People who are infact mental hospital patients are probably feeling offended that people want to dress up like that- as a joke- while they suffer through a serious disease. Also, cancer is serious- would you dress up as a cancer patient and joke around like that? Not to mention how disrespectful it is to dress up as a "mental," patient as a cheap scare for one day.
Not only is it completely ignorant to portray a mental patient as a deranged psychopath, it is immoral to perpetuate the stigma that mental patients are killers or dangerous in any sense. Most patients have serious trauma due to past experiences that are out of their control. It is really easy to make fun of something you have no knowledge of, but this is just obtuse.
Of course it is degrading to people it is to me but its a novelty its not designed to degrade or to minoratise people but the best thing they can do is change the name of the costume. I don't see why lots of people feel offended by the most minimal things like this or that the nursery rhyme "baa baa black sheep" its not offensive people just are over dramatic to things like it people just go over the top and it results in total uproar.
Something like "psycho murderer" Halloween costume would cause a lot less hype than the current name.
It would stop sensitive people from becoming enraged over the name of a children's costume they would use a single day in the whole year.
There are stereotypical "witch" costumes, and I do not see anyone defending real life witchcraft makers.
What about mummies costumes? Does not anyone care about offending them?