In an attempt to forestall a repeat of the Southern Cross fiasco, the government will now force care homes to prove they are financially stable.
The sudden financial collapse of Britain's biggest care home operator in 2011 caused turmoil for its 33,000 elderly and vulnerable residents, and highlighted the sector's precarious financial situation.
Today Norman Lamb, the Liberal Democrat Care and Support Minister, announced that the Care Quality Commission (CQC) will be able to monitor the largest providers' financial health.
There will be, he said, a "tough series of checks" on the companies - including those that provide care in people's own homes - to give "early warnings" if a company is in trouble.
The CQC will have power to require regular financial and relevant performance information from the 50 to 60 largest companies, and providers will also be forced to submit "sustainability plans".
And if a company is in trouble the CQC will have power to commission an independent business review to help the provider to return to financial stability. Officials said if a company is in financial difficulty it can be a predictor of poor care.
Mr Lamb said: "Everyone who receives care and support wants to know they will be protected if the company in charge of their care goes bust.
"The fear and upset that the Southern Cross collapse caused to care home residents and families was unacceptable.
"This early warning system will bring reassurance to people in care and will allow action to be taken to ensure care continues if a provider fails."
David Behan, the CQC's chief executive, said: "These are important measures that provide early warning of potential failures in care homes.
"Set alongside our plans for the appointment of a Chief Inspector of Social Care and Support, tougher registration requirements on social care providers and the introduction of a new ratings system, these new measures will strengthen our oversight to help ensure that risks to people's care are identified and acted upon as early as possible."
Hundreds of care-home providers are on the financial brink as they struggle to service a £5 billion debt mountain built up during the "boom" economy of pre-2008 and maintain services while local authorities - a key source of income for the sector - slash referrals and target publicly funded homes for closure.
According to the Press Association, recent research suggests that the number of care homes going bust climbed by 12 per cent last year.
Data from accountancy firm Wilkins Kennedy said that the number of care home insolvencies rose from 60 in 2011 to 67 in 2012.Reuse content