Hi, Willow,
Bless your heart! My 88 year old mother has had hallucinations, too, but she has Alzheimers and has lost much of her memory and physical abilities in the last 2 years. She has retained her good manners most of the time, but can be combative or act like a grumpy 2 year old. She was worried for a while that her mother didn't know where she was and that she'd be late for school. She frequently spoke of seeing her sister looking so pretty - but her sister had died months before. Mother forgot how to walk a year ago and hasn't realized I'm her daughter for longer than that, so I know how you feel. Recently, she has begun to talk far less than usual.
I'm not sure if the cognitive tests are simply questions about day, date, president's name, etc to determine her orientation or if it would be something different.
As for the medications to enhance short term memory, well, your mother is 94, so long term problems aren't a real consideration. If you find she's restless or unhappy on the medication, then it could be discontinued.
I know Mom doesn't know me, but I always call her Mom and I hug her and tell her I love her. She usually smiles and says "that's nice" or "I love you too".
You're not alone on this unwelcome path. You're doing the best you can and it sounds really good.
Best wishes - Barbara