I actually suspect that one of the main purposes of the algo based interview process is a motivation check. It takes time to prep for these interviews. Lots of time. So if you get a candidate that is crushing problems, it can either mean two things:
1) They are exceedingly brilliant and they can program decently
2) They have studied hard, they can reason and code decently
Combine that with a system design portion and some behavioral questions, and the company is probably getting a solid hire. Does it mean that you're weeding out some false negatives? Absolutely. But large companies don't care. The system works well enough, and until it doesn't, I doubt much will change.
1) They are exceedingly brilliant and they can program decently
2) They have studied hard, they can reason and code decently
Combine that with a system design portion and some behavioral questions, and the company is probably getting a solid hire. Does it mean that you're weeding out some false negatives? Absolutely. But large companies don't care. The system works well enough, and until it doesn't, I doubt much will change.