Bell assumes that there exists a function $f$ which takes the hidden variable $\lambda$ and the setting of the measurement device : $\vec{a}$ or $\vec{b}$, as the input and gives the result of the measurement as output. That is, the function $f(\lambda , \vec{a})$ where $\vec{a}$ is the setting of the measurement device.
However, more realistically, a hidden variable theory would attribute hidden variables $\lambda$ to the electrons and hidden variables $\mu$ to the measurement device (as we don't know the exact state of the measurement device. We only know the detector setting). Then there is a function $f(\lambda, \mu, \vec{a})$ which gives you the result of the measurement . All this is because the final outcome is arrived at after time evolving the exact state of the system, which here is the exact hidden state of the particles + measurement device.
The correlation formula changes to :
$$P(\vec{a} , \vec{b})=\int d\lambda d\mu _i \rho (\lambda ,\mu _i) f(\lambda, \mu _1, \vec{a}) g(\lambda, \mu _2 , \vec{b})$$
One might think that this is equivalent to the standard Bell setup because we can just group $\lambda$ and $\mu _i$ into a new hidden variable $h$ by defining $h=(\lambda, \mu _1, \mu _2)$, and the resulting formula becomes identical to the one in Bell's result. The problem is that $\mu _i$ can be statistically correlated to the setting of the measurement device $\vec{a}$ or $\vec{b}$. So the assumption of statistical independence between the hidden variable and the device can be violated now.
Is this correct, and if yes, how to address this loophole?