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

The biggest U.S. lab-testing company now plans to file for bankruptcy protection by Nov. 10, enabling it to turn over control of the company to its lenders, according to a person with knowledge of the matter.

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The company has given the restructuring proposal to the holders of its $1.9 billion term loan and also sent a copy to lawyers at the U.S. Department of Justice who are handling 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 a bankruptcy court by Nov. 10, according to copies of resolved cases against the company that were unsealed Monday.

The payment will resolve allegations that it violated the False Claims Act by having doctors order unnecessary urine, drug and genetic testing, according to a U.S. Department of Justice statement on Monday.

The government accuses Millennium of misrepresenting to doctors the necessity of an $1,800 genetic test for pain management patients.

Case unsealed

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

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

Omni Healthcare Inc. also was named as a plaintiff in the case.

Terry Fahn, a spokesman for San Diego-based Millennium at Sitrick & Co., and Marcia O’Carroll, a spokeswoman for TA Associates, the private-equity firm that partially controls Millennium, declined to comment.

Payment guaranteed

Millennium Chief Executive Officer Brock Hardaway said Friday that “while Millennium may debate some of the merits of the DOJ’s allegations, we respect the government’s role in health-care oversight and enforcement,” according to a company statement announcing the settlement. He said Millennium is “currently a very different organization than we were in the past.”

Millennium’s shareholders, including founder James Slattery and TA Associates, must guarantee an initial payment of $50 million toward the full settlement, according to the resolved cases unsealed by the court.

They will guarantee pieces of the payment based on the proportion of equity in the company they own, the documents show.

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

The settlement on the False Claims Act cases requires Millennium to file a Chapter 11 petition by Nov. 10 if it decides to restructure its debt, according to the documents. The company must provide a copy of the bankruptcy plan to the Justice Department by Monday.

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

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

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

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Millennium Health to pay $256 million for violations, said to file for bankruptcy

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