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Medicare overpaid $20.8 billion in claims in fiscal 2004 while making $900 million in underpayments, according to CMS. All told, the errors represent 9.3 percent of all Medicare claims.

The error rate comes from what CMS Administrator Mark McClellan called “the best data ever on contractor-specific error rates.”

According to the agency, the 2004 error rate review entailed more in-depth analysis that, among other details, calculated error rates by provider type and the kind of services rendered.

2004 marked the first time CMS used its expanded error-rate testing methods, meaning that comparing the year's results with historical trends becomes an unexact comparison, CMS said.

The agency's 2003 analysis identified a large increase of non-responses to requests for claims information. CMS then adjusted the non-response rate based on past experience, reporting the adjusted error rate as 5.8 percent. Without adjusting for the non-response, the 2003 payment error rate would have been 9.8 percent.

From 1996 until 2002, the government used a sample size of about 6,000 claims. In 2004, CMS collected data on more than 160,000 claims.

The agency also announced new initiatives to reduce the error rate within four years by more than half, to 4 percent, by building on recent reforms in payment oversight and new authorities granted CMS by the MMA.