What's this super-small pot growing method?

[JanS]

Greetings:
My wife works at a hospital where once a year an orchid vendor gets a room for a few days to sell their orchids. They have all sorts of varieties and sell them for a very reasonable price - $12 or so each. Needless to say, the sell A LOT. All of their orchids, however, are growing in (in my opinion) ridiculously small pots - blooming, mature plants in 2-3 inch pots max, completely filled with roots that often overflow from the top as well.

Their explanation is that "orchids like to be crowded". OK, I've heard that before, but here's the problem: if left in the tiny root-filled pot and watered normally, they soon die because they have no potting medium to speak of to hold any water. If repotted, as I have done, their roots are almost impossible to spread out without severe damage so you end up with a rock-hard clump of roots surrounded by some new bark...and the plants also do not thrive because (I think) only the outside roots can supply any moisture and nutrition to the plant.

All my wife's friends that bought these orchids (and are not genuine orchid people) had them die within a few weeks to months. My success has been about 50% for the 6 plants or so I bought in the past 2 years. I have not seen this crowding growing before and none of the vendors present at the recent San Diego show had plants like that. Is this a hydroponic-type way to grow massive quantities for sale in a small space? Anyone have any ideas how to improve the life chances of these rootbound unfortunates?