The government has been urged by mental health experts to provide more funds for the management of patients with severe psychotic illness in order to cut the demand on acute care beds in hospital.

The government has just put forward its planned funding for mental health as part of the establishment of the National Health and Hospital Network, last week.

Nicola Roxon, Health Minister announced a $174 million investment in mental health services following the meeting with Council of Australian Government, most of which to be directed for common disorders like anxiety, depression and for youth support services.

Mental health experts however have urged the government to reconsider the funding and pleaded for it to close the widening gaps in the system.

Executive director of the Brain and Mind Research Institute, Ian Hickie was sure that things had worsened enormously over the past five years and predicted gaps in the system would get worse if the government did not do something serious about psychotic illnesses.

To put it simply, the sector is in danger of imploding, said Prof Hickie.

Unless there is major rethink by the commonwealth and the states we will see greater homelessness and more suicides.

Ten of thousands people will be affected ... those that are ill will start to fall through the gaps at a rate we may not be able to stop.

Tacking severe mental illnesses could cut the burden on the hospital beds, said Barbara Hocking, executive director of SANE Australia.

The majority of people who fall through the cracks did not receive the right after-care services after being discharged from hospital, she said and they were most usually sufferers of severe mental illnesses like schizophrenia and bipolar disorder.

It was concerning that mental health seemed to have just discussed about only at the last minute in terms of the health reform plan, she said.

It seems very much like it was just a bargaining tool rather than an integral part of the whole deal.

I feel we've missed a big opportunity to really make a difference in the lives of people who have tended to be forgotten until now.

This focus on hospitals has totally distracted people from the provision of good basic community mental health care, clinical and non-clinical.

Chief executive of the Mental Health Association of NSW, Gillian Church said she believed the proposed funding was not enough for mental health.

We need more funds for promotion and prevention, she said.