After clearing a major regulatory hurdle, St. Joseph Health Services of Rhode Island and Roger Williams Medical Center are now are set to affiliate in early 2010.

Attorney General Patrick C. Lynch announced on Wednesday that he had approved the deal, the final step in the state’s review of the business arrangement. In July, Health Department Director David Gifford signed off on it. The affiliation is the first to be approved in Rhode Island since 1996 and the first to pass the muster of the state Hospital Conversions Act, which, in 1997, established a legal process for changes in hospital ownership.

Under the arrangement, both institutions will retain their individual identities, chief executive officers and boards of trustees. But they will be jointly managed by a new corporate parent, CharterCare Health Partners.

“I am hopeful that these two important charitable institutions, which truly are cornerstones in our community, will continue to provide vital health-care services to Rhode Islanders for generations to come,” Lynch said in a statement.

Lynch’s role is to protect the hospitals’ charitable assets and ensure compliance with tax and other laws.

“The two factors that drove our review process more than any other were, one, ensuring that the newly created CharterCare Health Partners delivers the same access to health care that the two institutions previously provided separately; and two, quite simply, the preservation of jobs. In the hyper-competitive and rapidly changing health-care marketplace, it was, and is, essential that the smaller community hospitals remain strong and well positioned to succeed.”

The new company would command about 15 percent of the state’s hospital marketplace, employ 3,200, maintain 579 beds and have a budget of $330 million.

Roger Williams, in Providence, would remain a secular, academic hospital, while St. Joseph would remain a Catholic community hospital. St. Joseph has two buildings, one in Providence and one in North Providence, known as Our Lady of Fatima Hospital. Both are not-for-profit hospitals that, like most community hospitals in Rhode Island, have been struggling financially.

Coming together was “only natural” because the two institutions are located close to one another and already share a number of medical staff, said Kenneth Belcher, Roger Williams’ president.

“Clearly one of the issues we have been working through is the economic challenges we face…We want to make sure our two organizations are on strong financial footing,” Belcher said. “Both our organizations have been around for over 100 years and our goal is to make sure we are around for the next 100 years.”

Belcher will be CharterCare’s CEO while John Fogarty, president of St. Joseph, will serve as executive vice president. Over the next few months, the rest of the CharterCare executive team will be assembled. A chief medical officer will be appointed to work with the staff of both hospitals on the new system’s quality and clinical care. Operations are expected to be integrated in January.

In the meantime, the two institutions will begin collaborating and consolidating administrative support departments. Fogarty said that the CharterCare has committed to realizing $15 million in savings over the next five years. That, he said, will require “tough choices and decisions…that may very well mean job reductions.”

Belcher said preserving the hospitals’ individual identities made sense because one is a teaching hospital and one a community hospital, one is secular and one is religious.

“The affiliation we have structured allows for…those differences,” he said. “This is a structure that has been shown to work across the country.”

rsalit@projo.com