Delusional Parasitosis: This condition is characterized by a fixed, false belief that one is infested with parasites, leading to self-inflicted skin lesions that can mimic bite-like papules. The lack of response to scabies treatment and the chronic nature of the rash support this diagnosis.

Eczema (Atopic Dermatitis): Chronic eczema can present with papules and a rash that worsens over time, especially if not adequately managed. The multiple stages of healing could be due to fluctuating disease activity.
Contact Dermatitis: An allergic or irritant reaction to substances in the environment could cause a widespread rash with papules, which might not respond to treatments aimed at scabies.
Papular Urticaria: This is a skin reaction to insect bites or other allergens, characterized by itchy papules. It could be mistaken for scabies, especially if the patient has been exposed to multiple bites over time.

Cutaneous T-Cell Lymphoma (Mycosis Fungoides): Although rare, this condition can present with a variety of skin lesions, including papules, and can mimic other dermatoses. It's crucial to consider this diagnosis due to its potential for severe outcomes if left untreated.
Bullous Pemphigoid: An autoimmune blistering disease that can sometimes present with urticarial plaques or papules, which might be confused with a rash caused by bites or infestations.

Erythema Multiforme: A skin condition characterized by target lesions, which can sometimes appear as papules. It's often associated with infections or medication use.
Pityriasis Lichenoides: A rare skin disorder that can cause small, raised bumps (papules) on the skin, which might resemble bite-like lesions.
Insect Bite Allergy: A severe allergic reaction to certain insect bites, which could potentially cause a widespread rash with papules, especially if the patient is exposed to multiple bites over time.