HARRISBURG, Pa. - Pennsylvania's program to help elderly people buy prescription drugs, the largest in the nation, provides invaluable assistance to tens of thousands of people and is immensely popular, but it also shows the problems that could become endemic if Congress adds drug benefits to Medicare.

The program here costs patients only $6 a prescription and rarely denies coverage. It is financed with proceeds from the state lottery. Despite significant use of generic drugs, however, costs have soared and outstripped revenues.

State legislators know they need to adopt stricter cost-control measures, but, like some members of Congress, they have been virtually immobilized by lobbying on all sides. Neither beneficiaries nor pharmacists nor drug companies are willing to make significant sacrifices.

So the state is desperately seeking new sources of revenue as it considers expanding the program to help more people in need.

Jo Ann H. McCleaf, 67, of Dover, Pa., near York, is just the sort of person whom many state officials want to help. With $11,316 in Social Security benefits and $3,000 of earnings from a part-time job last year, she had income just over the $14,000 limit for Pennsylvania's main pharmaceutical assistance program.

'Can't afford it'

A two-time cancer survivor whose right foot was amputated several years ago, McCleaf said: "I use Lipitor for cholesterol. My legs ache constantly, and I should be taking pain medication every day, according to my doctors. I should also be taking an expensive drug for circulatory problems, but can't afford it."

For Mildred A. Irons, 83, of Linesville, Pa., near Erie, the state program has been a godsend. "If I didn't have it," she said, "I probably wouldn't have any income to live on." For her arthritis, high blood pressure and bladder problems, Irons takes six drugs that cost more than $300 a month. She worries that an increase in her Social Security check, to keep up with inflation, will bump her off the state program.

Pennsylvania is deeply committed to its elderly, who make up more than 15 percent of its population, and the drug assistance program, established in 1984, has strong bipartisan support. The program is widely viewed as a model for other states.

"Everybody likes our program because it's a Lamborghini, a Maserati," said Thomas M. Snedden, the director since 1985.

But it has come to acquire a price tag as hefty as the ones on those elite sports cars.

Since 1997, the cost of the Pennsylvania program has shot up an average of 13 percent a year, to $392.6 million in 2001, while revenues from the state lottery have been flat. Though enrollment has declined, the number of claims for each beneficiary and the amount paid on each claim have steadily increased.

The average number of prescriptions filled for each person in the program now exceeds 3.5 a month, up from 2.5 in 1997 and just 2 in 1987. The state pays an average of $42 for each prescription, up from $27 in 1997 and $14 in 1987.

'The big problem'

"The big problem we have, which causes escalating costs, is utilization," Snedden said. "People are using more and more prescription drug products. If we could get utilization under control, drug prices would not be such a big problem."

The state's experience offers lessons for federal officials struggling to provide prescription drug benefits under Medicare, the federal health insurance program for 40 million people who are elderly or disabled.

Ray Landis, a lobbyist for AARP here, said the situation in Pennsylvania should teach federal officials to be cautious in making assumptions and projections. "In our program," he said, "both utilization and price increases have been much greater than anticipated."

Pennsylvania is second only to Florida in the proportion of its population that is 65 or older. More than 1.9 million of its 12.3 million residents - 15.6 percent - are elderly.

While trying to hold down drug costs, Pennsylvania does not want to alienate drug companies, many of which have operations here. State officials say they appreciate the fact that Merck, Wyeth, GlaxoSmithKline and other drug makers provide many high-wage jobs in the state.

In its pharmaceutical assistance program, Pennsylvania requires use of low-cost generic drugs that have been approved as fully equivalent to brand-name products. Of the 10 million claims paid last year, 45 percent were for generic drugs.

Considering controls

But state officials have concluded that they must take more aggressive steps to control costs. Many of these steps would be required under a bill introduced by state Sen. Timothy F. Murphy, a Republican from the Pittsburgh area.

Under his bill, which is supported by the Pennsylvania chapter of AARP, the state would establish a list of preferred drugs, charge higher co-payments for drugs not on the list and encourage patients to use mail-order pharmacies to obtain three-month supplies of drugs for chronic conditions.

The bill would also set new limits on payments for generic drugs, and it tries to extract large discounts from makers of brand-name drugs by stipulating that Pennsylvania will not pay more than the "best price" charged to any other customer in the United States. Moreover, drug companies would have to pay rebates to the state to offset price increases that exceed the rate of inflation.

Many of the bills pending in Congress would allow private companies, known as pharmacy benefit managers, to use similar techniques in administering drug benefits under Medicare. Such companies say they achieve the greatest savings when they are free to negotiate deep discounts with drug makers and require patients to use selected retail pharmacies.

But in Pennsylvania, the state Legislature has specified the amount of drug discounts by law, has allowed virtually every pharmacy to participate and has been reluctant to deny coverage for any prescription drug.

"Politically," Snedden said, "state legislators just don't want to give up control of the program."

Congress is already facing similar pressures. Drugstores and pharmacists lobbied against the Medicare bill recently passed by the House of Representatives. They said it would cut their reimbursement, exclude some drugstores from the Medicare market or drive them out of business by forcing the elderly to use mail-order services. They hope the Senate will protect their interests, just as pharmacists have often persuaded state legislators to do in Pennsylvania.

People 65 and older can receive assistance under the Pennsylvania program if they have annual incomes less than $14,000 for an individual or $17,200 for a couple. Beyond the $6 co-payment for each prescription, there is no other cost to the beneficiary and no cap on annual reimbursements. About 225,000 people are in this program, the Pharmaceutical Assistance Contract for the Elderly, or PACE, and a smaller program known as Pacenet.

The smaller program offers assistance to individuals with incomes up to $17,000 and couples with incomes up to $20,200. But before getting help under this program, a person must pay a $500 deductible, and that has discouraged enrollment.

In Pennsylvania, the governor, Mark Schweiker, is a Republican, and Republicans control both houses of the state Legislature.

A General Assembly advisory committee said recently, "There is great interest among older people and legislators in expanding eligibility" for the drug assistance program here. But, it said, the state must control costs; "Any other strategy, runs a very high probability of bankrupting the program."