A Senate subcommittee staff report says that Medicare is paying up to $5,000 for heart pacemakers that cost only between $600 and $900 to manufacture.

The report, based on an investigation conducted over the last year by staff members of the Senate Special Committee on Aging, details alleged corrupt practices in the selling of pacemakers.

Of the $2 billion dollars Medicare pays for pacemakers every year, "We estimate that as much as $1 billion is absolutely wasted," said Sen. John Heinz (R-Pa.), chairman of the committee.

A spokesman for one company, Intermedics of Freeport, Tex., said that "based on a cursory look, the report seems very superficial and doesn't seem to understand the industry . . . . It is regretful that the staff did not take the opportunity to corroborate or work with the manufacturers directly to have them confirm, deny, or refute some of the charges in it. No one from the committee ever contacted us," said Ted Swift, vice president of investor relations for Intermedics.

A total of 25 companies manufacture pacemakers in the western world. The report does not make specific allegations against companies or salesmen by name.

The staff of the committee first spent some months investigating the pacemaker industry by checking government documents, and then, according to a copy of the report obtained by The Washington Post, "faced with a staggering array of abuses, persistent allegations of criminality, and the potential significant losses to the Medicare program, staff arranged to validate results by 'buying' pacemakers in two states" and videotaping through a one-way mirror the sessions with the pacemaker salesmen.

Heinz said, "The problem is that Medicare is not only paying $4,000 for $800 pacemakers, but Medicare is paying for gifts to doctors , it's paying for airplane rides, it's paying for boat rides being billed as educational expenses, it's paying for kickbacks and bribes and giveaways that are totally illegal."

The report did not offer any estimate of how widespread the alleged corruption in the industry is. Two dozen current and former salesmen representing several companies were interviewed about practices in the industry. In 11 of the cases, the interviews were "live purchasing" sessions in which the investigators posed as buyers.

"In almost every case, there were improper inducements," said one investigator, but how many could result in prosecution, he did not know. The cases have been referred to the FBI for further investigation.

The report said the average salesman's wage in the industry is over $100,000 a year, and a number of the salesman make more than $1 million. The profits of pacemaker companies also are high, the report said.

Some of the major findings of the report:

"From the committee's investigation, evidence and allegations of kickbacks, bribery, and other improper inducements to do business are flagrant and inescapable," the investigators' report said.

According to the report, one salesman told the Senate staffers: "Some companies pay physicians $150 for each pacemaker they implant . . . . You've got to remember some of these physicians implant 10 to 15 a week. That's a lot of money."

Several salesmen directly offered to give or lend the Senate investigators thousands of dollars of monitoring equipment which doctors use to follow pacemaker patients' progress, according to the report.

The person identified in the report as "salesman number four" said: "You can have five receivers pacemaker monitoring devices if you need them . . . as many as you need . . . . All our equipment is offered totally free of charge." Doctors use the free equipment and a few minutes of an assistant's time to monitor each patient monthly. Medicare allows $38 for such a service, the report said.

Even though the pacemakers are commonly brought directly into the hospital, and sometimes into the operating room itself by the pacemaker salesman, many hospitals mark up the price to Medicare 50 to 150 percent, the report says.

Pacemakers can be manufactured for $600 to $900 and are then sold for between $3,000 and $5,000 to hospitals, the report said.

The investigators estimate that in three-quarters of all pacemaker operations, the pacemaker salesman is present in the operating room.

The panel will hold a hearing on the report and the pacemaker industry today at 9 a.m.