Mom is having hallucinations with her dementia. Any information that anyone can share is greatly appreciated.

My Mama had dementia (Parkinson's). The TV in her room had to be kept turned off because she believed they were talking to her personally and not in a good way and it upset her. She was in a NH. She also heard voices behind walls talking off and on and it seemed to entertain her somewhat as she shared with me the things she heard people saying behind the walls.
With your Mama being in AL, unless she were to actually try to break out, I would not worry, unless you feel she needs extra care and attention, which I do not know if AL has 24 hour care like NH does or not.
If AL does not have someone looking after her around the clock, and she has to move to a NH, yes, it is quite an adjustment for her and for you. But at the same time, you would know someone was watching her 24/7 to make sure she was okay. If you do move her to NH, be sure to check and see what their Covid rules for visitation are first. Some are much stricter than others. I had to only see my Mama through a window for 15 months at the nursing home (before she went to heaven...and I was not allowed to be with her when it was her time, either).
Prayers for you and your Mama. Take care.

Your mother is on hospice; as such, hospice should be prescribing medication to calm her down which should also decrease these auditory hallucinations she's having! Sending her to neurologists or other doctors goes against hospice practices in general since your mother is at the end of her life, and THEY are the ones who should be helping your mother with extra medications. They should also be able to convince her to take another medication if she is disliking these hallucinations, and if she'd like them to go away, right? Or have them tell her a 'white lie' and say they're needing to add an extra pill into her normal daily dose (or whatever) b/c the pharmacy changed drug manufacturers who are now using 2 pills instead of one. Make up ANY story that you think she will buy.

Plus, ALs will normally put up with a resident indefinitely if/while they are on hospice. If not and if your mother becomes too great a burden for them, then she will have to be placed in a Skilled Nursing Facility with Medicaid, like you said. Or into a Memory Care AL which Medicaid does not normally pay for.

But the bottom line is this: If the AL is telling you they can no longer handle your mother, then she needs to be placed elsewhere for the duration of her life. Somewhere they CAN handle her and where you're not feeling stressed out that she'll be asked to leave at any moment. And, even more importantly, your mother needs help and relief from these hallucinations that are causing her anxiety and it is hospice's #1 job to provide comfort care to their patients at the end of their lives. If the hospice company you are using cannot do that, for whatever reason, they need to be fired & another hospice company needs to be hired; one that can manage your mother's care properly & provide her with the medication she requires to remain calm & comfortable. Period. How they manage to get that medication into her is their problem, not yours.

Wishing you the best of luck getting your mother's care handled properly & finding some relief for her!

Marylin, as another writer had mentioned, have your Mom tested for an Urinary Tract Infection [UTI] as that can cause a whole array of different strange things. It happened with my Dad as he was seeing ants on the wall and in his food. Sure enough, it was an UTI and once the antibodies started to kick in, those ants slowly disappeared.

One time my Mom kept saying she was hearing voices. Turn out it was her hearing aid, once it was adjusted, the "talk radio" station went away. That can also happen with metal teeth fillings.

Could also be a side effect from any new prescriptions she is taking. Read up on the side effects. Or a mix of prescriptions that shouldn't be mixed.

Who has suggested that she needs a new placement? Unless her behavior has become difficult, it might actually increase her agitation and insecurity to attempt to move her.

Ask social services or her MC Administrator if her medical caregiver or
the psychological/psychiatric services used by the facility to offer her a trial of mood stabilizing medication, or suggest some other type of medication that might make her more comfortable and relieve her of her discomfort.

Two of my long term care LOs experienced this. One would often “see” her brother “out the window”, wave to him and talk to him. Another watched “chicken thieves” stealing the chickens next door.

My mother spoke FIRMLY of her “second husband” but she was only married once.

Unless this causes distress to the resident, this probably concerns the caregiver more. It did me, until I got used to it.

Your mom is having auditory hallucinations. Some people have them all their life. The worst thing is that hers are stressful for her. Some people seem to enjoy them. There are different health conditions that can cause them and they can go away. Other times they stay. Start with a culture to see if she has a UTI and get a physical work up. Then perhaps a neurologist. it could be caused by medications she is taking.
It’s very real to her so don’t try to convince her she doesn’t hear what she describes.
Read the article on Wikipedia on auditory hallucinations. It might be helpful.

Memory Care Facility is where she needs to be. Also, look into medications. Best wishes to you and your mom.