ORANGE, Calif.—St. Joseph Health and Hoag Memorial Hospital Presbyterian, Newport Beach, Calif., reached a deal to create a new health system. Executives said some details were not yet final, but the transaction consolidates control over operations and strategy for five St. Joseph Hospitals and two Hoag hospitals under the new system, Covenant Health Network. Deborah Proctor, president and CEO of St. Joseph Health, said other details, such as whether St. Joseph and Hoag would jointly borrow for capital projects, had yet to be determined because executives delayed talks until California's attorney general approved the deal in February. Dr. Richard Afable, president and CEO of Hoag Memorial, will step down to become chief executive of Covenant and executive vice president of St. Joseph Health's four Southern California hospitals. Hoag Memorial's COO, Robert Braithwaite, was named Hoag's president and CEO. Meanwhile, St. Joseph Health, which owns 14 acute-care hospitals in California and Texas, will control Covenant's governing board, the partners told their bondholders. Afable said communities served by Hoag and St. Joseph Health, like others across the U.S., are in need of less-fragmented and better-coordinated healthcare. The partners also see a great local need to improve access for low-income patients, he said. Hoag Memorial's operating margin rebounded last year to 6% after the hospital lost money in 2011—the hospital reported 2012 income of $55.9 million on revenue of $931.9 million in 2012. St. Joseph Health System saw its operating margin erode slightly in 2012, reporting operating income of $142.3 million on revenue of $4.4 billion last year—a 3.3% margin compared with 4.5% in 2011.