I am sorry to learn of this situation. The debt collector is acting abusively/unprofessionally.
You are protected by the Fair Debt Collections Act (see: http://www.consumer.ftc.gov/articles/0149-debt-collection)
Unfortunately, if they already have a judgment against you (back in 2006/2007), this makes it difficult for you to deal with the underlying validity of the debt (the forgiveness issue).
However, if there is any doubt in your mind about whether or not they actually got a judgment against you in court - go to the courthouse (or if it is a long way away from you, pay a process server in that county to go to the courthouse) and do a records search to see what is there).
If there is no judgment - they cannot collect, the statute of limitations has passed (4 years for breach of written contract in CA).
Confirm with the judgment creditor (the hospital) that the debt is actually assigned to this creditor (and let the hospital know how unprofessional they are (you don't have to complain, just advise them of the issue so they know and can use another, more professional vendor, in the future).
Once you confirm the debt (or if you already know it is there), then you can try to settle (I know the guy is a jerk, so I would keep it in writing - use letters and focus on that). If you are in fact dealing with a legitimate debt, and the proper collection agency - then you can consider debt settlement. It is true that they can collect via wage garnishment, it is also true that they can use "bank levies" and liens against property.
If they want you to settle with a single lump sum payment, they should provide you with a settlement agreement. The settlement agreement should be in writing, and will lay out the terms for the agreement. Once you pay in full (either the complete judgment plus collection costs, or an agreed upon settlement amount), the creditor must file a "satisfaction of judgment" with the court, AND remove any and all liens - you should receive notice of this. If they fail to do so, you can petition the court for this removal, and the creditor will be charged with costs for you having to do so!