The current system for providing care to elderly people has a £1 billion shortfall and "is not sustainable without additional funding", the competitions watchdog has warned, following a year long investigation into the sector.
The Competition and Markets Authority (CMA) said that uncertainty about future funding, including whether council fees will cover the full costs of care, currently means that there is not enough investment in new accommodation for council-funded residents.
Meanwhile, residents in Scottish homes are afraid to make complaints “for fear of reprisals”, the study said.
The report claimed that the basic information and support needed is often not available to help people navigate the system and make informed choices while going into care.
The final findings of the study said it had identified a funding shortfall of £1 billion a year across the UK because councils are paying fee rates for the residents they fund which are below the costs care homes incur. This, has, it said, led to care homes propping up their finances by charging higher prices - an average of £44,000 a year - to those who pay for their own care.
The report, however, praised the Scottish Government for action it has already taken to tackle the issues and said it wanted to wait until the initiatives had taken effect before making recommendations.
It added: "However, our concerns around the delivery of state-funded social care are important, as the delivery of an effective and sustainable social care system must be maintained. The impact of the existing initiatives will need to be assessed and further actions may be required. We urge the Scottish Government to keep this under review and in particular to consider whether improved planning and forecasting to facilitate the long-term development of capacity and provision is required."
There are around 42,500 care home beds for the elderly in Scotland, 59 per cent of which are in nursing homes.
The report said that residents who are treated badly often find it difficult to make complaints.
It said: "While there has been a lot of work in Scotland by the Care Inspectorate (who will hear individual complaints) and the Scottish Public Services Ombudsman to simplify complaints systems generally, we have heard that care home residents can perceive complaints systems as complex to use, and they may not want to complain against their carers or they may fear reprisals."
CMA chief executive Andrea Coscelli said: “Care homes provide a vital service to some of the most vulnerable people in our society. However, the simple truth is that the system cannot continue to provide the essential care people need with the current levels of funding.
“Without substantial reform to the way that councils plan 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."
He 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.”
Alex Hayman, managing director of public markets for consumer watchdog Which?, said: “These findings echo the heartbreaking stories we’ve heard from hundreds of people who have struggled to find appropriate local care for themselves or a loved one.
“The Government must now act on these important recommendations and ensure that their Green Paper delivers the fundamental reforms needed to secure high quality, affordable care for older people - both now and in the future.”
The CMA said it had made recommendations to the Scottish Government, the Care Inspectorate, local authorities and Integration Joint Boards, as well as the industry across the UK to address the issues and added it will be taking steps to assist care homes in understanding their obligations.
"We are also taking enforcement action now on some issues where we believe the law is being broken," it added.
Health Secretary Shona Robison said that the current financial year would see almost half a billion pounds of frontline NHS spending in Scotland invested in social care services and integration.
She said: “I welcome this report from the Competition and Markets Authority, which contains several recommendations on how to improve consumer rights, and further provide transparency in the care home market across the UK. In particular, it recognises the different context in Scotland and the action we are already taking to improve the sustainability of the care home market.
“We will continue to shift the balance of care by increasing every year of the Parliament, the share of the NHS budget dedicated to primary, community and social care. Over the last three years funding through the National Care Home Contract has increased by 13.2 per cent - from £609.31 to £667.09 per place, per week. This allows independent care providers to invest in their staff, the quality of their service, and to take a reasonable return out of the business."