Ratched borrows from literature to tell Nurse Ratched's backstory before One Flew Over the Cuckoo's Nest, and it changed the location to tell this prequel story. Ratched is set in Lucia, a real California town south of San Francisco and north of Santa Barbara.
There are a couple of similarities between the show's Lucia and the real place. Both are very small. Lucia's population in Ratched is 985. The real Lucia is a tad bit bigger at 1,369. But considering that mail must be addressed to the encompassing town of Big Sur and not solely Lucia, it didn't grow that much since the '40s when the show takes place.
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The cliffside Sealight Inn that overlooks the ocean is also real. It's where Mildred Ratched and several of the other main characters stay. In real life, it's called the Lucia Lodge. Guests can stay there for around $225 to $375 a night — much more then the several dollars it cost Ratched back in the '40s.
The Lucia State Hospital where Nurse Ratched works is not real, as there is no mental institution in Lucia and never has been. There was barely a post office in Lucia in the early 1900s, and there isn't even one anymore. According to a biography of Big Sur, Lucia took mail quite seriously, naming the town after its first postmaster Violet Lucia Dani. The post office closed for good in 1938.
Without a Lucia location to turn into a mental hospital, much of the filming for Ratched took place south of Lucia in Los Angeles.
The mental hospital facade very clearly hails from King Gillette Ranch in Calabasas, California and seasoned Angelenos will no doubt recognize the unmistakable interior of Coles Bar early on in the series, when we first meet the Governor.
Having Ratched take place in California is a departure from One Flew Over the Cuckoo's Nest, which is set in Oregon. How Nurse Ratched makes it from Lucia to Oregon is anyone's guess, and perhaps perfect fodder for a second season.