medical bill, sold to collection, report past due. Should i settle?

A medical bill for $989 that we set up a payment plan on was given to a collection company for the children's hospital, We have made the agreed upon payment every month since they started. About 6 months ago.
I went out and pulled my credit report last Friday and saw that they have it listed as seriously past due and list the balance but do not put anything in the payment status and as of October it shows a KD for the month. I called to verify they were receiving payments on time from my account and asked about it, they claim that all they do is change the balance every month 35 days after the payment is made and it will say its seriously past due until its paid off completely.
This dropped my credit score substantially, I was told last fall when we refinanced our house that my score was in the low 700's and now it shows 649 and this appears to be the only negative new thing in several years. Are they right and only doing what they are required to do? I told them that if they had told me this 6 months ago that I would have paid it in full and put it on a card as the drop in points is worth more to me than the $900. The last two times we had major medical bills we did this same thing and it wasn't handled like this. Should I offer to pay it off completely if they will amend the report to show paid on time and in full to get my points back?
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should have paid it off and negotiated for a better credit right then.
So do that NOW.
Make sure the debt is validated when you are not paying the original creditor.
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Thanks, I couldn't pay it off when it was with the hospital because the insurance company was due to pay more, original balance was over $2,400 and it took over 4 months before the insurance company paid it down to the correct level around $980. I was communicating and updating the invoicing dept. of the hospital but they turned it over to their collections department while it was being paid down by the insurance company. The woman in the invoicing department and my HR rep at work told me if I paid the bill it would be like pulling teeth to get that money back from the health insurance company so I guess I got bad advice at the time.
I will move some money around from savings and offer them the settlement.
Should I insist on getting an agreement from them in writing if the say they'll amend the report and only pay them in full after I get the agreement? And do they actually remove the whole thing or just amend the report to say that I made all payments on time and it is paid in full?
The thing I don't understand is that Children's Hospital is the original debt holder, they sold the debt to Holloway Credit Solutions and on the report it list Holloway as the debt holder. How can Holloway report that I'm not making payments when they are auto drafting them from my checking account?
When I asked them about the KD in October after 6 months of payments they told me all they do is adjust the balance every month
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this is normal and accurate reporting f0r collections, yes.
bureaus only report what they are sent to report.
send the holloway group debt validation and make them show they have legal right to collect
most don't expecially on charge offs.

Yes insist on writing before you pay.
but validate first even though you know it is your and you have made payments
insist on validation. Play hardball in a nice tone.

in the end, if nothing can be done pay them anyway, if you can, and BE DONE.
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