Drug prices are being driven up by pharmaceutical companies that spend millions of dollars promoting their products to physicians with everything from lavish gifts to frequent-flyer miles for every prescription written, witnesses told a Senate committee yesterday.

"Doctors who accept lavish industry gifts are jeopardizing their objectivity and compromising the trust of their patients," said Sen. Edward M. Kennedy (D-Mass.), chairman of the Labor and Human Resources Committee.

"Drug companies have institutionalized deception," David C. Jones, a former public relations official for Ciba-Geigy Corp. and Abbott Laboratories, told the committee. "The price of prescription drugs is determined by what the market will bear," he said. "Pain, suffering and desperation will support a high price."

Kennedy said a study by the committee's staff determined that the pharmaceutical industry spends more than $5 billion a year on promoting drug products in the United States. Much of the spending is legitimate, he said, but some is not and such spending contributes to the rise in drug prices that has outpaced inflation.

Sidney M. Wolfe, director of the consumer activist Public Citizen Health Research Group, said one drug maker, Wyeth-Ayerst, conducted a promotional campaign in late 1986 offering physicians who prescribed one of its drugs points toward free airline travel. If a doctor prescribed the drug 50 times, he or she got a free trip anywhere in the continental United States.

Wolfe also told of a physician who called his "doctor-bribing hotline" saying he had been offered $1,200 by Roche Laboratories, a division of Hoffman-LaRoche, which wanted to enroll him in a "clinical study" involving one of the company's expensive antibiotics. He had only to prescribe its drug for 20 patients and record minimal data.

That, Wolfe said, is an example of a company "hiding its bribery behind a thin veil of alleged research."

John Nelson, an obstetrician and gynecologist in Salt Lake City, told of doctors he worked with being wooed with all-expenses-paid trips to the Caribbean and California to get them to prescribe a drug. "It was especially a problem for me when I realized that my patients are paying for these lavish incentives in the form of higher prices for their prescription medications," Nelson said.

Wolfe said one doctor told him that Sandoz had offered him $100 to read its literature encouraging the use of a highly toxic immune-suppressing drug for treating psoriasis, a use that is not approved.

Four drug companies were asked to testify but declined, Kennedy said. They are Abbott Laboratories, Hoffman-LaRoche, Wyeth-Ayerst and Ciba-Geigy.

Sen. Orrin G. Hatch of Utah, ranking Republican on the committee, said that while he is concerned about some drug company practices, much of what the industry does is legitimate medical education and research. "You're using isolated examples to tar an entire industry," he said.

"Doctors are smarter than you indicate. They have an obligation to explain the benefits and risks" of a drug to a patient, Hatch added. "I don't think any doctors would sell their patients down the drain for $100."

In testimony prepared for presentation when the hearing resumes today, Gerald Mossinghoff, president of the Pharmaceutical Manufacturers Association, said communication between drug companies and physicians is important to keep doctors up to date on the latest therapies.

"If physicians are not adequately informed about the availability of an important new therapy and kept current about its uses, patients are poorly served," he said.

The American Medical Association and the Pharmaceutical Manufacturers Association adopted ethical guidelines last week. Kennedy commended both organizations, but said new regulation or legislation still may be needed.