She was admitted to Auckland Hospital in May 2007 in a confused state.
Authorities agreed to seek a court order to place her in a secure residential facility.
That application was prepared by Auckland District Health Board - but never filed.
Despite that, the woman was discharged from hospital and forced into secure care by Taikura Trust.
She was placed alongside the mainly elderly patients at the Oak Park dementia unit in the Aranui Home and Hospital.
No staff member ever checked to see whether a court order was in place to keep the woman detained indefinitely, Mr Hill said.
She grew increasingly frustrated and depressed at having to live in the dementia unit.
Staff told Taikura Trust the unit was an inappropriate place for a 43-year-old as most of the other residents were more than 70 years old.
At one point, a doctor wrote an email to another clinician to say: "I would agree with her perspective that where she is is worse than a prison."
In August 2008 the Community Alcohol and Drug Service discovered there was no court order requiring the woman to remain at Oak Park.
She was moved two months later, but died a year after her release.
Mr Hill said Taikura Trust had illegally detained the woman without her consent.
Its staff clearly lacked the legal knowledge necessary for working with vulnerable people, he said.
"It is deeply disturbing that a provider of services for consumers where competence may be an issue, and its staff, should apparently have so little understanding of the legal requirements...
"This was not an emergency situation. If someone is not competent to make an informed choice and give informed consent to treatment or other health care, providers need to ensure they have legal authority to make decisions affecting the person."
He said the wide-ranging deficiencies in the care the Trust showed to the woman was inexcusable.
"She was treated more like a problem than a person."
Aranui Home and Hospital Ltd, which operated the Oak Park dementia unit, was also censured for not raising its concerns over the woman's placement in writing.
It had failed to provide appropriate standards of care, Mr Hill said.
Auckland District Health Board was censured for failing to have appropriate systems in place to handle the court order to detain the woman.
Mr Hill said liberty was a fundamental right for all people in New Zealand.
It was a tragedy the woman had not lived to see her rights recognised, he said.