Your nem is simply expelling waste stop stressing that issue.
Now, you need to be feeding it smaller foods. These eat plankton level foods in the wild. So you should feed it a mix of enriched brine shrimp, mini mysis, and PE mysis. About a pinch every other day.
Also, these nems like flow much more than all other species. They are in high current/tidal areas, in the wild heavy wave action washes the discharge away. Mine is parked 5" in front of a pump that is on a wave maker. They like random, wide gentle flow.
Lighting, the stronger the better. Your 175W MH lighting is just fine and you notice the nem is up high. If it was too much, they'd go hide. I have over 7 watts/gal in my tank. T5 with VHO Actinic supplement. The T5 are 6500K and 10K bulb blends.
Success varies with this species. They are very particular about water quality, light, flow, and food. A lot of research is required before buying this type of aquaria. BUT, you already have it so take a look at your setup and adjust accordingly. While they don't need a clown to survive it is HIGHLY recommended. The clown takes care of the nem; feeding it scraps and pulling waste from its mouth. The nem deflates that far because it needs the flow to grab the waste and take it away. Mine rarely deflates because the clown is doing it's house keeping chorse.
BTW, mine was a nearly dead 3-4" sad lump of tissue when it was rescued from a "friend" that was doing his best to kill it. He is now over 6" of super sticky vibrant color. Looks just like yours.