By Lisa Seachrist

Washington Editor

WASHINGTON - The Senate Finance Committee took a hard look at the options it has for funding a prescription drug benefit for the ever-growing population of seniors eligible for Medicare.

The bottom line: There aren't any easy answers and, while desirable, the benefit is going to take money, and a lot of it, especially as baby boomers retire and become eligible.

"The absence of a prescription drug benefit has been of concern since the enactment of Medicare in 1965," said Sen. William Roth (R-De.), chairman of the Finance Committee. "I must mention that recent estimates indicate a $1 trillion infusion of new money will be required simply to sustain the existing part A benefits through the year 2027. A modest drug benefit alone could easily cost $300 billion to $600 billion over the next 10 years. So I want my colleagues to fully understand how daunting this challenge is."

At the center of the debate is the 35 percent of seniors on Medicare who have no prescription drug benefit and are forced to either pay full retail price for their drugs or forgo vital medicines. Seniors pay an average $600 per year for their medications, however actual costs vary widely around that average. In addition, seniors represent heavy prescription drug use.

Linda Dummit, associate director for health financing at the General Accounting Office, told the committee that the nation's total drug expenditures have been rising at an average rate of 11 percent per year for the years between 1992 and 1997. However, she said the recent spending increases "appear to have more to do with stepped up volume than price. Several factors have contributed to increased prescription drug use and resulting spending increases: namely, more individuals have third-party drug coverage, new drug therapies have been introduced into the market and manufacturers have marketed drugs more aggressively through advertising directly to consumers."

Sen. Daniel Patrick Moynihan (D-N.Y.), however, pointed out that the primary reason that physicians are prescribing more medications and patients are taking more medications is that, in contrast to when Medicare was established, drugs are efficacious ways of treating illness.

"We are dealing with a good thing," Moynihan said. "And that is the development of effective pharmaceuticals. Providing a drug benefit to seniors is daunting, indeed, but in every way attractive."

Sen. Connie Mack (R-Fla.) agreed with Moynihan's point noting that most of the senators were experiencing a natural tension between cost and the need to provide the benefit.

"The delivery of medicine has dramatically changed," Mack said. "How do we modernize the Medicare program is a difficult question, but it is one that we have to address."

Dummit outlined two approaches for providing the prescription drug benefit to seniors. One could be based on the Medicaid rebate program, which is essentially a mandatory discount for drugs. The other is to control and channel drug utilization using formularies or a pharmacy benefit manager (PBM).

There are problems with both plans, Dummit believes. The first proposal could profoundly affect the pharmaceutical market and the second proposal of using a single PBM wouldn't provide adequate flexibility in the system.

When asked by Roth where she would focus initially if she were to try to provide a drug benefit to seniors, Dummit replied, "This could be a very expensive program."

"It might be appropriate to draw from the Breaux-Thomas proposal," she said. "That would focus on those without coverage and can't qualify for Medicaid."

Sen. John Breaux (D-La.) and Sen. Craig Thomas (R-Wyo.) have proposed providing federal premium supports to purchase MediGap policies for Medicare beneficiaries whose income level is less than 135 percent of the poverty level. The program would be run similar to the Federal Employees Health Benefit Plan, allowing for seniors to change coverage during "open seasons" and have the option to choose the plan that most suits them.

Alan Holmer, president of the Pharmaceutical Research and Manufacturers of America (PhRMA), and Leighton Read, CEO of Aviron Inc., in Mountain View, Calif. and representing the Biotechnology Industry Organization (BIO), pointed out that the successful innovation of the pharmaceutical and biotechnology industries is the very reason that the committee was considering prescription drug benefits now. They said price controls would stunt that innovation.

"It would be a tragic error in vision if we don't recognize that he medicines we don't have today are as important as the ones that we do," Read said.

Moynihan said the committee "is well aware of the dangers of price controls."