It isn’t fair — but it doesn’t surprise me. You handled this the wrong way. Instead of just refusing to pay, you should have contacted the hospital billing office, and eventually escalated your fight to the hospital administration if you weren’t satisfied. Instead, you likely talked to a clerk in the accounting department — and they are trained just to send a bill to collection and file a report with the credit bureaus if there has been no resolution.
If this happened recently, I would definitely contact the hospital and ask to meet with a manager — and try to get them to retract the report and write off the charges. But at this point it is tough to get this taken off your credit report –and it will continue to impact your credit score for years until it “rolls off” your report. You are entitled to submit an explanation to the credit bureau to be “attached” to your credit report. But honestly, I doubt that anyone reads those things as everything is done by computer.