More than 400 people attended the second in a series of meetings organised by the group which runs the hospital, Central Otago Health Services Ltd (COHSL).
The health company is alarmed at an across-the-board 5% cut in health funding proposed by the Southern District Health Board, which provides 90% of COHSL's operating budget.
The potential impacts of the funding cuts included ''mothballing'' between 25% and 50% of the beds in Dunstan's general ward, closing the high dependency unit, shedding staff and potentially losing senior clinical staff to ''more professional rewarding employment'', COHSL chairman Russell McGeorge said.
Community services and community health was about more than just hospital beds, she said.
Ms Heatly emphasised no final decision had been made yet about funding cuts for the Central Otago health company and said the board and company were still in discussions about the matter.
SDHB planning and funding director Sandra Boardman said there was ''no intention to end the negotiations by decimating this [Dunstan] hospital''.
''It is not the DHB's intention to see any reduction in services at Dunstan and that's why we're continuing to work with them to discuss this.''
The job of Dunstan Hospital general manager Karyn Penno is also under threat if the budget cuts go ahead.
COHSL has said staff cuts, a reduction in the number of board directors and reducing the manager's hours or removing that job are potential impacts of the budget cut.
Ms Penno said the health company told the SDHB in February it would need an additional 5% in its budget in the coming financial years, because of the growth in the population it served.
The following month, the board told the health company its budget was going to be cut by 5%.
Losing the 5%, plus the 5% extra it needed, meant the health company would have to cut its budget by $1million for the coming year, she said.
Dunstan doctor Trevor Lloyd described ''a day in the life of a Dunstan doctor'' and explained the likely impact of any cuts in funding which would reduce the number of hospital beds.
''We're already busier than we were before and this is a popular retirement place so we're seeing more people with more complex medical problems,'' Dr Lloyd said.
Cutting costs would be ''unsafe and unfair'' on the district's residents and result in more transfers to other hospitals, he said.
Several Dunstan staff as well as other members of the public asked questions of the health board management at the two-hour meeting and some blamed a lack of Government funding for rural health for the current problems.
Others pointed the finger at the SDHB for not ''living within its means''.
The next meeting in the series will be held at Wanaka next Tuesday.
