The workaround to the very high costs of working within these rulings was imprisoning people for drug or other non violent offenses, which was much cheaper and easier.
The long-term system was largely shut down in the 80s, because of the aforementioned abuses. The bar to get someone thrown in the loonie bin was very low, and once you're there, good luck proving that you're sane, or that you're being abused and mistreated.
why are we talking of "institutionalizing" people? Compulsory treatment of someone experiencing an episode involves depriving them of liberty, while staff ensure they take their drugs, and doctors monitor their effects. Institutionalization generally means that you've been incarcerated so long that the institution is now your home, and it would be a struggle to live back in the world. Institutionalization was a large part of the problem with the old asylums.
At least one mentally-ill person I've known had been taken off the street several times; she was bitterly critical of the abolition of the psychiatric hospitals.
It's possible to construct a system that respects the rights of the mental health patient, but we have historically not been able to do so.
Before the 80s, we'd just throw people into madhouses and toss away the key. That system, and its myriad of abuses was torn down due to public backlash, and was replaced with... Nothing.