First, the example is ungrammatical.
The guy mistakenly took the wrong drug
or
The guy mistakenly had taken the wrong drug
Second, the sentence does not make much sense: people who are truly hallucinating do not recognize that they are hallucinating. Therefore, one wonders whether the word "hallucinate" actually describes the situation.
Third, there is nothing wrong with the word "hallucinate." It may not be in the active vocabulary of every English speaker, but it is a perfectly acceptable word when used appropriately.
EDIT: Commenter Chasly has suggested that people who are hallucinating may actually recognize that they they are hallucinating while they are doing it. No evidence was cited. It may nevertheless be true, but it is probably not common. What is true is that many people who have had hallucinations recognize after the fact that they were previously hallucinating. That is a common experience after fever. That suggests that the confusion in tenses was broader than I thought and the sentence is intended to mean:
He had taken ... and said that he had hallucinated ...
If what is intended is to assert that the speaker was speaking and saying that he was having hallucinations while he was having hallucinations, the sentence is going to sound odd without further clarification.