Decisions on whether somebody is eligible for continuing healthcare should be made within 28 days, but one in 10 people wait longer than 100 days, figures provided to the National Audit Office (NAO) showed.
This is having an effect on hospitals, with some patients unable to be discharged until funding is approved or declined. Some patients die while waiting for a decision.
The NAO report found a third of all decisions on funding of care take longer than 28 days and the number of delayed decisions is rising, from 21,095 in 2014/15 to 24,901 in 2015/16.
It added: "The correspondence we received from members of the public showed that delays can cause considerable distress, and in some cases, considerable financial hardship, to patients and their families as they wait for funding decisions.
"In some cases, people have died while waiting for a decision."
NHS Continuing Healthcare (CHC) is a package of care provided outside hospitals, such as in people's homes or in a care home, that is arranged and funded solely by the NHS through clinical commissioning groups (CCGs).
People must have a significant health need that goes above and beyond usual social care needs, such as help with washing or dressing.
Only about 18% of those who apply for CHC are actually granted funding, according to estimates from NHS England.
Of 124,000 people who were initially screened in 2015/16, 77,000 went on to have a full assessment and 22,000 of those received funding.
In a separate fast-track process for people nearing the end of their lives, such as having a terminal illness, most were eventually deemed eligible for funding.
Figure suggest that in 2015/16, almost 160,000 people received, or were assessed as eligible for, CHC at a cost of £3.1 billion. This figure is rising year on year.
The NAO used data from the Continuing Healthcare Alliance, which supports people seeking CHC, from 209 CCGs on how long assessments took.
Of the 115 CCGs that responded, half said assessments leading to decisions took more than 28 days on average and around 10% said assessments took more than 100 days on average.
The average time ranged from three days to 204 days.
A further 90 CCGs reported that they did not collect data on how long it took to carry out an assessment and inform the family of their eligibility decision.
The NAO also found no data on how many people make appeals when they are turned down for funding, or the outcome of those appeals.
It also found variation in the way the criteria for funding is applied across CCGs.
The report said: "There are limited assurance processes in place to ensure that eligibility decisions are consistent, both between and within CCGs."
Scott Sinclair, head of policy and public affairs at Marie Curie, said: "Fast-track continuing healthcare funding is designed to help people at the very end of their lives get out of hospital and back home or into a care home as quickly as possible.
"But the system is failing people.
"Our own evidence shows that, in some parts of country, the average waiting time to get out of hospital is seven days, while in other parts it takes a matter of hours.
"It is no longer unusual for people to die while waiting to get out of hospital. No one should be subjected to this kind of postcode lottery, especially not when they are dying and time is especially precious."