Diabetes imposes a significant economic burden on Medicare, at a cost of more than $100 billion annually.1 Adherence to prescription medicines to treat diabetes is associated with better disease management and lower overall health care spending, yet high beneficiary out-of-pocket (OOP) costs are a common barrier to proper adherence. Passing through a share of negotiated manufacturer rebates to patients at the point of sale (POS) is a recently debated approach to lower patient OOP costs, but little attention has been paid to its potential to improve adherence and generate downstream savings. Our analysis is the first to consider the effects of passing through rebates at POS on Medicare Parts A and B spending as a result of improved adherence. We estimate that for each beneficiary using brand diabetes medicines in the Part D coverage gap or catastrophic phase, passing through a portion of rebates at the POS would reduce overall per beneficiary healthcare spending by $1,352 and lower patient OOP spending by $367 in one year. Over the next 10 years, we project that passing through rebates at the POS for diabetes medicines could reduce total medical spending by approximately $20 billion. These findings highlight the capability of passing through rebates to not only improve access to recommended medicines, but also to improve health outcomes and reduce overall healthcare spending.