I think your analysis is coherent, and interesting too.

If I had a chance to talk to LW I might say something like "I'm sorry your friend has killed your friendship by rejecting the science you were both educated in and by treating her patients unethically, but she is the one who has killed it with these actions. If you don't report her you're just letting the friendship's corpse stumble around for awhile, possibly to be joined by the corpses of her patients -- can you ever really trust her again after she's done this?"