The calls come following a report from the Competition & Markets Authority (CMA) which revealed that the UK care home market is facing a £1 billion a year funding gap.
The competition watchdog has warned that the fees paid by councils failed to meet care home costs, this is causing a significant shortfall and meant that those paying for private care are paying significantly more.
According to the CMA fees of private care home residents were 40% higher on average than the amount paid by councils - equivalent to £12,000 a year.
“The decision as to whether someone receives publicly funded care in their own home or is offered only residential care can often largely depend on the cost difference. This should not be the only factor in any decision, but cost and resources will be a necessary consideration.
“In many areas if home care costs are greater than 10% than residential care, then an individual will need to show exceptional circumstances in order to receive a publicly funded home care package, thus allowing them to stay in, or return to, their own home.
“The report suggests that the costs of residential care to public bodies are depressed artificially thanks to cross subsidy from private funders and we are considering how this affects the ‘10% equation’ and whether the same occurs in the home care market.
“Securing safe and adequate social and health care at home is a difficult task, made worse due to cuts and austerity.
“It is vital that there is greater transparency in social care funding so that those fighting to receive their care at home and those privately funding care are not further disadvantaged in a system already creaking heavily at the seams.”
The CMA also said it may take a number of care homes to court in a clampdown on those charging families for "extended periods" after a resident has died, or demanding unfair upfront fees.
CMA chief executive Andrea Coscelli said: "Care homes provide a vital service to some of the most vulnerable people in society.
"However, the simple truth is that the system cannot continue to provide the essential care people need with the current level of funding.
"Without substantial reform to the way that councils pay and commission care, and greater confidence that the costs of providing care will be covered, the UK also won't be able to meet the growing needs of its ageing population."
The care home sector covers 430,000 residents and stretches across 11,300 homes in the UK.
Mr Coscelli added: "It is essential that residents and their families can make informed choices, understand how these services will be paid for, and be confident they will be fairly treated and able to complain effectively if they have concerns.
"We are now calling on care homes, councils and government bodies to help people navigate what can be a confusing system."
Caroline Abrahams, charity director at Age UK, said: "The report ... substantiates what Age UK has been hearing from concerned members of the public: namely that the business practices of some, but not all, care home operators are unfair and exploitative of older people and their families at an incredibly vulnerable time of their lives."
A spokesman for the Department of Health said:
"The Secretary of State has asked the CQC to report regularly on their assessment of the financial stability of the largest and most difficult to replace providers of adult social care."