DermTech Settles Medicare False Claims Allegations Over Unreliable Skin Cancer Tests

Key Takeaways

• DermTech Settles False Claims Allegations: DermTech Inc. agreed to resolve allegations that it knowingly billed Medicare for unreliable skin cancer tests.
• Government Receives $5.04 Million Bankruptcy Claim: The settlement gives the United States an allowed Class Three General Unsecured Claim of $5,038,011, with the actual recovery dependent on the bankruptcy process.
• Testing Problems Spanned Multiple Years: Federal officials alleged DermTech billed Medicare for tests using an unvalidated positive control range and, separately, for tests involving insufficient patient RNA.
• Results Were Reported to Patients: The Justice Department alleged DermTech reported positive or negative results despite the testing problems and later failed to retract the results or adequately refund Medicare.

Deep Dive

DermTech, the skin cancer testing company which filed for bankruptcy in 2024 and is now liquidating as DTech Liquidating, has agreed to resolve allegations that it violated the False Claims Act by knowingly submitting claims to Medicare for unreliable tests. Under the settlement announced Wednesday, the federal government received an allowed Class Three General Unsecured Claim of $5,038,011 in DermTech’s bankruptcy proceeding.

How much the government ultimately collects will depend on the bankruptcy process. The conduct behind that claim, according to the Justice Department, unfolded across two periods and involved different failures in DermTech’s testing procedures.

From October 2022 through March 2023, DermTech billed Medicare for tests conducted after the company switched to an unvalidated positive control range for one of the test’s two key melanoma markers. The positive control was supposed to help establish that the test itself was working properly. Without a validated range, the government alleged, DermTech could not confirm that the control was functioning and therefore could not verify the accuracy of the test results.

The company nevertheless reported the results to patients. A separate problem had begun years earlier. From January 2020 through February 2022, DermTech billed Medicare for tests involving samples that did not contain enough patient RNA to be tested, according to the Justice Department. Those tests still produced positive or negative results, which were also reported to patients.

When concerns about the tests were raised, federal officials said DermTech did not retract the results or adequately refund Medicare.

The allegations put the case in a more consequential category than the billing disputes that routinely populate False Claims Act enforcement. These were melanoma tests. Patients and physicians could use their results when making decisions about possible skin cancer, while Medicare was paying for tests the government says DermTech knew had serious quality-control problems.

“This company billed Medicare for unreliable tests that may have misled patients and their doctors,” U.S. Attorney Adam Gordon for the Southern District of California said in announcing the settlement.

The Justice Department’s Civil Division described the tests as “grossly substandard services,” saying the government would pursue healthcare providers that put Medicare patients at risk while billing the federal program.

DermTech’s financial troubles eventually overtook the company. It filed for Chapter 11 bankruptcy protection in the District of Delaware in June 2024 and is now liquidating under the DTech name.

That history matters to the settlement. The government is not receiving a $5 million check. Instead, its $5.038 million claim will sit among the allowed unsecured claims in the bankruptcy proceeding, with the eventual recovery determined through that process.

The resolution also draws a line between the company responsible for the alleged conduct and the business that carries the DermTech name today. The settlement concerns DermTech Inc., now DTech Liquidating Inc. It does not concern DermTech LLC, which purchased DermTech Inc.’s assets in 2024 through the bankruptcy proceedings.

The case reached the government through the False Claims Act’s whistleblower provisions. A former DermTech employee brought an action on behalf of the United States under the law’s qui tam provisions, which allow private parties with knowledge of alleged fraud to pursue claims for the government and receive a share of any recovery.

The case was filed in the U.S. District Court for the Southern District of California. The whistleblower, identified as Ms. Luong, will receive 20% of whatever the government recovers from the bankruptcy court in connection with the settlement.

For the government, the case joins healthcare reimbursement and laboratory quality in a way that makes the usual distinction between financial compliance and patient safety difficult to sustain. Medicare paid the claims, but the alleged failure was not confined to the claims themselves. The government says DermTech continued producing and reporting diagnostic results after problems arose with the controls and samples used to produce them.

That is where the False Claims Act entered the picture. Federal reimbursement depends on more than whether a service appears on an invoice. The government’s case against DermTech rested on the allegation that the company knew the underlying testing was unreliable and billed Medicare anyway.

The settlement resolves civil allegations only. There has been no determination of liability.

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