Lance Stephenson made a 3-pointer as Indiana closed the third with a 7-0 run and then extended the lead to 16 by opening the fourth with another 7-0 burst capped by Danny Granger's 3.
That's when Waiters, the subject of trade rumors for weeks, brought the Cavs back. He reeled off 12 in a row and fed Anderson Varejao with two nice assists to get the Cavs within 79-78.
Hibbert split a pair of free throws, but on Cleveland's next trip, Waiters missed a 3 and then forced a layup in traffic. Hibbert's free throw gave the Pacers a two-point cushion, but Cleveland couldn't execute a simple inbounds pass without a turnover and West put it away with his late free throw.
"It's another tough loss," Waiters said. "We fought back. We never put our heads down when they went up 16. These kinds of losses hurt because we were right there. We've been there all year long, and once we find a way to close these games out we'll be really good."
Hibbert added 15 points and West 11 for the Pacers, who shot just 36 percent from the floor, but played their typically stout defense.
Indiana has won nine straight over Cleveland and 15 of 16.
Tristan Thompson added 13 points and 10 rebounds for the Cavs, who have reportedly been involved in talks with the Los Angeles Lakers for a trade involving Andrew Bynum for Pau Gasol.
The enigmatic Bynum was recently dismissed from the team for detrimental conduct and the Cavs would like to deal or release the 7-footer by Tuesday, when his contract will be guaranteed. The injury-ravaged Lakers would consider bringing back Bynum — he spent seven seasons with Los Angeles — so they could cut him, clear salary-cap space and avoid paying the luxury tax.