Differential Privacy and Federated Learning for Secure Predictive Modeling in Healthcare Finance

The convergence of federated learning (FL) and differential privacy (DP) presents a transformative approach to secure predictive modeling in healthcare finance, where safeguarding sensitive patient and financial data is paramount. Traditional centralized machine learning methods often raise significant privacy concerns due to the necessity of aggregating data from multiple institutions. Federated learning mitigates this by enabling decentralized model training across disparate data sources, such as hospitals, insurance firms, and financial institutions, without exposing raw data. However, FL alone remains vulnerable to inference and reconstruction attacks. To enhance security, differential privacy introduces mathematically rigorous noise mechanisms that obfuscate sensitive information while preserving data utility. This paper explores the synergistic integration of DP and FL for building robust, privacy-preserving predictive models tailored to healthcare finance applications, such as fraud detection, insurance risk scoring, billing optimization, and cost forecasting. We discuss the architectural design, privacy-utility trade-offs, and implementation challenges involved, including issues of scalability, model accuracy, regulatory compliance (e.g., HIPAA and GDPR), and communication overhead. Furthermore, real-world use cases and simulation results demonstrate the efficacy of DP-FL frameworks in delivering secure and accurate predictive insights without compromising individual or institutional privacy. The study concludes by highlighting open research directions and recommending best practices for deploying privacy-enhanced federated learning systems in complex, multi-stakeholder healthcare financial ecosystems.