Mental health experts say the current system is failing patients and a waste of government funds.

The federal government is wasting $10 billion a year on a mental health system that fails its patients, Australia's leading experts have told a Senate inquiry.

National Mental Health Commission chairman and renowned economist Allan Fels says most of the current commonwealth funding is neither effective nor efficient, amounting to a "payment for failure" to treat problems early.

Almost 90 per cent of government funds is spent downstream responding to crisis instead of focusing on prevention.

Commissioner and prominent mental health campaigner Ian Hickie says spending the money on getting mentally ill Australians jobs and accommodation is more likely to deliver better economic and health outcomes than pouring funding into the health system.

He told the Senate select committee on health in Canberra on Wednesday 30 per cent of hospital beds on any given day was occupied by people with an accommodation crisis, not a clinical crisis.

"In Sydney, a hospital bed is $800 to $1000 a day," Prof Hickie said.

"You could be getting a very nice hotel for $800 to $1000 a day."

Prof Hickie said the problem lies with implementation.

"We know what works, we just fail at putting it into practice.

"What we have very poor experience of in Australia is systematic implementation through our complex federated system of government of effective programs."

In a major review of the mental health system handed to the government last year, the commission recommended $1 billion of commonwealth funding be diverted from acute hospital funding into more community-based and primary health services, a recommendation that was quickly ruled out by Health Minister Sussan Ley.

Prof Hickie said the report challenged the government to redesign the system.