OBJECTIVE: This study was undertaken to determine the cost of initial hospital care for newborn infants according to gestational age at birth and survival status. STUDY DESIGN: This was a retrospective review of prospectively collected data on hospital and physician costs for all infants born in the study institutions at ≤32 weeks' gestation for 1989 through 1992. A cohort of term and near-term infants was selected at random. Variables were examined by multiple logistic regression for their independent effects on cost. RESULTS: Length of stay and gestational age were related to cost among survivors born at ≤32 weeks' gestation but not among nonsurvivors. Total cost of initial care for the US population of neonates is estimated at $10.2 billion annually, with 11.9% spent on infants born between 24 and 26 weeks' gestation and 42.7% spent on those born at >37 weeks' gestation. CONCLUSIONS: Although costs for an individual surviving extremely premature baby may be high, the costs for extremely low gestational age infants is a small component of total neonatal care costs because so few infants are born at these gestational ages. The mathematic model developed from these data allows cost savings to be predicted for management strategies designed to alter gestational age at birth or survival.