This report examines policy-related trends and projections in the use of various Medicaid-funded care services for persons with mental retardation and related conditions, and identifies factors influencing these trends nationally and in the various states. The examination is based on three sets of research activities: analyses of databases on residential services for persons with mental retardation; a survey of all state mental retardation/developmental disabilities (MR/DD) agencies; and case studies of 10 states. Sections of the report examine: (1) the mission and commitments of state MR/DD agencies as they themselves identify them; (2) past, present, and projected patterns of residential services in the nation and in the various states, focusing on general trends and contributing factors in long-term care service provision, irrespective of the role of Medicaid; (3) past, present, and projected utilization of Intermediate Care Facilities for the Mentally Retarded, with states' considerations in weighing costs and benefits to themselves and service consumers of the various Medicaid options; (4) status of Medicaid Home and Community-Based Services programs within the different states and state perceptions of program strengths and limitations; (5) status of persons with mental retardation in nursing homes and the implications of Public Law 100-203 which requires states to review the appropriateness of those placements; and (6) state use of Medicaid options other than Intermediate Care and "Medicaid waiver" services. Appendixes contain literature-based behavioral outcomes associated with movement from state institutions to small community living arrangements and a copy of the interview form used in the case studies. (36 references) (JDD)