How Local Ownership Gave Rise to Guardian Pharmacy

At the beginning, there was just a business model in search of an industry niche. Or at least that’s how Fred Burke likes to begin telling the story of Guardian Pharmacy, LLC — the third largest long-term-care pharmacy company in the U.S., with revenues of more than $210 million.

As founder, CEO, and president of the fast-growing firm, Burke says that other than narrowing its lens to stay focused on the healthcare sector, Guardian’s area of specialization remained a matter of debate.

Fred Burke 4jv“We looked at a whole lot of segments and studied hospice, urgent care, and fusion therapy, but we settled on long-term-care pharmacy because we saw it as the perfect segment for our business model,” explains Burke, who says that the business model is based on the simple premise that local management teams empowered to make decisions at the local level — particularly those decisions related to customer service — could be far more impactful than a centralized management function.

However, Guardian’s model goes a step beyond the dictums of decentralized management. To maximize the benefits of “local autonomy,” Guardian shares ownership in its “business units” with local management teams — an approach involving two evenly divided points of origins. The first of these occurs when Guardian acquires an ownership stake in an already established pharmacy, while the second would involve a startup, in which Guardian and a number of local entrepreneurial partners would join up to fund a pharmacy.

“Each pharmacy is an LLC, so each is a business in and of itself. It has its own bank account, board, P&L, and balance sheet,” explains Burke, who says that Guardian, first established in 2004, has ownership stakes (between 70 and 90 percent) in 22 pharmacies across the U.S.

“By and large, pharmacy owners are outstanding clinicians, and they do an outstanding job of tending to the needs of the patient and the doctors and nurses, but where they might not do as well is on the business side of the things,” says Burke, who notes that the firm offers its local management teams a robust back office consisting of a 30-member Atlanta-based support team made of subject matter experts specializing in everything from drug reimbursement to leadership development to real estate leases.

“We don’t charge for this service, so there’s no overhead allocation back to these local business units. Instead, we support it by distributing the free cash flow of the pharmacies,” explains Burke, who says that local owners themselves receive a percentage of the “cash flows” equal to their individual ownership stakes.

Meanwhile, local owners are able tap into Guardian’s organizational insight to help them determine what functional heads may be required to better grow their own operations and the proper way to incent them.

According to Burke, many of Guardian’s local owners joined up with the firm after their growth strategies “hit a wall”. “They discovered that they no longer had the financial or operational wherewithal to get their organizations to the next level,” says Burke, who cites a number of the firm’s growth strategy success stories, including a Guardian pharmacy located in Maine that has grown from 700 patients at the time it joined Guardian to 3,500 patients today.

In the past, Guardian has not necessarily targeted specific states or geographies for growth, but instead has qualified opportunities as they came forward.

Still, as the number of Guardian pharmacies grows in certain regions, the firm has begun to tailor specific programs for different local ownership clusters.

“One of our recent initiatives is to launch a regional sales effort and go forward inside our southeastern market with a pharmacy footprint that can serve regional chains,” adds Burke, who believes a national footprint for Guardian may be only a few years away.

 

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