The government is planning a "dramatic reduction" in the number of people with learning disabilities kept in hospitals in England, care minister Norman Lamb says.
More appropriate care could be found for people closer to home, he said.
It follows the neglect and abuse of patients by staff at the Winterbourne View private hospital, near Bristol, which was uncovered by BBC Panorama.
The NHS funds hospital care for 3,400 people with learning disabilities.
Mr Lamb - announcing the results of a government review into the Winterbourne View scandal in the Commons - said all such hospital placements would be reviewed by 1 June 2013.
Where such care was found to be "inappropriate", patients would be moved to "community-based support" no later than June 2014, he added.
He said he felt "shock, anger, dismay and deep regret" about the treatment of vulnerable people with severe learning disabilities at Winterbourne View.
Many of its patients should not have been there in the first place and the story was "the same across England", he added.
He said hospitals were not places "where people should live" and there were "far too many people with learning disabilities or autism in hospital and they stay there for far too long - sometimes for years".
"We should no more tolerate people being placed in inappropriate care settings than we would people receiving the wrong cancer treatment."
He said that, "with the right support, the vast majority of patients can live happy, fulfilled lives close to their own families in their own communities".
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Care minister Norman Lamb: "We need to send a clear message to those who provide care."
Boards, directors and senior managers who allow abuse to take place will face tougher sanctions which could include criminal prosecutions, he said.
"When you look at Winterbourne View, the people who committed the abuse and the assaults were convicted but what about the people making the money from that company?
"We need to have a situation where people who run care organisations - public or private sector or voluntary - know that they are accountable for the services they provide and there are consequences if they don't."
The proposals were broadly welcomed by Labour but shadow care minister Liz Kendall called for greater clarity on the number of people the government wanted to move out of long-term care.
Mark Goldring, chief executive of the learning disability charity, Mencap, said the report showed the government had "listened to families and campaigners by committing to a national programme of change".
In June 2011, BBC One's Panorama programme showed secret footage recorded by undercover journalist Joseph Casey when he was employed as a care worker at Winterbourne View of the abuse of patients with severe learning disabilities.
The victims were visibly upset and were shown screaming and shaking.
'Not fit'One victim was showered while fully clothed and had mouthwash poured into her eyes while another, who had tried to jump out of a second-floor window, was mocked by staff members.
End Quote Families of former WInterbourne View residentsPlaces like Winterbourne View should not exist - they should be closed"
The hospital, then owned by care provider firm Castlebeck, was closed in the weeks following the BBC expose and has been since bought by another firm.
On Monday, Mr Lamb said Castlebeck should consider helping to cover the costs of inquiries into the criminal behaviour of staff at Winterbourne View.
The 26-bed hospital, which opened in 2006, had a turnover of £3.7m by 2010. The average weekly fee for a patient was £3,500.
In October, four support workers and two nurses were jailed for between six months and two years for their part in the abuse, while five others were given suspended prison sentences.
After sentencing, the families of former hospital residents called for similar private hospitals to be replaced by more local services.
"Places like Winterbourne View should not exist - they should be closed," they said in a statement.
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