Ken Kesey worked at an institute while writing the book. He even bribed orderlies to give him ECT so he could accurately describe the experience.

One can argue that this was an exception, not the rule, but psychiatry was still a rather young science at the time. Lobotomies were still being performed to make people more docile. ECT did not have the same guidelines it has today. Medication for mental disorders was in its infancy, and a lot of these medications had severe negative side effects. There was not the same legal production for patients' rights (and they wouldn't exist until the 70s and 80s). Doctors and nurses were, as a rule, doing their best with a limited toolkit, motivated by a genuine desire to help others - but again, that toolkit was so limited compared to modern psychiatry.

TL;DR - While not every institution was a hellish as the ward under Nurse Ratched, it's not hard to understand where Kesey got it from given the state of psychiatry at the time.

Might be worth adding to SweetHermitress: by the time Kesey wrote the book, there had been a growing conviction among mental health professionals for some years that the classic mental institution should change, and change was beginning to happen. It was just too easy for people to get placed there who shouldn't have been ( parents could send their "out of control" daughters ) , and it was noticed that people who stayed there tended to become more strange, not less...for a lot of the mentally ill, mainstreaming into regular society got better results. There was an underlying problem: the classic mental institutions weren't there for the mentally ill, the staff weren't the patients' staff, doctors. They were society's doctors, staff, hired to manage them, keep them from disturbing the community. Which is what Kesey so well portrayed with the Nurse Ratched character- she's not a nurse for the patients, she's giving out tranquilizers, shock treatments or even lobotomies to enforce her control of them, not to make them better. So, when Kesey published his book, there was already a lot of reform happening; the spirit of the times was to de-institutionalize. Now, why the reform didn't work, why the funding didn't follow the mentally ill out onto the street is another, very sad story. De-institutionalization really did fail.