Background: To determine patient factors that lead to treatment of meniscal tears with osteoarthritis (OA) with knee arthroscopy (KA) or physical therapy only (PT-only); and to assess differences in clinical outcomes including the time to knee arthroplasty. Methods: Patients aged ≥ 45 years with OA at meniscal tear diagnosis were followed up from the date of surgery (KA) or first PT visit (PT-only) until partial/total knee replacement surgery, death, disenrollment, or end of study. Demographic and clinical characteristics were compared and used to derive propensity scores. A Cox proportional hazards model was used to estimate the risk of knee replacement surgery and greater healthcare utilization associated with KA vs. PT-only. Results: Among 7,026 patients (KA, 69%; PT-only, 31%), 27% had partial or total knee replacement surgery during follow-up.PT-only patients were older and more likely to be women and had more comorbidities. After accounting for differences between groups, the cumulative incidence of knee replacement was modestly but significantly higher for those who received KA than those who underwent PT-only (hazard ratio, 1.30; 95% confidence interval, 1.17–1.44; p < 0.001), although there was no significant difference in health service utilization, narcotic medication dispenses, or knee injections after initiating treatment. Conclusions For patients with meniscal damage complicated by OA, those who underwent KA were 30% more likely to have partial or total knee replacement surgery at any given time than those who had PT alone.