Of course it is blatantly illegal. But this is a smallish town even if it has a University Medical School and university affiliated hospitals. There is only one Children's Hospital. Which parent will risk bringing its unfair practice to the spotlight, and becoming notoriously known for being the one who brough negative publicity to the hospital, and caused it a great financial burden if they were legally obligated to create accomodations for parents to stay overnight? We will still have to bring our sick children to the same institution. Moreover, my job is in another hospital affiliated to the same medical school so they are technically my employers too. I remember the last time a group of employees took sucessful legal action against the institution and although they won the financial compensation, I don't think they kept their jobs with the university.
Anyway, it ended all well for us.