Except he’s referring to mental institutions and insane asylums, referring to the latter as ‘a mental institution on steroids’ in a clip I saw a couple months ago. And in this recent clip @Smapti posted in the ‘Is trump confused?’ thread, he also refers to mental institutions and insane asylums, which are ‘a step above’, he says (second clip in the post; it’s not in the brief transcription so you have to listen to the clip).
So he actually does seem to think that there are ‘mental institutions’, and also ‘insane asylums’ where the real, bad crazies are kept.