Of those ineligible, about two-thirds are New Zealanders who have left to live overseas for an extended period. The majority had been ineligible between one and two years.
"PHOs are now in the process of ensuring that these people do not receive public health subsidies," said Michael Hundleby, deputy director of the National Health Board.
He said the ministry expected to save $10 million a year from data-matching with Immigration NZ, a process which is planned to happen four times annually. "This will mean PHOs will have more accurate registers to ensure only eligible patients receive Government health subsidies."
The $10 million saving comes after an announcement that a tough stance of forcing patients to prove eligibility by producing a birth certificate or passport has offended some patients and prompted an official rethink. From next year hospitals will be able to check citizenship details under a data matching agreement with the Department of Internal Affairs.
Thousands of non-eligible patients force NZ's 20 district health boards to write off millions of dollars of debt each year. Figures released under the Official Information Act show that before the new policy, medical bills for foreign patients ballooned to a record $29.6 million in the 2010/11 financial year, up from $22.2 million three years earlier.
But this fell to $16.8 million last year, provisional figures show. In recent years, hospitals demanded proof that patients are eligible for free treatment. Those without evidence, such as a passport or birth certificate, had to foot the bill themselves or were chased by debt collectors.
Those eligible for state-funded care include citizens and permanent residents, Australians, Britons, holders of a two-year or longer permit, refugees and accident victims covered by ACC.
The Auditor-General's report said there was concern the policy was "unreasonable" for vulnerable citizens, such as the elderly, who might not have documentation to hand.
Health Minister Tony Ryall said public health services would never turn away any patient - eligible or not - in an emergency.
He said most New Zealanders would no longer have to prove their citizenship or residency to get free healthcare because of changes to the National Health Index (NHI) database. From the middle of next year, NZ citizenship will be able to be data-matched with NHI numbers.
"This will effectively identify those not eligible for publicly funded health services. We had to take action like this because many people don't like being asked to prove they are New Zealanders - especially elderly people who were either born here or came here a long time ago."
Those identified as non-eligible are warned they will be liable to pay. But clinicians decide case by case whether to give treatment.
