Quest Diagnostics Inc. (DGX) and its Nichols Institute Diagnostics unit have agreed to pay $302 million to resolve criminal and civil allegations regarding various diagnostic test kits manufactured and sold until 2006, prosecutors said Wednesday.

In a statement, the U.S. Attorney's Office in Brooklyn said NID pleaded guilty to felony misbranding related to its Nichols Advantage Chemiluminescence Intact Parathyroid Hormone Immunoassay, which was used by laboratories to measure parathyroid hormone levels in patients. The unit agreed to pay a $40 million fine.

Quest itself entered into a nonprosecution agreement and agreed to cooperate with the government, prosecutors said. The company had cooperated with the government's probe since it was initiated in 2004.

Quest and the NID unit also agreed to pay $262 million plus interest to resolve federal False Claims Act allegations related to the Advantage Intact PTH assay and four other assays manufactured by NID that allegedly provided inaccurate and unreliable results, prosecutors said.

"The American public has the right to expect medical device manufacturers to make accurate claims in their labeling, especially when the failure to meet those claims could indicate that the performance of the device is suspect," said U.S. Attorney Benton J. Campbell in a statement.

The company has agreed to pay various state Medicaid programs approximately $6.2 million to resolve similar civil claims, prosecutors said.

The investigation began as a result of whistleblower lawsuit, with the whistleblower receiving about $45 million of the recovery, prosecutors said. In total, it is one of the largest recoveries in a case involving a medical device, prosecutors said.

"Quest Diagnostics conducts its business with the highest standards of quality and integrity, and we regard NID's failure to meet our standards as unacceptable," said Michael E. Prevoznik, Quest's senior vice president and general counsel "This settlement resolves a five-year old government investigation, and puts it behind us. We are strongly committed to fulfilling the terms of the Corporate Integrity Agreement, and already have in place many of the agreement's requirements."

In October, Quest announced it had reached an agreement in principle during third-quarter 2008 to settle the government's probe. The company previously set aside $314 million in reserves to cover the settlement.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com