Patrick is still in the mental institution (mentalist/mental list/is mental).

Okay, Jane found his wife and daughter killed in their home and ends up in mental care which is understandable. But do we know for sure that he ever got out?
The characters could be in Jane's head or just other patients(there is something dodgy about a lot of them, they have their disabilities or personal struggles), and Red John could be an imaginary person, that his brain created to cover for the terrible thing that happened to his family - he needs something to search for to find fairness. The whole "mentalist world" is not realistic.

"There is no such thing as psychics"