Nearly half the 23,000 private care home beds for the elderly will disappear in the next five years, it is claimed.
Staff will not stay in privately-run care homes it is claimed
A lobby group has claimed private care homes cannot compete with salaries offered in the NHS in Wales.
Care Forum Wales said a survey of members showed homes are being forced out of business because fees do not keep up with rising costs.
The Welsh Assembly Government says extra funds have been made available.
Christine Adams who runs care homes in Swansea and Clydach said she was forced to close one home last year and said that elderly people were being treated badly by the care system.
She said: "These elderly people have given so much - their lives during the last war and now what we're doing is putting them at the bottom of the bin. It's not fair."
Care Forum Wales Chief Executive Mario Kreft warned that unless action was taken quickly whole communities in Wales would find themselves without private provision.
He said the Welsh Assembly Government had awarded an increase in fees for privately run homes of just 37 pence a day per resident for the next financial year.
"The biggest single problem is being able to recruit competent and qualified workers.
"We are really engaged in competition with the (assembly) government itself".
"The (assembly) government is putting more money into the system there is no question of that but the independent sector is being left totally and hopelessly behind"
A Welsh Assembly Government spokesperson said the assembly does not set care home fees, which are negotiated locally between local authority commissioners, self-funding residents and providers.
But to assist local authorities in negotiating fees which take proper account of providers' costs a care fee tool is being developed, the spokesperson said.
Extra funds made available to the sector include an extra £12m in the local authority revenue settlement and a £19.5m recurrent capacity grant introduced in January 2004.