Small Iowa community hospitals (fewer than 500 deliveries annually) are currently the site of approximately 37% of hospital births in the state. Many of these facilities face severe financial constraints aggravated by reduced Medicare payments and diagnosis-related group payment mechanisms. The quality and quantity of services provided by small hospitals are illustrated by birth and mortality data for the period that spans the development of Iowa's regionalized perinatal care system. Small hospitals appear to compare very favorably when matched with their larger level I counterparts with regard to neonatal mortality rates, incidence of births of very-low-birth-weight neonates, survival of very-low-birth-weight neonates, occurrence of neonatal deaths relative to the total birth population, and incidence of neonatal morbidities. Because these hospitals provide valuable services in Iowa's perinatal care system, their closure may seriously compromise perinatal health care for rural lowans.