United States of America v. Magnolia Diagnostics, John Baines, and Kelly Bains

Dallas, Texas, qui tam lawyers represented the United States of America on a False Claims Act violation theory.

Digested by: Kent Morlan

Magnolia Diagnostics, a clinical laboratory based in Dallas, Texas, and its owners, John Bains and Kelly Bains, billed Medicare for medically unnecessary respiratory pathogen panel testing performed on seniors receiving COVID-19 tests.

The United States alleged that, beginning in April 2020, John Bains and Kelly Bains, acting through Magnolia, devised a strategy to generate significant revenue by requiring senior living communities seeking COVID-19 testing to also obtain expensive respiratory pathogen panels (RPPs). To implement this protocol, Magnolia used prepopulated requisition forms that selected RPP testing and associated diagnosis codes before any individualized clinical assessment occurred. Magnolia allegedly treated provider signatures on those forms as blanket or standing orders authorizing RPPs for all seniors across entire communities or chains of communities, and then used those purported authorizations to perform RPPs on specimens collected during community-wide COVID-19 testing.

The United States further alleged that Magnolia performed RPPs for some communities without a purported standing order and continued performing RPPs after providers and communities demanded COVID-19-only testing, questioned the panel’s medical necessity or clinical value, or stated that they had not authorized RPPs. 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 form to expand the apparent scope of the provider’s authorization beyond the facility identified on the original form and then used those altered forms as standing orders to support RPP testing for residents across multiple facilities not covered by the original form.

Magnolia also allegedly froze and stored thousands of respiratory specimens, sometimes for weeks or months, before thawing and testing them. Magnolia thereby generated RPP results after they could no longer inform timely treatment, isolation, or infection-control decisions. The United States alleges that, between April 1, 2020, and Sept. 30, 2021, Magnolia, John Bains, and Kelly Bains knowingly submitted, or caused the submission of, false claims to Medicare for thousands of RPPs that lacked medical necessity.

The resolution obtained in this matter was the result of a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the Northern District of Texas, in conjunction with the U.S. Department of Health and Human Services, Office of Inspector General.

The investigation and resolution of this matter illustrate the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the FCA. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services at www.oig.hhs.gov/fraud/report-fraud/ or 800-HHS-TIPS (800-447-8477).

Settled for $19.2 million.