Magnolia Diagnostics, a clinical laboratory based in Dallas, Texas, and its owners, John Bains and Kelly Bains, have agreed to pay $19.2 million to resolve allegations of violating the False Claims Act.
According to the Justice Department, investors in the laboratory will pay an additional $4.8 million to settle common law claims for unjust enrichment and payment by mistake arising from laboratory distributions.
Federal officials alleged that beginning in April 2020, the laboratory owners devised a strategy to generate significant revenue by requiring senior living communities seeking COVID-19 tests to also obtain expensive respiratory pathogen panels.
To implement this protocol, the Justice Department reported that Magnolia Diagnostics used prepopulated requisition forms that selected the additional testing and diagnosis codes before any clinical assessment occurred.
The government stated that the laboratory treated provider signatures on these forms as standing orders for entire communities, performing the panels on specimens collected during community-wide COVID-19 testing.
Investigators further alleged that the lab continued to perform these tests even after providers and communities questioned their medical necessity or explicitly asked for COVID-19 testing only.
In at least two instances, John Bains allegedly threatened to withhold COVID-19 testing from senior living communities that requested not to receive the extra respiratory pathogen panels.
The United States also alleged that Bains altered provider-signed forms to expand the scope of authorization to multiple facilities not covered by the original document.
According to federal reports, the laboratory allegedly froze and stored thousands of specimens for weeks or months before thawing and testing them.
The Justice Department alleged that this practice generated results long after they could be used to inform timely treatment or infection-control decisions.
Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division emphasized that the department is committed to holding accountable those who exploit taxpayer-funded programs.
Describing the scope of the enforcement action, Shumate stated, “We will pursue not only companies that submit false claims and the owners who direct the misconduct, but also investors who receive and retain its financial benefits — especially when vulnerable Americans are exploited for profit”.
U.S. Attorney Ryan Raybould for the Northern District of Texas explained that his office is committed to tackling healthcare fraud through civil investigations and criminal prosecutions.
Raybould noted, “Too many of our healthcare dollars are lost to fraud, waste, and abuse, but civil settlements like this one help recover valuable healthcare dollars for the American taxpayer”.
Acting Deputy Inspector General Scott J. Lampert of the Department of Health and Human Services Office of Inspector General said the mission is centered on protecting seniors.
Lampert stated, “Today’s resolution reflects our determination to uncover this kind of misconduct and hold accountable those who put greed above patient care”.
The resolution of this matter was a coordinated effort between the Justice Department and the Department of Health and Human Services, per official reports.
The Justice Department emphasized that the False Claims Act remains a critical tool in the ongoing battle against fraud, waste, and abuse in federal programs.
This settlement supports the mission of the recently launched Task Force to Eliminate Fraud and the National Fraud Enforcement Division, according to the Civil Division.
The Justice Department reported that enforcement of the False Claims Act plays a critical role in recovering billions of dollars for American taxpayers.
Officials stated that tips and complaints about potential fraud can be reported to the Department of Health and Human Services via their online portal or hotline.
The claims resolved by the settlements are allegations only, and the Justice Department noted there has been no determination of liability.