Emory Healthcare and Saint Joseph’s Hospital announced March 11 that they have established a formal partnership that will create the largest health care network in Georgia.

Subject to a review of the joint operating agreement by Archbishop Wilton D. Gregory, officials said that it is anticipated that Saint Joseph’s Hospital will continue as a Catholic facility sponsored by the Sisters of Mercy.

The arrangement would give Emory Healthcare a majority ownership of Saint Joseph’s. However, Saint Joseph’s will retain involvement in governance of the joint operating company, including super majority voting rights on certain issues critical to Saint Joseph’s mission and values.

The March 11 announcement came after an extensive process that had included previous unsuccessful explorations of joint operating companies with Piedmont Hospital and Emory Healthcare, and the decision last October by the hospital board to offer the hospital and related entities for sale.

Against that backdrop, the announcement about the partnership with Emory Healthcare raises new hope that Saint Joseph’s Hospital can continue as a Catholic hospital.

“We are thankful the partnership is going forward and it will allow Saint Joseph’s to continue its Catholic identity as it serves the people of Atlanta and beyond,” said Deacon Bill Garrett, president of Saint Joseph’s Mercy Foundation.

Garrett said that the next step in the process is for a national-level canon lawyer to review the partnership in detail and subsequently for the canon lawyer to advise Archbishop Gregory.

“While it is not definite that we will retain the Catholic identity, there are precedents that have been established that have allowed for the local ordinary to grant Catholic designation,” Garrett said. “We are highly optimistic that it has been structured in such a way that it will make it possible for (Archbishop Gregory) to continue to designate Saint Joseph’s as a Catholic hospital. And the Sisters of Mercy will continue to be the sponsors of Saint Joseph’s.”

“Our expectation is within a couple of weeks we will have an opinion as to whether or not it meets canonical requirements to be called a Catholic hospital,” he said.

Overall, Garrett said, the immediate reaction within the hospital was very positive.

When about 175 people from the hospital management team and on-duty physicians were told an hour before the public announcement, he said, “There was a shout of delight and spontaneous applause from the group.”

“There was high energy all day long. Employees feel great about the decision. The fact that the sisters will still be involved was the most cheered for announcement today,” Garrett said.

Founded in 1880 by the Sisters of Mercy, Saint Joseph’s is the oldest and only Catholic hospital in Atlanta. Despite being acclaimed for its care, especially in cardiology, orthopedics, cancer care, robotics and other specialties, it has become increasingly difficult for the stand-alone hospital to remain financially strong in a market dominated by health care systems that make large-scale purchases and receive top-tier insurance reimbursements.

The divestiture process was culminating with a small group of unnamed bidders competing for the hospital. Then the partnership was accomplished after a board meeting March 10.

“It was a complicated, lengthy process,” Garrett said. “After a thorough process, including a value-based decision process, the preponderance of evidence suggested this as being the best choice among other excellent ones.”

In a conference call with the media, the chief executives of Emory and Saint Joseph’s health systems said that the complexity of the issues involved had required additional time to resolve, leading to a successful conclusion in March of what could not be resolved in 2010.

John Fox, president and chief executive officer of Emory Healthcare, said, “These transactions are big and complex. In the first round, there were a lot of issues that each organization sorted through and each elected to take a breather. We never stopped. There was a tremendous amount to sort through.”

Paul Johnson, chief executive officer of Saint Joseph’s, added, “We have a better relationship finalized here.”

On the part of Saint Joseph’s, the joint operating company will include Saint Joseph’s Hospital, Saint Joseph’s Translational Research Institute and Saint Joseph’s Medical Group, Johnson said.

Mercy Care Services and Saint Joseph’s East Georgia will remain as a part of Saint Joseph’s Health System, but will not be part of the joint operating company, Johnson said.

Fox declined to say what components of Emory Healthcare would be part of the joint operating company.

“We are not disclosing the details at this time,” he said.

As a Catholic hospital, Saint Joseph’s operates under guidelines that include the Ethical and Religious Directives for Catholic Health Care Services. The directives are comprehensive and include such matters as end and beginning of life issues, exemplifying Christ-like compassion, and social justice principles such as just wages and a preferential option for the poor.

The joint operating company will operate under the Catholic Ethical and Religious Directives, the executives said.

At the same time, Emory structures that are not a part of the joint operating company would not be subject to the directives, Fox said.

Johnson said he anticipates that the Sisters of Mercy will remain in their roles in the hospital and related ministries, like Mercy Care Services.

“Generally the Sisters of Mercy will continue in the same role they have today,” he said. “The sisters contribute in many, many ways to the success of our organization. They add tremendous value day by day. They are very present. We are very happy to be able to continue that.”

Emory Healthcare and Saint Joseph’s leadership say they see this partnership as an opportunity both to marry the clinical and cultural strengths of the two organizations and to create a new opportunity for the delivery of health care to the community.

Johnson cited the information technology developed at Emory Healthcare as a very attractive element for Saint Joseph’s that can transform patient care. Also, he said, both entities have pursued “the absolute top echelon of clinical care. We both have best practices in this regard.”

“Sitting across the table with key leadership from both sides talking about what our values are, the consistency and compatibility there, the values we put forward on paper and in practice are very consistent,” Johnson said. “There is a lot of cultural compatibility.”

Fox added, “As we look at the Atlanta metro area we believe Saint Joseph’s represented an extraordinary opportunity for Emory Healthcare.”

“One plus one became three very quickly,” Fox said. “We can do so much more together than separately.”

The joint operating company being formed by the two systems is not an acquisition, but rather a partnership business model. The arrangement would give Emory Healthcare a majority ownership of Saint Joseph’s with a 51/49 percentage split, while providing for Saint Joseph’s involvement in governance and super majority voting rights on critical mission issues.

The financial details of the transaction have not been disclosed. According to a press release, governing boards of both systems have reviewed the terms in detail and have determined that each party has contributed adequate and fair consideration for its interest in the proposed new company.

Formation documents will be submitted to the state attorney general and the Federal Trade Commission for regulatory review as well as Catholic entities. The process will take three to six months, officials said. Changes in ownership are not likely to take place until mid to late 2011.

The combined system is estimated to be worth about $2.6 billion and employ 15,000 people, Fox said.