Cuts to mental health care are costing the NHS millions of pounds long-term, a report has said.
More cases of psychosis and schizophrenia now end up in hospital rather than being treated in the community, it said.
Rethink Mental Illness published the report with the London School of Economics.
Cuts mean fewer people have access to early intervention treatment, such as talking therapy, Rethink said.
It said the NHS could save more than £50m a year by shifting its focus.
Britain's recession in 2008 led to cuts across the NHS, as the government struggled to deal with ballooning deficits.
The report said it costs on average £13 a day to support someone with psychosis or schizophrenia in the community.
It said this compared with the £350 average daily cost of keeping a mental health patient in hospital.
'Shift of resources'
Meanwhile, 54% of the psychosis budget was being spent on inpatient care rather than on preventive community services, the report found.
Family therapy, where families of people with psychosis and schizophrenia are supported, cognitive behavioural therapy, and peer support could help cut long-term costs of care, it said.
Health Minister Norman Lamb said early access to treatment in the community was "often the best option" for people with psychosis and schizophrenia.
He said: "Not only do they benefit from being in familiar surroundings among loved ones but they are less likely to need costly hospital stays."
Mr Lamb called for a "shift of resources" to preventive care and said that the government had given NHS England a "clear objective" to put mental and physical health on a par.
Mental health trust budgets for 2013-14 have fallen by 2.3% from 2011-12.
The cuts have meant mental health trusts have been asked to save almost 20% more from next year's budgets than hospitals.
Budgets for community mental health teams, which give continuing support to patients to prevent their health deteriorating to crisis point, reached a plateau for 2011-12 but referrals rose by 13%.
'Parity of esteem'
The report also predicted more than £50m a year could be saved if early detection services could be strengthened.
It said the NHS saved £989 every time people were treated with cognitive behavioural therapy instead of going to hospital.
Rethink said mental health accounted for 23% of the disease burden in England but received only 13% of the health budget.
Dr Martin McShane, national director for long-term conditions at NHS England, said the report was "very helpful" and was supportive of what the organisation wanted to achieve.
He said: "We recognise we must work to ensure that in everything we do mental health has parity of esteem with physical health.
"We have significantly invested in improving access to psychological therapies and dementia care."