call to action.

“In the past, when Maine Medical Center has faced a trial such as this, we have always stepped up, accepted the challenge and persevered,” he wrote. “I’m confident that we’ll confront this test, beat back the issues we face, and reverse this negative financial picture. And we’ll do this while continuing to maintain the high quality of care that our community and state have come to expect of us.”

Whit Richardson

Whit Richardson is Business Editor at the Bangor Daily News. He blogs about Maine business, entrepreneurs and the economy.