What happened

Shares of DermTech (NASDAQ:DMTK) were soaring 25.4% higher as of 10:57 a.m. EST on Wednesday. The impressive jump came after the company announced that Geisinger Health System issued a positive medical benefit policy for the DermTech Pigmented Lesion Assay (PLA), a non-invasive genomic test for the early detection of melanoma.

So what

A positive coverage decision from a major health plan such as Geisinger should pave the way for DermTech's sales to grow. Investors are understandably excited about today's news.

Man wearing coat and tie giving a thumbs up

Image source: Getty Images.

DermTech already received a positive final local coverage determination by Medicare administrative contractor Palmetto. Geisinger's policy is very similar to the one established by Palmetto. DermTech has also recently won reimbursement coverage for its PLA product from Blue Cross Blue Shield of Illinois and Blue Shield of California.

This latest decision could create further momentum for DermTech's PLA product. Payers sometimes follow the lead of the precedents set by their peers.

Geisinger's positive policy stance wasn't surprising, though. DermTech's PLA is highly accurate, with less than a 1% chance of missing the detection of melanoma.

Now what

What's next for DermTech? More coverage decisions like the one made by Geisinger could serve as key catalysts for the healthcare stock. The main thing to watch, though, is how these decisions translate to DermTech's financial performance. The company should report its fourth-quarter results in February 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.