(Bloomberg) -- Millennium Health LLC agreed to pay $256 millionto resolve claims that it misrepresented the need for proceduresand offered gifts to doctors in exchange for referrals.

The biggest U.S. lab-testing company now plans to file forbankruptcy protection by Nov. 10, enabling it to turn over controlof the company to its lenders, according to a person with knowledgeof the matter.

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The company has given the restructuring proposal to the holdersof its $1.9 billion term loan and also sent a copy to lawyers atthe U.S. Department of Justice who arehandling the settlement of the government’s case, said the person,who asked not to be named because the information isn’t public.

Millennium will need to file its Chapter 11 petition with abankruptcy court by Nov. 10, according to copies of resolved casesagainst the company that were unsealed Monday.

The payment will resolve allegations that it violated the FalseClaims Act by having doctors order unnecessary urine, drug andgenetic testing, according to a U.S. Department of Justicestatement on Monday.

The government accuses Millennium of misrepresenting to doctorsthe necessity of an $1,800 genetic test for pain managementpatients.

Case unsealed

“We will not tolerate practices such as the ordering ofexcessive, non-patient specific tests and the provision ofinducements to physicians that lead to unnecessary costs beingimposed upon our nation’s health care programs,” Benjamin C. Mizer,head of the Justice Department’s Civil Division, said in astatement.

The case against Millennium, which involved billing to theCenters for Medicare & Medicaid Services, was filed last yearby the U.S., 29 states and the District of Columbia and wasunsealed Monday by a federal judge in Boston.

Omni Healthcare Inc. also was named as a plaintiff in thecase.

Terry Fahn, a spokesman for San Diego-based Millennium atSitrick & Co., and Marcia O’Carroll, a spokeswoman for TAAssociates, the private-equity firm that partially controlsMillennium, declined to comment.

Payment guaranteed

Millennium Chief Executive Officer Brock Hardaway said Fridaythat “while Millennium may debate some of the merits of the DOJ’sallegations, we respect the government’s role in health-careoversight and enforcement,” according to a company statementannouncing the settlement. He said Millennium is “currently a verydifferent organization than we were in the past.”

Millennium’s shareholders, including founder James Slattery andTA Associates, must guarantee an initial payment of $50 milliontoward the full settlement, according to the resolved casesunsealed by the court.

They will guarantee pieces of the payment based on theproportion of equity in the company they own, the documentsshow.

TA Associates holds 45 percent of the company’s shares whileSlattery has 55 percent in 14 trusts, some of which were set up forhis family members, according to the documents.

The settlement on the False Claims Act cases requires Millenniumto file a Chapter 11 petition by Nov. 10 if it decides torestructure its debt, according to the documents. The company mustprovide a copy of the bankruptcy plan to the Justice Department byMonday.

Creditors must vote to accept what would be a pre-arrangedbankruptcy plan by Nov. 8, according to the agreement. Theaccord calls for a bankruptcy judge to confirm Millennium’sbankruptcy plan by Dec. 21 and pay the government settlement byDec. 30.

Millennium, which said Friday that it has been embroiled in thefederal investigation for four years, has been negotiating withlenders to hand over ownership of the company at the same time it’sbeen finalizing the Justice Department probe.

Lenders had been fighting over how much to extract from thecompany’s shareholders in order to agree to a restructuring, peoplewith knowledge of the matter said earlier this month.

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