The mental health system may be making us sicker

Australia has a mental health crisis, but not the one we think. Despite decades of soaring expenditure, our national mental health has not improved. Suicide rates remain stubbornly high. Psychiatric drug use is at record levels. And each year, more Australians are diagnosed as mentally ill than the year before.

We’re spending more, but outcomes keep getting worse. That paradox should trouble us.

None of this denies that many Australians are genuinely suffering, or that access to care has helped people who might once have struggled in silence. But these facts do not explain the scale or pattern of what we are now seeing, nor why increased treatment has not translated into improved population outcomes. In most areas of medicine, more effective care leads to better outcomes; mental health appears to be an exception, and that alone demands explanation.

The problem is not a lack of compassion or commitment. It’s that we have built a system that produces patients rather than health. By medicalising distress, tying support to diagnoses, and rewarding ongoing treatment over recovery, we have created what amounts to a diagnostic-industrial-government complex—a self-reinforcing system in which everyone benefits from more diagnoses except the patients.

Consider the incentives. Clinicians need diagnoses to bill Medicare. Schools receive additional funding for diagnosed students. Universities grant exam accommodations. Pharmaceutical companies expand markets. Advocacy groups grow. And distressed individuals learn that the gateway to help is a diagnosis.

The result is predictable. ADHD prescriptions have exploded from 500,000 to 4.5 million in little more than a decade. Autism diagnoses increased by 350 per cent. One in five Australians now meets the criteria for a mental disorder in any given year. Among young people aged 16–24, it’s approaching 40 per cent.

Yet for all this diagnostic expansion and increased spending, population well-being has not improved. The proportion of adults reporting high psychological distress has increased. Something is badly wrong.

Are we simply becoming better at identifying previously hidden suffering? That is the conventional explanation, but the pattern tells a different story. If awareness and reduced stigma were the main drivers, we would see increases across all conditions. Instead, psychoses, the most severe and stigmatised disorders, show stable prevalence, while autism, ADHD and anxiety surge.

The mechanism is straightforward—widening diagnostic boundaries. Autism illustrates this clearly. Once narrowly defined and rare, it has been expanded to include a broad spectrum of behaviours. Allen Frances, who chaired the task force that created the autism spectrum diagnosis, has since warned that the criteria have become ‘exceedingly broad’, capturing children whose behaviour would once have been described as shy or quirky.

The consequences are not trivial. Children who cannot speak or live independently now share resources with those likely to attend university and lead independent lives. As the Lancet Commission on Autism observed, when all autism is treated as equivalent, those with severe impairments risk being underserved. Australia’s system does little to distinguish between them.

Diagnostic expansion occurs where boundaries are most ambiguous and institutional incentives are strongest. The youngest children in each school year, for instance, are diagnosed with ADHD at roughly twice the rate of their older classmates. That looks less like a neurological disorder than a mismatch between a child’s level of development and school expectations.

Meanwhile, those with severe conditions are often overlooked. According to the Productivity Commission, about half of all Medicare-subsidised mental health services go to people with mild or moderate symptoms, while those with severe, life-threatening psychiatric illnesses receive fragmented care or none at all. When aperson with schizophrenia and a stressed university student draw from the same pool, we have compassion without proportion.

The recently announced Thriving Kids program, a multi-billion-dollar early-intervention initiative, represents a critical test. It could support families without diagnostic labelling, expect developmental catch-up, and measure success by how many children avoid long-term dependency. Or, it could become another pipeline into permanent therapeutic identities, expanding the system it aims to relieve. The choice will reveal whether Australia is ready for genuine reform.

Real reform requires asking a new question—not ‘What diagnosis do these people meet?’ but ‘What can they do, and what do they need to function?’ It also means rewarding recovery and return to ordinary life, rather than enrolment and retention in treatment. This would shift incentives away from labelling and towards measurable improvements in participation, independence and well-being.

Alongside this shift, we need to target resources where they are most needed, address social and institutional causes of distress before medicalising them, and measure success by recovery rather than activity.

None of this means abandoning people who are suffering. Severe psychiatric conditions require intensive, often lifelong support, and those affected should receive it without question. But drawing millions into treatment pathways dilutes resources, fosters dependency, and teaches people that normal distress is pathological. A humane system sharpens compassion by distinguishing those who truly need lifelong care from those who need understanding, structure and the opportunity to recover.

If the twentieth century was the age of diagnosis, the twenty-first must become the age of recovery—measured not by how many Australians we enrol in the mental health system, but by how many no longer need it.

Professor Steven Schwartz is a Senior Fellow at the Centre for Independent Studies. He trained as a clinical psychologist, and is the former vice chancellor of Macquarie, Murdoch and Brunel universities and author of Drowning in a Sea of Diagnoses