Doctors in Sicily have been claiming state money for some 50,000 patients still on their medical lists despite being dead, Italian media says.
An inquiry by Italy's financial police is said to have found that, in some cases, payments have been claimed for people who have been dead 20 years, BBC reported.
Sicilian doctors receive about 38 euros (£32) a year for each patient.
Results of the probe indicate that dead patients may have cost Italy's health service at least 14m euros (£12m).
However, the figure could rise as the probe continues.
The police report is said to have been handed to prosecutors who have not yet decided whether to order criminal proceedings.
Italian news agency Ansa says it is unclear whether the responsibility to report a death lies with the region, local authorities, individual doctors or the health service.
"It is one of the many failings of our system," said regional health official Massimo Russo.
"Many cases border on being in breach of the law but they are also the result of poor organisation."
Mr Russo said doctors might be unaware of the death of a patient if it had not been reported to them.
He said that many local authorities, either deliberately or intentionally, were often slow to inform the relevant services about a patient's death.
Mr Russo added that it was up to the courts to decide whether or not the investigation's findings amounted to deliberate fraud.