Medical Bill

I have an outstanding medical bill which is currently on appeal with my health insurance company, as they should have paid it. I have been making monthly payments on it anyway, because I did not want it to effect my credit rating.
I informed the billing company about the appeal and that I would make monthly payments. The company wanted me to make payment arrangements which were completely outrageous and wanted to pull my credit report, which I refused. I thought that would be an unecessary inquiry on my credit report since I was not debating the bill and was making timely monthly payments. I never received any notice, but when I called this month to make my payment they had turned me over to a collection agency.
Can they legally turn me over to collections when I have been making payments on the account?

They still can turn it over to collections, yes. But you may want to file in small claims or other court at this point if you are disputing it. That may resolve the issue more quickly.

unfortunately, when you see a doctor or go to a hospital, you sign a financial guarantee for payment (whether your insurance company pays or not) which I learned the hard way. You may wish to get a patient advocacy company involved to help you with the appeal and/or negotiate a discount directly with the provider on your behalf.