Laboratory, Owners, and Investors Settle COVID-19 Testing Fraud Allegations for $24 Million

On July 23, 2026, the Department of Justice announced that clinical lab Magnolia Diagnostics and its owners agreed to pay $19.2 million to resolve allegations that they violated the False Claims Act by billing Medicare for medically unnecessary respiratory pathogen panel (“RPP”) testing performed in connection with COVID-19 testing at senior living communities. Notably, Magnolia’s investors separately agreed to pay an additional $4.8 million to resolve alleged common law claims for unjust enrichment and payment by mistake and claims under the Federal Debt Collection Procedures Act arising from distributions they received from the laboratory. Assistant Attorney General Brett Shumate emphasized that the Department will seek to hold accountable not only entities that submit false claims, but also individuals and investors who allegedly benefit from fraudulent conduct, which is consistent with previous statements of DOJ’s enforcement priorities and resolutions, as we covered here and here.

According to DOJ, beginning in April 2020, the owners of Magnolia crafted a strategy to generate significant revenue by forcing senior living communities seeking COVID-19 testing to also obtain expensive RPP testing. The government alleged that Magnolia used prepopulated requisition forms selecting RPP testing and continued performing RPP testing even after some providers requested COVID-19-only testing or questioned the medical necessity of the additional tests. DOJ also alleged that Magnolia altered requisition forms to expand the apparent scope of providers’ testing authorizations and threatened to withhold COVID-19 testing from facilities that asked not to receive RPPs.  DOJ further alleged that Magnolia stored respiratory specimens for weeks or months before performing RPP testing, rendering the results clinically untimely and medically unnecessary.  Based on this conduct, the government alleged that Magnolia knowingly submitted, or caused the submission of, false claims to Medicare for thousands of medically unnecessary RPP tests performed between April 2020 and September 2021.

In announcing the settlements, DOJ noted the Administration’s focus on fighting fraud, waste, and abuse in federal programs and the creation of the Task Force to Eliminate Fraud and the National Fraud Enforcement Division.  It also underscored that the Civil Division’s FCA enforcement efforts remain a separate but important part of this initiative, stating:  “The Civil Division’s False Claims Act enforcement plays a critical role in combatting such fraudulent schemes, recovering billions of dollars for the American taxpayers, and holding wrongdoers accountable. False Claims Act matters will continue to be on the forefront of the battle against fraud, and the Civil Division’s False Claims work will support and advance the mission of the Task Force to Eliminate Fraud and the National Fraud Enforcement Division.”

Copies of the settlement agreements can be found here and here.

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