Former Blackburn Rovers striker Nikola Kalinic, now playing for Ukrainian side Dnipro Dnipropetrovsk, was deemed surplus to requirements as were Dinamo Zagreb defender Sime Vrsaljko and Hajduk Split goalkeeper Goran Blazevic.
"All of them found it a bit hard to come to terms with the decision and I feel for them but it's an understandable reaction and they are still in the reckoning in case we suffer injuries," Bilic told a news conference.
"Lovren had two weeks to recover and pass a late fitness test but it was obvious immediately that he was in pain and I didn't even need a doctor's opinion to cross him out," he said.
The talented Lyon defender made way for surprise inclusion Jurica Buljat, who broke into the squad at the expense of Kalinic after showing good from for his Israeli club Maccabi Haifa last season.
Kalinic was axed despite scoring in Friday's 3-1 friendly win over Estonia but good performances in Croatia's penultimate warm-up enabled reserve midfielders Ivo Ilicevic and Milan Badelj to earn their places in the squad.
"Kalinic is always an option when we need five forwards but four can cover the European Championship," said Bilic, who will step down after Croatia's campaign to take over Russian first division side Lokomotiv Moscow.
"We need Badelj, Ilicevic and Buljat a lot more for this tournament, especially the latter two.
"Ilicevic is quick and not afraid to take on defenders, meaning that he can be a real bonus coming off the bench, while Buljat has been added as the fourth because he is fit and in good form."
Croatia are away to Norway in their final Euro 2012 warm-up on Saturday. They open their campaign against Ireland on June 10, face Italy on June 14 and clash with Spain four days later.