Elderly patients are being wrongly assessed and charged for treatment because health authorities have problems understanding the government's funding system, the healthcare watchdog has warned.

A report from the Health Service Ombudsman warns that Department of Health (DoH) guidance is too complex and led to local bodies applying "over-restrictive" criteria.

The ombudsman, Ann Abraham, spent 18 months investigating the provision and funding of long-term care for elderly and disabled patients between 1996 and 2001.

She upheld four complaints, including one that saw a disabled 90-year-old woman refused a transfer to a nursing home close to her family because she did not fit the required criteria.

Health authorities and trusts have now been ordered to re-examine their records to identify any patients who may have being incorrectly ordered to pay for their services in care homes.

"There is evidence that the Department of Health's guidance has been misinterpreted and misapplied by some health authorities and trusts, leading to hardship and injustice for some individuals," said Abraham.

"The Department of Health's guidance and support has not provided the secure foundation needed to enable a fair and transparent system of eligibility for funding to be operated across the country."

The DoH said it was already taking action to deal with some of the issues raised in the report, and ordered a review of continuing care criteria in August 2002.

"The department will re-iterate to strategic health authorities their responsibility to review continuing care criteria, and agree with local councils one set of criteria within their area," said a departmental spokesman.

"The ombudsman has also recommended strengthened links between the assessment process and continuing care. The Community Care Bill, currently going through parliament, will strengthen hospital assessment.

"Subsequent guidance will make clear that the first decision following assessment of a patient's needs prior to discharge is whether or not they require NHS continuing care."