I would not make one for a hospital, but for a healthy baby, if you cut your squares on the straight grain of the fabric, there will be no threads longer that the 3/4" or 1" that you leave to fluff when you sew the seams. I made mine with three layers. It was adorable, but I won't do it again. Too hard on my hands. A daughter wants one. I told her I'd make it and she could do the cutting.
If you wash and dry twice and take it outside and shake it, there aren't many threads that still want to shed. My washer didn't mind, but if it did, I'd wash it in a lingerie bag and let the dryer do the fluffing.