JJJ - I'd give several limbs if there were a medication to address this. I don't think thank you's hallucinating but his delusions are ... well, several words come to mind, only a few printable.
How 'bout maddening, irrational, impossible to work with, self-defeating? Every kid is different, but I think the only antipsychotic we haven't tried is Haldol. Nothing has touched his thought disorder.
If you haven't gotten appeal in yet, this is *exactly* the stuff they need to hear. Heck, even if you have sent in the appeal, I'd see if you can get progress note from therapist and fax it as an addendum to appeal.
Hugs. Wish I had a better suggestion or ten.