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The state and federal push to transition Medicaid residents from nursing homes to the community calls for effective discharge strategies targeted to residents’ diverse needs. This exploratory, mixed-methods study utilized the Minimum Data Set to describe demographics, health characteristics, and transition patterns of Kansas Medicaid residents with mental health diagnoses who were discharged from nursing homes from 2005 to 2008. Discharged residents (n = 720) had multiple comorbidities, and more than half remained in the community following their first nursing home event. In-depth interviews with nursing home staff (n = 11) explored successful discharge strategies. Successful strategies support an ecological approach to meeting individual, family, organizational, and community needs. This includes creating/sustaining a culture of discharge, encompassing informal and formal community supports in the discharge process, proactively addressing physical environment needs, and assisting individuals and their family members in managing physical and mental health conditions. Findings suggest that policies in the areas of preadmission screening, caregiver support, and revised Medicaid reimbursement are needed to better support continuity of care and promote discharge for nursing home residents with complex care needs. Future research could examine individual and family perspectives on the discharge process and track outcomes when transitioning between settings.