State Medicaid agencies have several organizational options to provide cost-effective health care to the growing numbers of acquired immune deficiency syndrome (AIDS) patients eligible for Medicaid. This report focuses on the AIDS-specific home- and community-based waiver option for AIDS patients, made available in 1985 as an amendment to Section 2176 of the 1981 Omnibus Budget Reconciliation Act. Waivers exempt Medicaid programs from specific statutory and regulatory provisions if such exemptions can be shown to improve cost-effectiveness and delivery of services. The report presents an overview of the home- and community-based waiver program's purpose; the types of waivers for which states may apply; and the waiver application, reporting, and renewal processes. The authors present a review of the literature on the waiver program and identify related research efforts under way that will eventually add to our understanding of how Medicaid programs serve AIDS patients. They then describe the experience of current waiver states (California, Hawaii, New Mexico, New Jersey, Ohio, and South Carolina). The research suggests that there are several ways to make the waiver program even more attractive to Medicaid agencies, including easing the administration and reporting requirements of the waiver, increasing the program's flexibility, and relaxing the requirement that cost savings be demonstrated before a waiver can be granted.