A San Diego biotech company once known for its noninvasive skin cancer patch has agreed to pay up to $5 million to settle allegations that it knowingly billed Medicare for unreliable tests. Federal prosecutors say DermTech Inc. administered inadequate skin cancer tests that led to the fraudulent billing of Medicare, raising serious concerns about the company's practices.
“DermTech Inc. allegedly administered inadequate skin cancer tests that led to the fraudulent billing of Medicare, raising serious concerns about the company's practices,” said Special Agent in Charge Mark Remily of the FBI San Diego Field Office. “FBI San Diego, along with our law enforcement partners, remains committed to investigating any company whose illicit actions may undermine the integrity of our healthcare system and ensure they are held accountable.”
According to the U.S. Department of Justice, the case centers on two distinct stretches of alleged wrongdoing. From January 2020 to February 2022, DermTech billed Medicare for tests that lacked sufficient patient RNA to produce a valid diagnostic result, but the company issued positive or negative clinical reports to patients anyway instead of flagging the samples as “Quantity Not Sufficient.” Then, between October 2022 and March 2023, prosecutors say DermTech billed Medicare for tests run after the company switched to an unvalidated positive control range for a key melanoma marker, making it impossible to verify whether the results were accurate.
A Painless Test Turns Into a Federal Case
DermTech's flagship product was the Pigmented Lesion Assay, marketed as a “Smart Sticker” — an adhesive patch that collected surface skin cells without a scalpel and analyzed RNA markers known as LINC00518 and PRAME to evaluate melanoma risk, according to the American Academy of Family Physicians. The company processed those samples at its automated “Gene Lab” facility in La Jolla, while its corporate headquarters sat in San Diego, per SEC filings.
The civil settlement traces back to a whistleblower lawsuit filed in July 2023 in federal court in San Diego by former DermTech employee Kim Luong, who will receive a 20% share of any bankruptcy payouts the government recovers, the Justice Department said. That qui tam action, filed under the federal False Claims Act, allows private citizens to sue on behalf of the government when they believe a company has defrauded taxpayer-funded programs. Under that same statute, entities that knowingly submit false billing claims to programs like Medicare can face civil penalties plus treble damages — three times the government's actual losses.
Bankruptcy Complicates the Payout
Collecting the money will not be straightforward. DermTech filed for voluntary Chapter 11 bankruptcy protection on June 18, 2024, cutting 20% of its workforce — 15 employees — to conserve cash during asset sale proceedings, according to a filing with the U.S. Securities and Exchange Commission. The company had traded publicly on the Nasdaq under the ticker DMTK before its collapse.
Because DermTech is now liquidating as DTech Liquidating Inc., the Justice Department resolved the $5 million settlement by granting the federal government an Allowed Class Three General Unsecured Claim of $5,038,011 in the bankruptcy case — meaning actual cash recovery will depend on what remains in the bankruptcy estate. That figure is far below what the government initially sought: in December 2024, before reaching the settlement, federal prosecutors had filed proof of claims in Delaware bankruptcy court totaling $18,980,556 against DermTech.
New Owner Shielded From Legacy Claims
The settlement applies exclusively to the bankrupt entity, DermTech Inc., and explicitly excludes DermTech LLC, a separate company that purchased DermTech's operational assets in 2024. That distinction means whoever now uses the DermTech technology commercially is not on the hook for the false claims allegations tied to the earlier corporate entity's conduct.
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