BrendaM ... as your fellow Canuck here ... I'll echo about the importance of checking on any specifications the hospital has. Better to know now, than to do all your work and find out that they are rejected. (and yes, perhaps your niece has given you all that detail.)
Another idea would be to make FUN pillow cases for the kids. I know some hospitals welcome them ... and of course, some would totally refuse them, as not being the regular bed linens.
How good of you to want to do this for the kids!