var hsQ = from hspt in hospitals
orderby hspt.County, hspt.City
group hspt by hspt.County;
It obviously groups by country and then sorts by city.
However, I found the following even better as it groups first by country, sorts by country and then sorts within the group by city:
var hsQ = from hspt in hospitals
orderby hspt.City
group hspt by hspt.County into hsptGroup
orderby hsptGroup.First().County
select hsptGroup;