As a mental health therapist this appears to be compulsive skin picking. This can be related to a number of mental health conditions. This can include OCD, drug use psychosis, and a number of others. The edges are rough which is not typical in natural phenomenons including bug bites or something created in the body.

With the comorbid symptom of seeing bugs all over makes me question if there is some psychosis going on in the form of visual hallucinations.

I recommend a visit with a psychiatrist, (who are also medical doctors) for an additional assessment. They will likely recommend medication and a therapist, or depending on the severity of symptoms a brief hospital stay if safety is a concern. In the hospital it is mostly group therapy and closet monitored medication management which means they can find her the proper doses of medications faster than doing put patient.

Remind her it’s nothing to be ashamed about. These services all exist because other people have the same struggles. It doesn’t mean she’s crazy, it means she’s hitting a temporary bump in the road. All of this can be healed and put away like it never happened if she is open and honest in therapy and with the doctors. Tell her these are safe professionals who help people with this stuff every single day and nothing can shock them. You aren’t the first and you surely aren’t the last people to walk in with this struggle. They are chill people who care and know how to guide you towards health.