Chief tells of a visitor to the ward six years before, who was dressed as Santa Claus with a natural beard. He is "fixed" and sent out into the world clean shaven and underweight.
McMurphy complains that the ward radio is playing too loud and asks Nurse Ratched to turn down the volume, a request that she refuses due to the her belief that the ward's patients who are hearing impaired will not be able to enjoy the music.
McMurphy discovers Chief isn't deaf when he tells him an orderly is coming to tie him into bed and Chief responds immediately.
The story of Santa Claus indicates that the Combine is able to change even the most innocuous and innocent individual from a happy, full-bodied and bearded individual into a conformist. This indicates why Chief pretends to be deaf and mute, because he believes the Combine won't take from him what it doesn't know he possesses, and if he is able to keep his secret, the Combine can't control him completely. McMurphy discovers Chief's secret accidentally, but his discovery allows both McMurphy and the reader to see that Chief is curable, and that his ability to overcome his fear of speaking is crucial to his recovery.