Medicare Fraud Diagnostic Testing Whistleblower Guide

When a Skin Cancer Test Becomes a Medicare Fraud Problem

A Medicare fraud diagnostic testing whistleblower case that our firm filed in 2023 and resolved in August 2026 shows how quality control failures inside a laboratory can give rise to False Claims Act liability — and how a former employee (our client) who reports that conduct may receive a meaningful share of any recovery. According to the Department of Justice announcement, DermTech Inc. — now liquidating as DTech Liquidating Inc. — agreed to settle allegations that it knowingly submitted false claims to Medicare for unreliable skin cancer tests, with the United States receiving an Allowed Class Three General Unsecured Claim of $5,038,011 in the bankruptcy proceeding. Every False Claims Act matter is different; results depend on the specific facts of each case, and no similar outcome is implied.

The case, captioned U.S. v. DermTech, Inc. et al., No. 3:23-cv-01404 (S.D. Cal.), was filed by our firm under the qui tam provisions of the False Claims Act on behalf of our client, a former DermTech employee. It illustrates a pattern that employees in diagnostic testing, laboratory services, and healthcare billing may recognize from the inside: a company continues to bill a federal program for tests it knows are unreliable, and when concerns are raised internally, nothing is done to retract results or refund the government.

Two Distinct Patterns of Alleged False Billing

The settlement resolves two separate categories of alleged misconduct, each involving a different type of quality failure and a different time period. Together they illustrate how billing problems in a diagnostic lab can arise from both analytical validation failures and sample-integrity failures.

Unvalidated Quality Controls (October 2022 – March 2023)

From October 2022 to March 2023, DermTech is alleged to have billed Medicare for skin cancer tests conducted after the company switched to an unvalidated positive control range for one of the test’s two key melanoma markers. Without a validated positive control range, it is impossible to confirm that the positive control is working and thus impossible to verify whether the test results are accurate. DermTech reported results to patients throughout this period and submitted Medicare claims for each test.

Insufficient RNA Samples (January 2020 – February 2022)

From January 2020 to February 2022, DermTech is alleged to have billed Medicare for skin cancer tests that did not contain enough patient RNA to be tested but still generated positive or negative test results. Those results were reported to patients, and Medicare was billed for each test despite the sample-integrity problem.

The Failure to Remediate

In both categories, the government alleged that when concerns were raised about these tests, DermTech neither retracted the test results nor adequately refunded Medicare. This failure to act after internal notice is central to the question of whether the company acted knowingly under the False Claims Act — a point addressed in the next section.

What the False Claims Act’s “Knowingly” Standard Means in a Lab Setting

False Claims Act liability under 31 U.S.C. § 3729 attaches when a person knowingly presents, or causes to be presented, a false or fraudulent claim for payment. The statute defines “knowingly” to include actual knowledge, deliberate ignorance, and reckless disregard of the truth or falsity of the information. In a laboratory setting, this standard is particularly significant because quality control records, validation documentation, and internal communications can all bear directly on what a company knew — and when it knew it.

In the DermTech matter, the government alleged that the company submitted claims to Medicare for skin cancer tests despite knowing the tests had quality control issues, and that when concerns were raised internally, the company took no corrective action. “The Justice Department is committed to protecting Medicare patients, especially in an area as serious as skin cancer testing,” said Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division. “We will hold accountable health care providers who put patients at risk by billing Medicare for grossly substandard services.”

Employees who may be positioned to document the knowledge element in a similar case include quality control staff, laboratory operations personnel, regulatory affairs employees, and billing compliance teams. Internal communications about test validity, validation records showing a switch to unvalidated methods, and billing data showing continued claims after concerns were raised can all be relevant. Employees who raised concerns and were ignored — or who have access to documentation showing that management was aware of quality failures and continued billing anyway — may have grounds to bring a qui tam action under the False Claims Act on behalf of the United States.

Bankruptcy Does Not Extinguish False Claims Act Liability

DermTech filed for Chapter 11 bankruptcy in the District of Delaware in June 2024 and is now liquidating as DTech Liquidating Inc. The government pursued its False Claims Act claim through the bankruptcy process and received an Allowed Class Three General Unsecured Claim of $5,038,011 — demonstrating that financial distress or insolvency at a target company does not necessarily foreclose a resolution of FCA claims.

For potential whistleblowers, this outcome carries a practical implication: even when a target company is in bankruptcy, the government may continue to pursue FCA claims, and a relator may still receive a share of whatever recovery is obtained. Ms. Luong will receive 20% of the recovery received from the bankruptcy court in connection with the settlement — illustrating that a relator share can be meaningful even in a liquidation context.

Under 31 U.S.C. § 3730(d)(1), in any case in which the government proceeds with an action, the person bringing the action shall receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. The 20% share Ms. Luong is set to receive falls within that statutory range.

Enforcement Signals for the Diagnostic Testing Industry

The DermTech settlement involved a coordinated effort among the DOJ Civil Division’s Commercial Litigation Branch, Fraud Section, the U.S. Attorney’s Office for the Southern District of California, the FBI San Diego Field Office, and HHS-OIG. The announcement also references the Administration’s Task Force to Eliminate Fraud and the National Fraud Enforcement Division, signaling coordinated, ongoing scrutiny of fraud against federal healthcare programs.

Categories of conduct in diagnostic testing that may draw similar attention include:

• Switching analytical or validation methods without completing revalidation before billing resumes
• Continuing to submit Medicare or Medicaid claims during a known quality failure period
• Generating and reporting test results from samples that do not meet minimum integrity standards
• Failing to retract results or refund the government after internal concerns are raised
• Billing for tests at a volume or rate inconsistent with the actual reliability of the testing process

“Patients must be able to rely on the accuracy and integrity of diagnostic testing when making critical healthcare decisions,” said Acting Deputy Inspector General for Investigations Miranda L. Bennett of HHS-OIG. “Submitting claims to Medicare for tests that fail to meet established clinical standards undermines patient safety and public trust.”

If practices like these look familiar from your own workplace, you can discuss what you have seen with a Price Armstrong attorney confidentially and at no cost. Call (888) 670-9542 or use the secure evaluation form below.

Frequently Asked Questions

Who can bring a Medicare fraud diagnostic testing whistleblower case?

Under 31 U.S.C. § 3730(b), a person may bring a civil action for a violation of section 3729 for the person and for the United States Government. There is no requirement that the relator be a licensed professional; former employees, current employees, and others with direct knowledge of the alleged fraud may file. In the DermTech matter, the relator was a former DermTech employee who had firsthand knowledge of the company’s testing and billing practices.

What happens to a qui tam case when the target company files for bankruptcy?

The DermTech matter shows that the government may pursue False Claims Act claims through the bankruptcy process. The United States received an Allowed Class Three General Unsecured Claim of $5,038,011 in the bankruptcy proceeding, and our client is set to receive 20% of the recovery received from the bankruptcy court. A company’s insolvency does not automatically eliminate FCA exposure or a relator’s potential share, though the amount ultimately recovered may be affected by the bankruptcy process. Every False Claims Act matter is different; results depend on the specific facts of each case, and no similar outcome is implied.

What documentation is most useful in a diagnostic testing False Claims Act case?

Internal communications about known quality failures, validation records showing a switch to unvalidated methods, billing data covering the period after concerns were raised, and records showing that results were reported to patients despite sample-integrity problems can all be relevant to establishing the “knowingly” element under 31 U.S.C. § 3729. In the DermTech matter, the alleged misconduct spanned distinct time periods tied to specific quality control changes, suggesting that internal records tracking those changes could be central to a case. An attorney experienced in False Claims Act matters can help evaluate what documentation may be relevant to a particular situation.