A.S.
Because it improved in the hospital, I'm wondering if it is something environmental. Maybe, though, it was just not doing chores and being exposed to the chemicals. Wrapped in gauze and a bandage would keep them from encountering environmental issues. Is it possible to switch to very basic things for a while to test it? Vinegar water for most cleaning; just water to bathe the baby (wear gloves if a wipe is needed for the really "dirty" area), etc. Might help narrow down the issues.
These are just thoughts. Sounds like you've tried a lot of things. Oh, and my d-i-l discovered that most lotions had lanolin and she was allergic to lanolin.