The warning has been made by the National Audit Office (NAO) in a report which suggests the system of enforcing NHS charges is not working properly.
The spending watchdog said that in 2017/18, an estimated £212m was lost due to patients incorrectly claiming exemptions.
Its report criticises the system under which the NHS issues patients with Penalty Charge Notices (PCNs) to patients.
Since 2014, some 5.6m PCNs have been issued, with a total value of £676m, but £246m worth of penalties, more than a third of the total, remain outstanding.
And hundreds of thousands of people have been given PCNs which were withdrawn on appeal, raising concerns of unnecessary distress being caused to patients. In the past five years around 1.7m PCNs – 30 per cent of those issued – had to be withdrawn because the patient had a valid exemption.
The report said: “This arrangement relies on the vulnerable person challenging the PCN, and not all vulnerable people may feel able to do so.”
Meg Hiller MP, who chairs the Public Accounts Committee, said: “It is right that the NHS tackles prescription and dental fraud but the NAO’s report makes for concerning reading. The rules around entitlement are complicated leading to confusion and genuine mistakes.
“Almost of a third of prescription and dental penalty charges issued to patients were later revoked, because they had a valid exemption. This is not a system that is working as it should.
“The NHS must take urgent steps if it is to avoid causing unnecessary distress to patients, tripped up by an overly complex system, who end up facing large penalty charges.”
Mistakes were caused by confusion over entitlements for people on benefits and prescription forms that do not yet include Universal Credit as an option.
Figures for September 2014-March 2019 also show that almost 115,000 people received five or more PCNs for prescriptions. NHS England and the NHS Business Services Authority (NHSBSA) are now taking a firmer approach to tackling fraud.
The report said: “Selected repeat offenders are now interviewed under caution at a police station and to date, NHSBSA has submitted five cases to the Crown Prosecution Service to consider for criminal proceedings.
“NHSBSA began a debt collection process for dental cases in January 2019 and is seeking approval for one for prescriptions.”
But it added: “NHSBSA accepts that the rules around entitlement, which are set by the Department of Health and Social Care, are complicated and recognises that genuine mistakes and confusion happen.”
A Government spokesperson said: “It is important our system for claiming free prescriptions is simple to understand for patients and clinicians, which is why we are currently piloting technology that allows pharmacies to check whether a patient is exempt from charges before prescription items are dispensed.
“Prescription and dental fraud cost the NHS an estimated £212 million in 2017/18 and it is absolutely right the Government takes steps to recoup this money so it can be reinvested into caring for patients.”