I agree. I think if I was a PD, my #1 way to select people would be having them work with one of my teams for an audition month, and then my #2 would be strong recommendations from people I trust. AOA and Step scores are, in my mind, probably the lamest two metrics to use and yet they're the major hurdles for most people. SLOEs would make a better #3 than those would.
#1 is completely infeasible for many fields. Even in Ortho (picking because you've talked about it a bunch), there's no way that each ortho candidate could audition at enough programs. In IM it would be a nightmare.
#2 trades a standardized exam (with all of its problems) for name recognition / nepotism / connections (with its problems). Students at "unknown" schools would be doomed.
#3 SLOE's require the same H/HP/P breakdown, and all the same problems as clerkship grading.
There is no perfect way to measure performance in the clinical setting. Each tool only measures a piece, and imperfectly at that. Some programs/fields disproportionately weight USMLE scores, probably more from application overload than anything else. Removing any standardized national assessment is IMHO a mistake -- if folks are "unhappy" with USMLE, then lets propose something different.
Application caps are similarly a blunt intervention to a complicated problem, and will create lots of problems for some applicants. once you start making exceptions for subclasses of applicants, further turmoil will ensue.
No one change can really "fix" the problem, you would need a suite of changes / agreements. To include:
1. Some national assessment of medical knowledge. This could be specialty specific and unrelated to licensing. This would allow people to take it more than once if they wanted (like MCAT) - whether that's good or bad depends on your viewpoint.
2. Continued improvement in MSPE's. They have gotten much better over the last 10 years, but more improvement is needed. This is especially true for DO schools, where they are near useless.
3. A "SLOE" equivalent for each specialty. This is basically an assessment from a group (rather than just an individual) about a student's performance. In Internal Medicine and other fields, it's called a "Department Letter". These assessments need to actually discriminate student performance -- you can't just say everyone is "outstanding". Each field could decide what attributes are important to assess - perhaps IM cares about ability to communicate with team members and patients, and Ortho care about deadlift weight.
4. Given #1 and #3, programs need to have transparency about their resident classes so that students have some sense if they are competitive.
5. ERAS needs to codify the information in #1-3 such that programs can sort applications into categories and can be more time efficient in reviewing applications.
6. I would create an early application process for residency. Applicants would be able to apply to a very limited number of programs, perhaps 3. Programs could interview those candidates, and offer spots before the match. Programs would only be able to fill a subset of their spots in this early process -- perhaps 30%. This would leave the majority of spots for the match itself. Anyone applying early to a program and not getting a spot in the early round (at any of their early apps) would automatically roll into the regular process.
7. Another idea I like is having a list of strengths of residency programs / things that students are interested in. Each program would be able to pick some limited number of items that they think they are best at. Each student could pick a limited number of things that they are interested in. Then, when applying, both would see overlaps that might show which students/programs are best options.
No matter what you do, the solution is never completely fair. At the end of the day, all residency spots fill with someone. If a new system helps someone get a spot that they wouldn't have gotten under the current system, then someone else loses that spot. It's like musical chairs - no matter how you change the rules about when the music stops, someone doesn't get a seat. All of these ideas have problems, I can tell you why they are all problematic. The early application process, for example -- it's quite possible that students coming from The Best Medical School will all get an early spot, and those from Podunk University will get none. But maybe a group of interventions might make the process a bit better for most people?