For many years, drug prices in Germany were the highest in Europe and the level of regulation of the pharmaceutical industry was lower than in other states. This situation has, however, changed radically in recent years. Pharmaceutical prices have been regulated, without the introduction of direct price controls, through a combination of pressures exerted by the authorities and the German sickness funds, which are responsible for reimbursement. The process of price restriction began in 1984 with the imposition of a negative pharmaceuticals list, which was further extended in 1989. A reference pricing system was also introduced in 1989, and a drug budget for office-based physicians in 1993. An overview of these measures is provided in the first section of this article. This is followed by a report of a study of the impact of Germany's global pharmaceutical budgets for office-based general practitioners and internists.