1) The notice means you have 20 days, from the time you're served, to reply to the lawsuit, not 20 days from the time the lawsuit was filed. (It's rule 4 of the Wa. Civil Rules).
2) Whether they committed medical malpractice or not isn't relevant, since the issue is over the debt that was created when you were using the hospital's services.
The lawsuit won't put you on the streets. Although that doesn't mean you shouldn't fight the suit.
1. Take this to an attorney right away. The clock is ticking and the collection agency may have entered a judgment against you already. It is a common practice to serve the pleadings (Summons and Complaint), but not file with the court until the 20 or so days to respond have gone by, and then go in for a default judgment.
2. You need advise on how to respond. The response may include more than answering each paragraph, but include defenses as well as any claims you may have, as you hint at potentially excessive/illegal interest or penalties.
3. you may have other alternatives as negotiating. Some hospitals are required to provide discounted or free services in some circumstances.
You need to hire a lawyer to defend you. Any lawyer should be able to find out the status of the case against you and file a notice of appearance on your behalf. Just filing a notice of appearance will protect you from having a default judgment entered against you without your knowledge.