Mortality has improved dramatically in most of South Asia as a consequence of modest economic improvement, better nutrition and a combination of health education, immunization, family planning and home treatment of certain common diseases, especially diarrhea and respiratory infections. However, death rates are still much higher than in parts of the world with fully developed health services and residual mortality is largely due to conditions which require very basic hospital services such as surgery for complications of pregnancy, infections and trauma, transfusion, intravenous fluids, oxygen and intensive antibiotics. All of these can be made available in very simple and unsophisticated hospital facilities. It has generally been assumed that the cost of such facilities would be high, and cost effectiveness much less than that of preventive, educational and home care programs. In 1995, our 50 bed hospital in rural Bangladesh had a cost per patient-day of 525 Bangladesh Takas (US dollars 13.15) and a cost per capita for the population served of 25 Takas (US dollars 0.62) per year. Every month 180 patients were admitted, one-third with clearly life-threatening or disabling conditions which could be successfully treated in such a facility. We adapted the Disability Adjusted Life Year (DALY) method of cost effectiveness analysis to calculate the DALYs (years of disability-free life) preserved for individual patients during a 3-month period, using what we considered to be very conservative estimates of the threat to life and the efficacy of treatment. The total cost of all hospital activities over the 3 months was divided by the sum of the DALYS for those patients who were successfully treated for clearly life threatening or disabling conditions, to give a cost per DALY of 437 Takas (US dollars 10.93). This compares favorably with estimates by others of a cost per DALY of US dollars 30 for measles immunization, 20 for acute lower respiratory infection detection and home treatment, or 2 for tetanus immunization of pregnant women. Sixty-two percent of the DALYS saved came from emergency obstetric care (EmOC) related activities. We conclude that cost effective basic hospital service can be added to immunization, family planning and other basic health services now available in countries like Bangladesh with a very low increase in total cost and that the benefits which would accrue, particularly for maternal and perinatal mortality, would be great.