I"m not sure this should be a consideration. If that midwest company cannot compete, it should not exist. That is tghe essence of capitalism. You should not subsidize it by making it not compete fairly for H1B applicants.
So, making hiring these employees based on salary only means that places with a higher cost of living will be able to hire these employees for more typical rates, where-as companies in lower cost of living areas will have to pay well above average for the same employee. If actual salary wasn't a requirement, then midwest companies could still be competitive even while offering lower salaries.