[aszantu]

Lems fiction was so wonderfully weird, I remember something about a double agent in a mental hospital trying to figure out wether the other patients are double, triple or quadruple agents. Very confusing, was a script for a movie, don't know if it ever got made

[cubefox]

This might be "Memoirs Found in a Bathtub". It has the possible double and triple agents, but it takes place in some sort of underground Pentagon rather than in a mental hospital. It's similar to Kafka's "The Process".

There is also "Hospital of the Transfiguration", which takes place in a mental hospital, though I haven't read that one.