Half of the patients come out of hospital in a worse condition than they were admitted in, Britain's Alzheimer's Society has found.
It was also found that one third are never able to return home and are sent to a nursing home instead.
Over three-quarters of relatives criticise the treatment received by patients receive in hospital, while one third have even made a formal complaint.
The society says that poor care often causes dementia patients to stay in hospitals for weeks and months, much longer than necessary.
The latest report comes on the heels of another investigation, which revealed that almost 2,000 dementia patients were killed in a year by 'chemical cosh' drugs administered to them to keep them quiet.
"We are talking about an issue that is vast and staring the NHS in the face," the Telegraph quoted Neil Hunt, chief executive of the Alzheimer's Society, as saying.
He added: "We believe that the NHS is failing disgracefully on this.
"And it is creating very serious outcomes for people with dementia and their families."
The charity polled 1,291 friends and relatives caring for a dementia patient, 657 nursing staff and 479 ward managers to come up with its findings.