Magnolia Diagnostics, a clinical laboratory based in Dallas, Texas, and its owners, John Bains and Kelly Bains, have agreed to pay the United States $19.2 million to resolve allegations that they violated the False Claims Act. The settlement addresses claims that the company billed Medicare for medically unnecessary respiratory pathogen panel testing performed on seniors receiving COVID-19 tests.
Magnolia investors will pay an additional $4.8 million to resolve common law claims for unjust enrichment and payment by mistake, as well as claims under the Federal Debt Collection Procedures Act, arising from distributions they received from Magnolia.
The United States alleges that beginning in April 2020, John Bains and Kelly Bains devised a strategy to generate revenue by requiring senior living communities seeking COVID-19 testing to also obtain expensive respiratory pathogen panels. To implement this protocol, Magnolia used prepopulated requisition forms that selected RPP testing and associated diagnosis codes before any individualized clinical assessment occurred.
The company allegedly treated provider signatures on those forms as blanket or standing orders authorizing RPPs for all seniors across entire communities.
The government further alleges that Magnolia performed RPPs for some communities without a purported standing order and continued the testing after providers and communities demanded COVID-19-only testing or questioned the panel’s medical necessity. At times, John Bains allegedly threatened to withhold COVID-19 testing from communities that asked not to receive RPPs. In at least two instances, John Bains allegedly altered a provider-signed requisition.
