To amend title 38, United States Code, to improve the ability of the Department of Veterans Affairs to provide continuity of care in the rehabilitation of chronically mentally ill veterans, and for other purposes.

Authorizes the Secretary of Veterans Affairs to establish at any Veterans Health Administration facility a nonprofit corporation to: (1) arrange for therapeutic work for patients of such facility or other Department of Veterans Affairs facilities; and (2) provide a funding mechanism to achieve such purposes. Requires the appointment of a board of directors for any such corporation. Requires excess funds received by a corporation to be deposited into the Special Therapeutic and Rehabilitation Activities Fund. Requires an annual corporation report to the Secretary concerning operations, accomplishments, and activities. Requires an annual report from the Secretary to the Congress. Prohibits the establishment of any such corporation after FY 1999. Requires a corporation to be dissolved if not recongized as tax-exempt by the Internal Revenue Service within four years of its establishment.

Extends through FY 1997 (currently 1994) the Department's compensated work therapy and therapeutic transitional housing demonstration program. Removes the 50-residence limit under the housing program, increasing such amount by five for each of FY 1994 through 1997. Limits the expenditures for each such fiscal year for the costs of acquisition, management, maintenance, and disposition of real property for program purposes.