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She's acting irresponsibly, IMO. Who could put their mom through repeated anxiety spells over something mom can't control. The repeated questions by mom are likely because she doesn't remember previous responses. So every new announcement of dad's death is like it's the first time. I can't imagine anything more cruel. I would do anything in my power to make sister Cease and Desist her responses.
It seems possible that Sis, though a nurse, is not being all that realistic about Mom's dementia and might benefit from some updated dementia education, maybe the Teepa Snow thing or maybe just anything offered for nurses in your area, which hopefully she could attend even if she let her license non-renew. And just because she was in the healthcare biz, like I am, it doesn't exempt her form the sadness and the need for emotional support with parents aging, declining and dying.
My mom had vascular and my dad vascular/frontotemporal dementia. Mom decided for not very good reasons of her own she did not want to see him any more. He still cared a lot about her though. I would bring pictures back and forth and told Dad mom was not entirely well but was working on getting better and more mobile in therapy, implying that's why she was not able to visit. I did some therapeutic withholding of information with as little actual lying or fibbing as possible, as that seemed best to me - it kept hope alive and maybe a better quality of life...I'll never really know if it was "right" or if more disclosure would have been better.
I guess I'd be glad that most of the family and the staff agree on how to keep Mom happy.
If family members simply have different ideas about what is the right thing to do, I don't know any way you can force them to do things your way.
I hope that your sister is open to new information and this can be resolved to your mother's benefit.
You can also ask the MD for a PRN med for anxiety events.