Another option would be to put in place a system where companies could be have their H1-B applications automatically approved if they maintain a certain ratio of citizens/green card holders to H1-Bs within the desired salary band and classification. Say, for example, you want to hire an H1-B engineer at $160k/yr and the required ratio is 4:1. If your engineering workforce within the $150k-$175k salary band is already greater than 4-1 non-H1-B, you should be allowed to hire an H1-B. But companies that try to abuse H1-Bs, either by hiring too large a percentage of their workforce or by underpaying them would have to use the lottery system, provided there are any H1-B slots left.

Such a system seems like it works for the large Facebooks and Googles of the world as well as smaller startups and companies in areas of the country with lower CoL. It also works for citizens, green card holders and H1-Bs, since it encourages employment of non-H1-B employees and similar wages for all types of employees. It would only penalize the body shops, those that underpay H1-Bs and those companies that rely on too large a percentage of H1-Bs for their workforce. The only thing you'd have to do is ensure that the local employees are roughly the same job function as the H1-Bs, so that companies couldn't offset underpaid H1-B engineers with similarly-paid customer support or similar gaming of the system.