By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Supreme Court on Tuesday struggled with the question of when federal contractors can be sued for defrauding the government in a case involving a 19-year-old Massachusetts woman who suffered a fatal 2009 seizure at a mental health facility.

The parents of Yarushka Rivera claimed that Universal Health Services Inc, which owned the facility, provided "gravely inadequate treatment" and used "unsupervised and unqualified personnel."

Their lawsuit said King of Prussia, Pennsylvania-based Universal Health Services, one of the nation's largest hospital operators, defrauded the government because it was receiving federal Medicaid funding to provide treatment to low-income people and failed to comply with all necessary requirements.

Rivera died in October 2009 of a seizure after being treated at the mental health center in Lawrence, Massachusetts.

Julio Escobar and his wife, Carmen Correa, filed suit against Universal Health Services in U.S. District Court in Boston in 2011. They said they had received information that more than 20 treatment providers at the Lawrence facility, including a nurse who prescribed medication to Rivera, were not properly licensed or supervised as required by state law and federal regulations.

The parents sued under the False Claims Act, which allows individuals to make claims that the federal government has been defrauded.

During the one-hour oral argument, liberal justices Sonia Sotomayor and Elena Kagan signaled support for the parents' fraud claims. Sotomayor said billing for services that were not carried out in full was like a government contractor providing the military "guns that don't shoot."

Kagan similarly questioned whether the claim against Universal Health Services was any different than a failure by a federal contractor to provide the military boots that can be worn and food that can be eaten.

Conservative Chief Justice John Roberts appeared more hostile to the fraud claim, saying companies should not necessarily be liable for fraud just because they do not follow every procedure.

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"That causes concern, of course, because there are thousands of pages of regulations under Medicaid or Medicare programs," Roberts said.

Medicare provides healthcare assistance to the elderly.

A federal judge dismissed the lawsuit in 2014. The Boston-based 1st U.S. Circuit Court of Appeals reinstated it in March 2015. Universal Health Services then appealed, asking the Supreme Court to resolve what kind of lawsuits can be brought under the False Claims Act.

Business groups, including the U.S. Chamber of Commerce, filed briefs backing the company, saying fraud claims should be allowed only when they involve specific violations of the terms of a contract with the government and not violations of other regulations.





(Reporting by Lawrence Hurley; Additional reporting by Barbara Grzincic; Editing by Will Dunham)