Chief executive officer Craig Fraser said demand had increased and the healthcare provider was in negotiations with the Department of Health and Human Services to increase acute beds from 15 to 20 and to redevelop facilities.

"Part of this would be redesigning the unit, and making sure it is up to date with modern facilities, as well as looking at our prevention and recovery centre and how we might be better using the capacity in that centre as well," Mr Fraser told The Standard.

He said discussions with the department were "advanced" but the healthcare provider needed to secure a state regional health and infrastructure grant later this year.

"It gives us a bit more flexibility to admit local people. If at the moment we are at capacity and we can't accommodate them we have to find other beds, which are usually outside our region, which is not great, because people don't get treated close to home," Mr Fraser said.

He said the upgrade would not form part of a future master plan that earmarked a new mental health facility.

"(The master plan) is not in the next stage of build, (so) we believe this will future-proof us," Mr Fraser said.

A department spokeswoman confirmed the government planned to expand the number of mental health beds available to south-west patients.

In the Victorian government's submission to the royal commission it canvassed an opportunity to redesign Victoria's mental health system based on a "stepped care" model, which built connections between mental health services from the least to most intensive.

But in South West Healthcare's submission it stated the stepped model "in rural and regional areas results in inadequate level of care" because "all of the services or 'steps' are not readily available".

Mr Fraser said the stepped model was not currently working at its best in the region and there were opportunities for the public and private sector to work better together.

"Unfortunately in rural areas we don't have the access to the same level of private clinicians or other services that you would find in the city. We need to bolster that sector and support them to actually be able to provide more. There seems to be a bit of a disconnect there," he said.

The Standard has previously reported that wait times for Warrnambool's private psychologists can be three months for adults and up to a year for children.

RELATED: Warrnambool's private counselling services' wait times high

"It's not only under resourced but it's hard to recruit to areas in the country. We'd love to get more of those clinicians into our region who work privately and access the commonwealth funding to provide those services," Mr Fraser said.

"The next part is, how do we better connect our services with their services?"

The hospital also stated in its submission that it experienced increased crisis referrals when patients exceeded a cap of 10 Medicare rebates for sessions with private providers, and said it would welcome a review of that system.

"This is likely to reduce pressure on public mental health services to provide services to this vulnerable population, which is not usually core business," the submission stated.

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