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How should one act in the presence of a person with Munschausen?

My neighbor is constantly coming up with stories (for example: I need an emergency brain operation). Lately, she had started walking completely crooked on one side and told me her bones were getting crooked. After a week's stay in the hospital, she came out perfectly straight. I am avoiding her because I don't want to tell her she is lying, and I can't pretend I believe her. Should I simply confront her, or play along?

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