No, you can't deduct an expense you didn't actually pay. The hospital (or their 3rd party billing) records the amount you owe and if you don't pay then after a while they are allowed to write it off as a lost expense. In doing so, they send documentation to the IRS (and to you) saying that they essentially paid you the amount you owed. It's possible OP got that letter and only thought it was forgiving the debt, without understanding the income aspect.