I'm so, so sorry HMB, you've already been thru so much.
My understanding of this kind of thing is that in order for your grandson to be a perpetrator, he most likely has already been a victim, I don't believe these episodes happen in a vacuum. As awful as it is that he exposed another child to inappropriate visuals, he may have been exposed himself.
I am a member of Kaiser as well, so I know what you are addressing, his Psychiatrist will administer drugs, that's the focus. Perhaps the Mental Health part of Kaiser can set you up with a family therapist whom he can see regularly. I just found out that Kaiser here in No. CA. offers EMDR which is a form of therapy used for trauma, it has a high success rate, you might look in to that, your grandson may benefit from it and apparently it's a shorter term therapy.
In Kaiser up here, you usually have a once a month appointment with the family therapist and then get added to a group. I don't know if it's the same for children. If it is, you might consider stepping out of Kaiser and seeking help for your grandson elsewhere, it sounds as if he needs support.
I've found 2 sites to be helpful in finding therapy, goodtherapy.org and the psychology today website which offers therapists in your area. With some research you may find a child therapist who deals with sexual predatory issues in young children. As awful as what the behavior suggests, your grandson may be a victim as well and be in need of help.
I empathize with you about the neighbors and their judgements. That is so hard. No one knows the inner workings of your family but of course, as humans, we are quick to judge and quick to condemn. But there is more going on then anyone understands ........as you move thru this, hold your head up high and ignore the judgements (as hard as I know that to be).....your grandson deserves a chance to redeem himself or be found not guilty......
I'm so sorry HMB, with all you've had on your plate for so long, this has got to feel like the topper......on an already overfilled plate.
Take care of yourself. This is very hard.