Donald L. Custis may be no more than a department head at the Veterans Administration, but he controls a bigger budget than either Interior Secretary James G. Watt or Commerce Secretary Malcolm Baldrige. He also runs the third-largest federal work force in the country.

The soft-spoken, bespectacled physician is chief medical director of the VA's Department of Medicine and Surgery. As such, Custis oversees $7.5 billion of the agency's $25.1 billion budget and 187,546 of the VA's 220,785 employes.

Custis also can't be fired.

While the chief medical examiner is hired by the VA administrator, the job comes with a statutory four-year term. He can be ousted only if he resigns or is impeached by Congress.

Congress gave the job that special insulation to protect it from politics. In the process, it made the medical director one of the most powerful figures in the VA.

Custis, 66, dismisses talk about power and influence with the wave of a hand, but VA-watchers, including congressional staffers and veterans groups, say the former naval officer has been a steadying influence at the VA since he was appointed in January, 1980.

Custis, according to these sources, helped keep the agency administratively on track during the flurries of sudden activity that marked former VA administrator Max Cleland's term. More recently, they said, Custis helped lend an aura of integrity at the VA during the turbulent tenure of Robert P. Nimmo, who resigned under fire last year.

But critics say Custis is too cautious, too content with the status quo. They claim Custis, like his predecessors, has dragged his feet on investigating Agent Orange, a dioxin-contiminated herbicide widely used in Vietnam and blamed by Vietnam veterans for numerous health ailments.

After long delays in the study's progress lost the VA some credibility, Congress pressured the agency to turn the study over to the Centers for Disease Control. As chief medical director, Custis has defended the VA's handling of the Agent Orange controversy.

Before joining the VA, Custis served 32 years in the Navy, including tours as chief of surgery at several naval hospitals, commanding officer at a naval hospital in Da Nang in 1969 and later as surgeon general of the Navy. He has received 16 medals for service during three wars, including four for valor in Vietnam.

Custis' central responsibility is the administration of the largest hospital network in the nation--172 VA medical centers, 226 outpatient clinics, 95 nursing homes and 16 domiciliaries where veterans receive rehabilitative care.

In practice, the job calls on him to be part doctor, part administrator and part politician. He acts as a doctor in deciding whether to approve the testing of new drugs or medical procedures in VA hospitals, as an administrator in reviewing the need for new facilities and personnel and as a politician in defending VA operations on Capitol Hill.

In 1941, VA facilities were in such disrepute that the American Medical Association would not accept VA doctors for membership. World War II forced the VA to improve its operations, Custis said.

Congress helped by raising the pay for VA doctors after the war ended.

The next big improvement came when the VA began affiliating its hospitals with medical schools. Today, 105 of the country's 126 medical schools are associated with VA medical centers, thanks in part to VA's willingness to build additional classrooms for them and to buy equipment that many commercial hospitals cannot afford.

"Fifty percent of all doctors in this country have received some of their training at VA hospitals," Custis said. "We are the single largest medical manpower production assest in this country."

Custis argued that VA hospitals have suffered from a "bad press" partly because revelations about inadequacies or abuses at one facility unfairly tarnish the whole system.

"If there is a problem at a community hospital in Minneapolis, Portland or New Orleans, no one says, 'Well that's typical of all hospitals in Minnesota, Oregon or Louisiana.' But if something happens at a VA hospital, everyone assumes the whole system has that problem," he said.

Comparing VA hospitals with their commercial, state or municipal counterparts is misleading, Custis said, because VA hospitals have a specialized clientele. They treat no infants, pre-teens or adolescents and few women. VA also treats a disproportionate number of patients who have lost limbs or suffered spinal cord damage.

In general, VA patients tend to be older than patients in commercial hospitals and usually suffer from multiple disabilities. The most common ailments at VA hospitals are heart disease and alcoholism.

The VA's medical centers also must adjust to meet the changing needs of patients, Custis said. By 2010, the bulk of America's veterans (12.7 million) will be over 65. That influx is expected to create a huge demand for VA's medical services. It is difficult to gauge the pressure that these demographic changes will put on VA facilities, he said.

More than a decade ago, Congress passed legislation making all veterans 65 or older eligible for full VA medical benefits, regardless of income or whether their problems were related to military service.

The Reagan administration has pushed for changes in Medicaid and Medicare that will cost the elderly more. "We don't know how those two factors will affect us, but we assume they will cause an increase in demand for veterans' services," Custis said.