Up to 9,000 passengers at an airport in Medan may have been tested with the reused swab sticks, say police.
State-owned company Kimia Farma is now reportedly facing a potential lawsuit launched on behalf of the travellers.
Covid nasal swab testing has become routine in many countries hit by the global pandemic.
Police said they believed the scam had been happening since last December at Kualanamu airport in Medan, North Sumatra.
Passengers are required to have a negative test if they want to fly, and the airport offers the option of getting the swabs done on site. Airport authorities had used antigen rapid test kits supplied by Kimia Farma.
Following complaints from passengers that they had received false positive test results, police sent an undercover officer to pose as a passenger last week, reported local news outlet Detik.
When he was swabbed and received a positive test result, other officers swooped in and raided the test site, where they found a used test kit that had been recycled.