Care home owners have warned that Devon County Council must raise fees at the end of its recently-launched review or a list of 25 private providers the council identified as being at risk will close.
The authority suffered a defeat in the High Court this week and is now conducting a "fuller equalities assessment" which could lead to a rise in the fees it pays businesses to look after residents.
It currently pays maximum weekly fees of £558 a week for nursing care and £415 for residential care, following a 6.6% increase this year.
The Devon Quality Care Forum says a general rise of between 15% and 20% is required or the 25 homes will shut, forcing hundreds of vulnerable people to be moved.
The authority says the homes are at "greater risk of closure" because of low occupancy levels.
It argues that closures are an inevitable part of the market and claims the 25 have too few private payers, who homes say they are forced to charge £150 per week more, to subsidise council-funded residents.
Alan Beale, managing director of South West Care Homes and the DQCF spokesman, said: "We know a lot of care homes are under serious financial pressure.
"They are hanging on, gradually cutting corners and reducing costs while the banks circle, imposing more and more stringent conditions.
A High Court judge ruled on Tuesday that the council had failed to meet its public sector quality duty in setting the banded fee rates for residential and nursing homes in 2012/13.
The council was told it acted unlawfully and was ordered to pay a third of the complainants' costs, said to amount to around £220,000.
But the judge rejected two out of the three allegations by owners – that the council had not consulted lawfully over the setting of fees, and that the initial model to calculate the fee levels was not rational or accurate.
The authority said its detailed equalities assessment would be completed by the end of the month.
"A decision will then be made as to whether this work makes a difference to the current fee levels – this may or may not result in a change to fee rates," a council spokesman added.
"Care home businesses can and do fail for many reasons including quality, a failure to attract private customers and failure to meet changing demand
"Where private homes do close, the council does already step in to support residents and their families in finding suitable alternative accommodation, even when they have had no previous involvement with the home."
Graham Greenaway the owner of three care homes, and a former member of the DQCF during the first judicial review, predicted there would be "a heck of a lot" more closures than the 25 on the list.
"This will have a massive and dramatic effect on the owners, the staff and a vulnerable client group," he added.