In a situation described by Help The Aged as "a terrible mess", the NHS is being forced to pay a £180m compensation bill by the Health Ombudsman after incorrectly charging people for long-term nursing care and social care between 1996-2004.

The 13,000 claims and £2,000 pay-outs relate to the way different health authorities charged for care needed because of illness, disability and continuing NHS treatment. This "continuing care" used to be effectively classed as social care - and as such was means-tested.

The funding confusion began with a legal challenge in the 1990s, which led to health bosses being instructed to fund care packages where the primary need was "health" - rather than just basic personal care such as help dressing and washing. But the rules were interpreted differently across the country, which proved particularly controversial, and stories emerged of patients having to sell their homes to fund care.

This year's "mess" began to be revealed when The Health Ombudsman ruled in 2003 that many patients had been incorrectly charged, prompting the government to allow patients to claim back refunds and compensation. Final applications had to be submitted to primary care trusts by a set date - which can also take "distress" into account.

A Department of Health spokesman admitted that, although they had indicated in their February 2003 report that 'significant numbers of people and sums of money were likely to be involved', the scale and volumes of applications for retrospective review was unexpected. 

In view of this, the Department of Health extended their application deadline to 31st March 2004 - yet by September 2004 only 57% of the retrospective reviews (6,644 out of 11,655) had been completed. This prompted a flood of complaints - mainly from frail, elderly people who were themselves carers or from their relatives - about delays in receiving a decision.  

Many of the complaints about continuing care received in 2003 and in the early part of 2004 concerned delays in carrying out retrospective reviews of eligibility. And in the main, those strategic health authorities with the largest number of cases had the greatest difficulty completing them on time. 

In other cases, some Primary Care Trusts took a very long time to get started. In one case, a Trust did not even send out the forms to apply for a retrospective review until nearly a year after the report was published in February 2003 - and then said that the reviews would only take place 12 weeks after the completed forms were received. And in other areas, NHS bodies took too long to recruit, train and convene review panels. 

A typical example of a delay involved a Mr "N", who wrote to his strategic health authority in March 2003, applying for a refund of nursing home fees for his late mother. The authority wrote back to Mr N later that month saying that the case had been transferred to the appropriate trust, which had been asked to take action. Then in April 2003 the trust wrote to Mr N saying that they were unable to proceed with his claim until they had received "guidance from the Department of Health". 

In October 2003 Mr N complained to the Ombudsman that he had heard nothing from the trust. After enquiries, the trust replied to Mr N in November, saying that they would send him a questionnaire to facilitate the processing of his application. They also said that a review would take place within 12 weeks of their receiving the completed form. But Mr N did not even receive the questionnaire until 20th February 2004 - 11 months after his first approach. He returned it within a few days.  Unsurprisingly, a review panel did not take place within 12 weeks and once again further enquiries were made by the Health Ombudsman.

It transpired that the nursing home which had been caring for Mr N's mother had closed down, and the trust had failed to follow up its original request to the home for its nursing records. A review panel was finally arranged for the end of September 2004.

In view of delays such as this, the Ombudsman exercised their discretion to look at complaints which had been through all the stages of the local review processes - rather than expecting complainants then to go through the full NHS complaints procedure. This was done mainly to avoid prolonging the delay for many frail, elderly complainants who had already had to wait long enough. 

Despite the large numbers of people who did come forward, there are many others who have not, and there is concern that many of the most disadvantaged cases have been overlooked by a process that favoured the "articulate and well-informed." In fact about 40,000 people currently receive funded continuing care packages - but experts estimate that some 100,000 people should qualify. 

Mervyn Kohler, of Help the Aged, said: "The whole issue of continuing care has been a terrible mess, so it is pleasing to see that people are getting their money back. But it doesn't hide the fact that there are still many inconsistencies in practices. People are being forced to navigate their way through a confusing and inaccessible system of funding, at a time in their lives when a tangle of red tape is the last thing they need.

"The government must bring about radical change to transform our ailing social care system into one that is personalised, easy to understand, accessible and properly funded."

And a spokeswoman for the Alzheimer's Society added: "The charging for care caused a lot of heartache. People had to sell their homes and go into debt. And it is still worth remembering that many thousands of people with Alzheimer's still don't get care as they are not deemed eligible."

If you or someone you know has been affected by this situation, please write and tell us about it.