Aim To define and quantify hospital‐acquired malnutrition, including the concept of preventable and non‐preventable malnutrition; and identify the main causes of preventable malnutrition. Furthermore, demonstrate potential cost‐savings for a quaternary hospital in Sydney (Australia) if a theoretical model of preventable malnutrition was applied to the penalties associated with hospital‐acquired malnutrition, compared to the current government framework. Methods A retrospective audit was conducted on electronic medical records reassessing cases of hospital‐acquired malnutrition previously identified by dietitians or medical coders. Costs were calculated using the Independent Hospital Pricing Authority's (IHPA) pricing principles for hospital‐acquired complications (version 3, 2018). Results Twenty‐three patients of 15 419 admissions were identified with hospital‐acquired malnutrition in the 3‐month study period. Sixteen cases (70%) were classified as preventable, two cases (9%) were classified as non‐preventable, and five cases were non‐hospital‐acquired cases of malnutrition. Under the IHPA proposed costing model, total cost of all hospital‐acquired malnutrition to the hospital is estimated to be $162 600 over 3 months. The theoretical model of preventable malnutrition resulted in a cost penalty of only $98 600, which is a hospital cost‐saving of $64 000 (or 40% of the overall penalty) when compared to the current government framework. Conclusions The majority of hospital‐acquired malnutrition cases were found to have a preventable component. It is proposed that a costing model that penalises hospitals for only preventable hospital‐acquired malnutrition be considered, which would permit hospitals to focus on addressing preventable (and thus actionable) causes of hospital‐acquired malnutrition with not only potential health benefits to patients but cost‐savings to hospitals.