Around 100 pharmacies are thought to be involved in the trade, which has caught the attention of authorities in Hamburg, Celle, Verden, Kiel and Braunschweig, according to a report to be broadcast on Monday on the consumer affairs TV programme Markt on the state channel NDR.
The report alleges that painkillers, antibiotics, cancer medication, potency drugs, and bodybuilding supplements are all being illegally manufactured, sold and billed to health insurance companies.
The state prosecutors in Braunschweig have already brought a charge against one pharmacist, who allegedly billed health insurance companies for €1,675,000 in illegally-made drugs.
Investigator Frank Keller told Markt, "For the first time we have found out that illegal medication is being sold in German pharmacies." Up until now, the trade has generally been restricted to fake versions of Viagra.
The report says that some pharmacists are illegally buying banned substances from wholesale retailers, and mixing them with individually-prescribed solutions.
The trade mainly takes place on the internet, but investigators believe that there are laboratories manufacturing the drugs in Germany, while customs officials in Hamburg ports have also been told to step up their search for the substances.