Catalyst lvl 3 does indeed reduce an enemies heal regen, but it lowers your damage instead of increasing it.
Without over complicating my results and build details, my average base damage from dozens of mag dumps is 72. Splashing with Catalyst lvl 2 before mag dump nets me 84 (which is close enough to 86; from 72 x 1.2 from splash boost)
However, going up to Catalyst lvl 3 and splashing before mag dump drops me down to 80. Not only does this not boost me up another 20%, this also lowers my damage by 10% from a Catalyst lvl 2 splash.
TL DR: stop at Catalyst lvl 2 until fixed
Without over complicating my results and build details, my average base damage from dozens of mag dumps is 72. Splashing with Catalyst lvl 2 before mag dump nets me 84 (which is close enough to 86; from 72 x 1.2 from splash boost)
However, going up to Catalyst lvl 3 and splashing before mag dump drops me down to 80. Not only does this not boost me up another 20%, this also lowers my damage by 10% from a Catalyst lvl 2 splash.
TL DR: stop at Catalyst lvl 2 until fixed