Even as he plots to use these Baroque, he already cares for them, methinks. At least, I think that's why he wants to kill Madam, beyond just leveling and gaining her skill. Why else wouldn't he have an evil grin like usual at the end there?
To my knowledge the river was never able to heal wounds it could cure illnesses and I would imagine that after a while it would dissipate into the rest of the way the water travels.
TLDR: A river is flowing water so the holy water got diluted while it spreaded killing the plague.