By Will Dunham WASHINGTON, June 7 (Reuters) - The U.S. government's system for rating the severity of military veterans' disabilities to set payment levels is "out of sync with modern medicine" and should be overhauled, an expert panel said on Thursday. Parts the Veterans Affairs Department's system have not been changed in more than six decades and fail to reflect current medical knowledge of conditions including traumatic brain injury, the Institute of Medicine panel said. The panel's report on the VA's so-called Rating Schedule was sought by the congressionally created Veterans' Disability Benefits Commission, which will make recommendations to Congress and President George W. Bush this fall. The size of monthly payments to U.S. veterans who sustained disabilities during military service depends on their VA disability ratings. It ranges from $2,471 per month for a 100-percent rating to $115 per month for a 10-percent rating. The panel was headed by Dr. Lonnie Bristow, former president of the American Medical Association. The institute provides advice on health issues to U.S. policymakers. "With troops being injured nearly every day, the VA's system for evaluating and rating former service members' disabilities should be as up to date as possible with current medical knowledge of impairment and its effects on a person's functioning and quality of life," Bristow said in a statement. "Right now, the Rating Schedule is out of sync with modern medicine and modern concepts of disability." The VA needs to thoroughly update the system starting with conditions that have not been reviewed in the past decade, with an eye toward dumping obsolete conditions and introducing current thinking on conditions like traumatic brain injury, diabetes and hearing loss, the panel said. The VA had no immediate comment on the recommendations. Another institute panel last month urged the VA to change its flawed system for identifying who has post-traumatic stress disorder and who deserves disability payments.