There must be “radical” changes to how mental health services are organised with less “unnecessary use” of hospital beds, an expert has said.

An overhaul of the system will both improve patient care and reduce costs to the NHS, according to a study.

Some people with mental health problems are looked after in hospitals or inpatient mental health units when they could be better cared for in the community, the report for the King’s Fund think tank and the Centre for Mental Health said.

Changing these patterns of care could save up to £200 million a year while cutting in half the numbers of people sent to units outside their local area would save £65 million a year.

The report highlighted issues around caring for those patients sometimes referred to as “bed-blockers”, including those with dementia.

Cutting the amount of time it takes to discharge these dementia patients from hospital could save more than £300 million a year.

Work should also be carried out to reduce unnecessary referrals to secure mental health units while also improving the way patients are discharged, the report said.

The report comes ahead of a government strategy on mental health due to be published shortly.

Chris Naylor, senior researcher at the King’s Fund and the report’s lead author, said: “Mental health services must not be overlooked in the drive to improve productivity and increase quality in the NHS.

“This report shows that, by redesigning services, there are significant opportunities to reduce costs and reinvest the proceeds to improve the quality of patient care.

“The government’s forthcoming mental health strategy provides an opportunity to make this happen.”

Andy Bell, deputy chief executive of the Centre for Mental Health and a co-author of the report, said: “Improving support for people with mental health problems represents good value for taxpayers’ money.

“By intervening earlier and more effectively when people become unwell, and by focusing on supporting people to lead the lives they want for themselves, we can also deliver good value for public funds.”