I totally agree with you here. My daughter's old school's "modified grouping" was basically this. All the students gained proficiency through this.
In my experience, the lower students get "help" from the higher students and never learn anything. In grouping, they are forced to learn the material. I feel really bad for them because they hold the group back all the time and they know it.
With grouping, higher students are (usually) placed with students with more enthusiasm for school subjects. Lower students just really hate school (most of the time).
This can also be done with "book clubs" and "workshops", which is what they were often called. Some students would attend a "comma workshop", while others moved on to something else.
