To examine alternatives to nursing home care, states have been testing home and community-based services under the Medicaid program. Information on the operations of the state projects will be vital to designing cost-effective alternative services in the future. The General Accounting Office (GAO) reviewed state reports to see if accurate, complete, and useful information was being collected. The results revealed that data from most states were inaccurate and not useful. Revisions by the Health Care Financing Administration (HCFA) of its reporting requirements and instructions were implemented in 1986 and should improve the accuracy and usefulness of states' reports. The findings also showed that the HCFA does not know how effectively states' home and community-based services substitute for nursing home care and cannot evaluate whether these programs increase or decrease Medicaid costs. Many people who have participated in community care demonstration projects would not have entered a nursing home had the community-based care been unavailable. To assume that all alternative care recipients use these services to prevent or postpone admission to nursing homes is unrealistic and could lead to false conclusions about program cost-effectiveness. GAO recommends that the administrator of HCFA develop measures of home and community-based services programs' ability to prevent or postpone nursing home care and use these measures to evaluate waiver program cost-effectiveness. (NB)