Good catch. How is the weld on the inside of the frame rail? Should be OK, but its not holding anything but the two frame rails together.
I have to replace a hitch on an older fifth wheel because of no lock so I have been studying the Scamp
top welded hitch. Looks like they are using a 7K 2" angle frame hitch.
On your hitch I would cut the old one off and install a new hitch. The new hitch needs three cross supports added to prevent flexing of the unsupported sidewalls of the hitch. The supports should be the same thickness metal of the hitch and as tall as the sides. One across the back, middle and one under the front weld. The lack of support allows the hitch walls to flex and workharden the metal at the weld. Make sure the chains are attached to the frame and not the hitch.
The fifth wheel has some of the same support issues as yours. On the fifth wheel they use the same hitch but they cut the rear angle, bend the sides in and reweled the sides. I plan to weld cross supports on my 5th wheel to add strength to the hitch.
I am not a fan of top welding these hitches.
On the newer 5th wheel hitches Scamp
used plate metal to replace the cut off sides. I still think the sides of these hitches need to be tied together to add strength.