MD Collections Collecting on a Debt Already Paid and Inflating the Original Amount Owed San Clemente, California

I just received a collection notice in the Mail.  Collector contends that I owe them $178.00.  I called them and asked what this was for?  The person on the other end of the phone would not tell me.  I hung up and asked to speak to the Manager.  Manager tells me that it is for a $20.00 co-pay that was never collected.  I told him that first, I do not owe it, the Doctor always collects the co-pay up frount and that I paid cash.  He then proceeded to tell me that I now owe $178.00 for the 3 bills that they have sent trying to collect $20.00???  I told him that I wanted to see proof of this.  He told me that he did not have to send it to me.  I confirmed the address that they supposevly sent the bills to and it was my current address, but I never received a bill in the mail for $20.00 from Blue Cross.  He told me that I needed to pay the $178.00 and that this amount will increase, as they charge $25.00 everytime they send out a bill.  This is highly illegal.  I told them that I would pay them the $20.00 which was the original amount and he told me "NO" and that thier client will not settle. 

I have filed a complaint with the FTC and the California Attorney Generals Office. 

I am also contesting this on my credit report which has suffered because of this error.

Does anyone have any recommendations?  The Attorney I work for says to sue them.  I don't think its worth it for $178.00.