Why the highest paid doctors (but not the highest paid lawyers) live in the Dakotas

"The real reason the highest-paid doctors are in the Dakotas" is the headline for Andrew Van Dam's recent report in the Washington Post.  Here's what the data show:    

The best-paid doctors in America work in the Dakotas, where they averaged $524,000 (South) and $468,000 (North) in 2017 in their prime earning years, including business income and capital gains. That’s well above the already astonishing $405,000 the average U.S. doctor made in the prime earning years, defined here as 40 to 55.

And it’s way above the $288,000 we estimate was earned by lawyers in that age group. Prime-earning-age attorneys in South Dakota made $165,000 in 2017, while their neighbors to the north made $183,000.

By contrast, lawyers in New York earned an average of $438,000, which is roughly comparable to the $447,000 earned by the average New York doctor. Their D.C. lawyer friends made $406,000, while the average D.C. doctor eked out just $349,000.

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Rural regions rule the doctor rankings: Alaska, Wyoming and Nebraska join the Dakotas in the top five states for physician pay, confounding the intuition hammered into our souls by more than a decade of covering economics. None of those are high-earning states overall, with the evergreen exception of Alaska. They’re also not high-cost: North and South Dakota rank 41st and 45th, respectively, in cost of living among the states and D.C.; only Alaska costs more than average, according to the Bureau of Economic Analysis.

And here's the "why" part:   

“For lawyers, there is a strong relationship between the lawyer’s income and incomes of other people in the area. And that’s not true for doctors,” Gottlieb said, noting that doctor pay doesn’t have a strong relationship with local education levels and real estate prices, either.

Economists explain that competition is another key factor:  

Rural America has about 20 percent of the U.S. population but about 10 percent of its doctors, according to our analysis of Census Bureau data. So the talented young physicians willing to hang their shingles in North Dakota don’t have to worry about rivals undercutting their prices. They can charge more for everything, from appendectomies to vasectomies.

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The government also influences physician pay directly through Medicare, perhaps the biggest spigot of health-care cash on Planet Earth. Typically, people in low-income areas can’t spend as much and merchants tend to earn less. But that’s not the case for health care, in large part because Medicare ensures that retirement-age Americans — by far the biggest health-care consumers — can afford about as much in South Dakota as they can in South Beach. Which means doctors work in one of the few industries where demand is not necessarily determined by disposable income.

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But Medicare plays an even more explicit role in fostering this geographic pay-gap anomaly. A stellar 2022 report from the nonpartisan Government Accountability Office lays out the astonishing design choices that have caused Medicare calculations for doctor pay to be remarkably flat from state to state.

Van Dam goes even to even more depth on this point, but you'll have to read the rest of his story for that level of detail.  His related story, "The states that produce the most doctors, artists and writers, and more!" is here.