Effective diabetes management can prevent avoidable diabetes-related hospitalizations. This review examines the impact of financial incentives for diabetes management in primary care settings on diabetes-related hospitalizations, hospitalization costs, and premature mortality. To assess the evidence, we conducted a literature search of studies using five databases: Medline, Embase, Scopus, CINAHL and Web of Science. We examined the results by health insurance system, study quality or diabetes population (newly diagnosed diabetes). We identified 32 articles ranging from fair- to high-quality: 19 articles assessed the relationship between financial incentives for diabetes management and hospitalizations, 8 assessed hospitalization costs, and 15 assessed mortality. Many studies found that financial incentives for diabetes management reduced hospitalizations, while a few found no effects. Similar findings were evident for hospitalization costs and mortality. The results did not differ by the type of health insurance system, but the quality of the studies did matter; most high-quality studies reported reduced hospitalizations and/or mortality. We also found that financial incentives tend to be beneficial for patients with newly diagnosed diabetes. We conclude that well-designed diabetes management incentives can reduce diabetes-related hospitalizations, especially for newly diagnosed diabetes patients.