Background: Patients in isolated rural communities typically lack access to surgical care. It is not feasible for most rural first-level hospitals to provide a full suite of surgical specialty services. Comprehensive surgical care thus depends on referral systems. There is minimal literature, however, on the functioning of such systems. Methods: We undertook a prospective case study of the referral and care coordination process for cardiac, orthopedic, plastic, gynecologic, and general surgical conditions at a district hospital in rural Nepal from 2012 to 2014. We assessed the referral process using the World Health Organization’s Health Systems Framework. Results: We followed the initial 292 patients referred for surgical services in the program. 152 patients (52%) received surgery and four (1%) suffered a complication (three deaths and one patient reported complication). The three most common types of surgery performed were: orthopedics (43%), general (32%), and plastics (10%). The average direct and indirect cost per patient referred, including food, transportation, lodging, medications, diagnostic examinations, treatments, and human resources was US$840, which was over 1.5 times the local district’s per capita income. We identified and mapped challenges according to the World Health Organization’s Health Systems Framework. Given the requirement of intensive human capital, poor quality control of surgical services, and the overall costs of the program, hospital leadership decided to terminate the referral coordination program and continue to build local surgical capacity. Conclusion: The results of our case study provide some context into the challenges of rural surgical referral systems. The high relative costs to the system and challenges in accountability rendered the program untenable for the implementing organization. Electronic supplementary material The online version of this article (10.1186/s12913-017-2624-2) contains supplementary material, which is available to authorized users.