Let's assume you are right. Why wouldn't prison be a good place to keep them...if they're insane they probably wouldn't even mind.
Please tell me this was a failed attempt at humor.
We don't treat people with mental illness as criminals, because they're not. They're sick. Sick people in a civilized society are treated and hopefully cured. If they can't be cured, then they are managed and possibly secured to protect themselves and the public.