In its report released last week, the watchdog revealed that the majority of young boarders at independent special schools are deprived of services that suit their needs.
Local authorities failed to plan services appropriately or collaborate with health and private sector partners.
Half of councils were unable to agree with service providers on how best to meet pupils' complex needs.
Inspectors also found poorly planned education provision and little evidence that schools were assessing pupils' attainment levels.
Dr Bill Maxwell, chief inspector of education and training in Wales, said schools must form better partnerships with other agencies to see improvements.
The annual cost of provision for pupils with complex special needs in independent special schools with year-round residential provision can range from £40,000 up to £500,000.
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