I don't think it would be too hard to tell the police what happened. Mike and Grace confess that Madson was treating Grace for her amnesia, but perhaps lie and say that Madson was manipulating Grace by actually putting the ideas about Roman and Margaret in Grace's mind through hypnotic suggestion, and say that they didn't really believe about this reincarnation 'nonsense'. Don't forget, there is a lot of evidence against Madson by now - his mother's dead body, the old magazine (with photos of Roman and Margaret who's resemblance to Mike and Grace could be used to explain Madson's apparent 'fixation' on them), why he has the scissors. All Mike and Grace would have to do is tell the police something like "We told Madson we didn't want to continue the sessions. He became angry and threw us out. That night he broke into Grace's apartment and tried to kill us (after killing his mother first)."
As for why Mike was shot, I'd just tell the police something like, "She mistook me for a prowler when I tried to climb through the window. I came round to give her a present (the anklet) and wanted to surprise her, see. It was a happy coincidence that I was here as a moment later, Madson arrived."
"He murders his wife every night. Other than that, I think he's pretty harmless."
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