Credit Collection Agency Is Taking Me To Small Claims Court.

OK, I got stung by a bee and went into shock. Ended up with about 5k worth of ambulance, hospital and doctor bills. Isn't America wonderful. I paid them all off.
The hospital bill was $1035 dollars, 4 hours in the emergency room. I paid with two checks $500 from my business account and a second check $535 from my personal account.
When I received the collection letter, I called them and let them know this bill has been paid. Apparently, they don't believe me. I received a Small Claim and Notice of small claim. They claim I owe the full amount $1035.
I have proof of payment. I don't think I need to included copies of the checks, on principle. I think they need to prove they own a valid debt.
Also, if I have to show copies of these checks in small claims court, I intend to ask for any fees and costs that I have to incur to fight the false debt. What type of charges can I ask for? Also how can I make sure that this information is not put on my credit record (I have good credit).
I am asking for the basics, How do I handle this situation? Any help is greatly appreciated, I am out of my league here.
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