I'm so sorry to hear of this. I know your post is 5 years old haha. But please read the blog catinfo.org or at least pick up the book: Your Cat by Dr. Elizabeth Hodgkins. My cat developed such a horrible skin reaction that no vet could explain yet alone cure. She suffered for nearly 3 years. Every med, cream, lotion, etc was tried but none could help.
Dr. Elizabeth Hodgkins had a diabetic cat. And when she switched his diet to his present one, he's back to normal. So many other diabetic and other sick cats have been 100% cured. Even the ones that weren't supposed to make it. Finding and reading that blog was one of the best thing that has ever happened. And I know it will help your cat.
I wish you all the best,
P.S my cat used to over groom the area with the bad reaction. But once she got better (with the diet change) I noticed her pulling out her hair in fustration. (She also hasn't been eating at all for 3 days straight). Anyway, long story short, she was homesick. That simple. Mind you, she had been successfully moved to our new home 2 months ago. So .... perhaps it is something more phychological with your cat's situation.