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I'm going through exactly the same thing with my mother. She's a medi-medi pay patient. She acted out so badly a few weeks ago that they called paramedics to take her to the hospital so she could be sedated. When the paramedics showed up she was calm as could be and cooperated as they put her in the ambulance. After 4 hours in the ER being just as sweet as could be, she snapped and started cursing, spitting and hitting the nurses. She stayed in he hospital 6 days and was released back to the same nursing home. The social worker said that she was hoping they would have released her to a geriatric psych facility 40 miles away. I kind of wish they did too....
So, unfortunately if the nursing home thinks they are a danger to other patients, they can transfer her to another facility that is better equipped to deal with her but they can't kick her out on the street.
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I just read an article about the growing concern of evicting people from nursing homes, even when home are sued. When there is a sudden change in behavior could be a UTI or dehydration. Ask that both of these be checked.
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If a patient is a risk to Staff and other patients, the nursing home could ask for her to be placed in another facility. What does your Mom-in-law's primary doctor have to say about this? Are there any meds that might help her be calmer?
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Yes, the facility can ask the family to move her to another facility that is able to take better care of her needs, or to take her home. A facility is responsible for all its patients. If a patient is a danger to others, then the facility has to take some action.

I had an uncle in a NH with dementia. He did not hit or kick, but he wandered into women's rooms and scared them badly. The NH did not have accommodations to handle this behavior, so they requested my uncle be moved. My cousins moved him into a memory unit that was in another state -- inconvenient, but there were no other facilities around the rural area. No one blamed the NH. It was understood they had to be concerned for other patients.
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Find out if there is a geriatric psychiatrist or psychiatric nurse practitioner who can visit your mom and prescribe meds.
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Speak to your local Long Term Care Ombudsman as well. I was terrified that they were going to kick my mom out on the street and force me to care for her (If I could, she wouldn't be in a nursing home). They assured me that they couldn't do that and that a plan has to be in place for a move and I have to approve of it. They can answer a lot of questions and help you understand how the system works.
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