The settlement resolves claims that the lab billed Medicare for unnecessary respiratory panels alongside COVID-19 tests.
Magnolia Diagnostics, a clinical laboratory based in Dallas, Texas, and its owners, John Bains and Kelly Bains, have agreed to pay the US $19.2 million to resolve allegations that they violated the False Claims Act. The laboratory allegedly billed Medicare for medically unnecessary respiratory pathogen panel (RPP) testing performed on seniors receiving COVID-19 tests, according to the Department of Justice (DOJ).
Magnolia investors will pay an additional $4.8 million to resolve common law claims for unjust enrichment and payment by mistake arising from distributions they received from the laboratory.
“The Justice Department is committed to protecting taxpayer-funded programs and holding accountable those who exploit them,” says Brett A Shumate, assistant attorney general of the Department of Justice’s Civil Division, in a release. “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.”
Allegations of Unnecessary Testing Protocols
The US government alleges that, beginning in April 2020, the owners devised a strategy to generate revenue by requiring senior living communities seeking COVID-19 testing to also obtain expensive RPPs. Magnolia allegedly used prepopulated requisition forms that selected RPP testing and associated diagnosis codes before any individualized clinical assessment occurred.
The laboratory allegedly treated provider signatures on those forms as blanket orders for entire communities and performed RPPs on specimens collected during community-wide COVID-19 testing. According to the DOJ, Magnolia continued performing these panels even after providers and communities questioned their medical necessity or stated they had not authorized them. John Bains allegedly threatened to withhold COVID-19 testing from communities that asked not to receive the additional panels.
“Protecting seniors and safeguarding Medicare are core to our mission,” says Scott J Lampert, acting deputy inspector general for investigations of the US Department of Health and Human Services Office of Inspector General, in a release. “As alleged, Magnolia Diagnostics showed reckless disregard for medical necessity, beneficiary well-being, and the law—all to boost its profits during a national public health emergency.”
This enforcement is part of an ongoing crackdown on laboratory fraud and billing irregularities. Recent cases include a genetic testing fraud settlement involving a lab owner, and another case where a lab owner was charged with $46 million in Medicare billing fraud for tests that were never performed. State Medicaid programs have also intensified scrutiny, resulting in actions like a New Jersey lab being ordered to repay $3.4 million for billing violations.
Specimen Handling and Billing Issues
The government further alleges that Magnolia froze and stored thousands of respiratory specimens for weeks or months before testing them. This resulted in RPP results being generated after they could no longer inform timely treatment, isolation, or infection-control decisions.
The DOJ alleges that between April 1, 2020, and Sept 30, 2021, the laboratory and its owners knowingly submitted false claims to Medicare for thousands of RPPs that lacked medical necessity. In at least two instances, John Bains allegedly altered a provider-signed requisition form to expand the scope of the authorization to multiple facilities not covered by the original form.
The investigation was a coordinated effort between the DOJ Civil Division, the US attorney’s office for the Northern District of Texas, and the US Department of Health and Human Services Office of Inspector General. The claims resolved by the settlements are allegations only, and there has been no determination of liability.
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