A recent article looked at the harms and benefits of arthroscopic surgery for those middle aged and older with knee pain and degeneration. Interestingly, they found that post surgery there were only mild short term benefits in pain lasting less than 2 years and no benefits in terms of physical function. There were also harms such as deep venous thrombosis, pulmonary embolism, infection, and death associated with surgery. In conclusion they did not support arthroscopic knee surgery to treat knee pain and degeneration in middle aged or older patients.
Read the full article here: http://www.ncbi.nlm.nih.gov/m/pubmed/26080045/#fft
Physical therapy, on the other hand, has been found to be effective in treating knee pain secondary to osteoarthritis. Those who kept up with exercises were also found to have better results. Adverse events were uncommon and not severe enough to stop any patients from continuing treatments.
Read more on the benefits of physical therapy for knee osteoarthritis here: http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0050150/